What are the SEC requirements for soliciting private money?
Investor · Charlotte, NC · Member since 2008 · 217 posts · 12 votes
What are the SEC requirements for soliciting private money?
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Real Estate Investor · Southern, CA · Member since 2010 · 84 posts · 30 votes
15yBE CAREFUL when advertising for PML. Know the SEC guidelines. It is not illegal to advertise, however GENERAL solicitation IS!!! The following items are not allowed ever:
==> Advertising in newspapers, Craigslist, radio, billboards
==> You can NEVER guarantee ANYTHING! (Nothing is guaranteed)
==> You can NEVER say 'SAFE' (IE Your money is Safe with our investment) (This is kind of along the lines of guarantee. Nothing is ever safe. Nothing is ever guaranteed.)
==> You can NOT advertise your returns. (IE Make 10% or more on your money by investing with me now!)
==>You can NOT come out and say 'I'm Looking for Investors!'
If you solicit with fliers, make it about teaching someone about how to become the bank, or how to transfer their sitting 401K funds from old jobs into a self directed IRA to invest wherever they want and the requirements for doing so.
The first and best way is to tell everyone you know personally about your business and the opportunities that are out there. You can solicit the particulars ONLY if you have a personal relationship with them, meaning, you know their financial situation is and have qualified them as able to do private lending (some states only allow 10% of a person's net worth to be used for private financing). Examples are Coworkers, neighbors, your doctor, lawyers, CPAs, other investors or entrepreneurs, etc. Here are some legal and accepted ways to advertise for private lenders.
Here are 3 simple ways to legally and safely advertise
*Luncheons (Keep it GENERAL,like I explained above for advertising)
*Work with a mortgage broker (one that specializes in investment property financing) (they act as a middle person to find the private lenders. They’ll examine the offering and market it to their private lenders for you)
*Online Marketing (if you do that, its fine, you MUST make sure not to DETAIL your offer!) Mention what your COMPANY does, successes; BUT password protect your OFFERINGS and documents. People must have to jump through hoops to get to your offering! (This is why I'd be careful what you put on a flier)
THE RULE OF 45: It you are cold calling (meaning trying to get someone you do not know to do private lending with you), there is a 45 day wait period, in which you MUST have communication with the person on at least 3 occasions (can be email, direct mail, etc) but ONE of them must be in person or by telephone within the 45 days.
33 Replies
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes15y
I'm surprised Curtis, there is absolutley no book by any guru walking the face of the earth that covers all fifty state, that is current and that is copliant with all the wild eyed ideas that some of the new investors can dream up....
In my not so humble opinion.
Get a securities attorney and a good RE attorney you can raise millions without ever going there.....maybe that's what you were talking about Curtis, if so, sorry, but running amock as this thread was going...stay away from pooling funds!
This is not a newbie activity. I done , off the soap box now, if you want to try it after all this, let us know your cell number and new email...
IE: [email protected]!LOL
- Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes15y
Look closely. Its a regulation D rule 506 filing. It does not give you the ability to solicit money from strangers, like Dan Inc, says he want's to do. It only allows you to solicit from people you already know.
$6000 for legal work for a filing like this is an excellent deal. OTOH, it may just be the paper work specifically for this filing, which would be the private placement memorandum.
- 15yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
A key point to remember is that an intra state offering of any kind is exempt from SEC regulation. So, if you operate in only one state and will accept money from investors who reside in that state only, SEC regs do not come into play. This is because as a Federal Agency, the SEC has jurisdiction only in those areas involving inter state commerce.
So, in the above case the rules and regulations will be those of the state securities regulation agency. Many state securities laws mimic Federal laws to some degree. This is especially true regarding private placememnt exemptions. The usual wording is that if fewer than a certain number of investors are involved, and their is no general solicitation, then the security does not have to be registered. Some states require the investors to be accredited, with the states having their own definition of an accredited investor. Texas allows 35 investors plus an unlimited number of accredited investors. So those 35 do not have to be accredited. Of course this does not mean that the investors can't sue you if they loose their investment.
Now just one other point of clarification concerning SEC regulations. The REG Ds are a safe harbor, meaning if you comply with one or more of them the SEC will not challenge that your offering is a private offering and exempt from regulation. You can still decide to have a private placement offering and not comply with REG D. Obviously, the larger the deal the more scrutiny it might receive.
The decision of how to approach raising capital should be based on many variables, such as how much capital is being raised, what the minimum investment amount per investor is, the unit size, the state(s) the offering will be made in, the familiarity or lack thereof between the sponser and investors, and whether the offering will be conducted by the principal or a third party. As I always suggest, spending a few hundred dollars for two hours time of an experienced securities attorney is the best money anyone interested in raising capital can spend.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes15y
Thanks Don! Just one problem some may encounter, that is that the burden of proof that the advertisement made is not and can not be found to be recieved across state lines!
Any general disimination for investors can have unintended consequences. - Specialist · Rockland, MA · Member since 2010 · 7k+ posts · 2k+ votes15y
Dan
Consider getting a commercial loan on your existing-any equity pull?
SEC very specific language.
Are they suitable for the investment
Do you have a Substantive, Pre-Existing Relationship?
What constitutes an Offer, General Solicitation, Advertising.
Do you use a Pre-Qualification Letter and an Accredited Investor form?
You must have a team member on your side to help you.
Visit a SEC attorney website for info such as [REMOVED]Good Luck
Paul - Stone Mountain, GA · Member since 2010 · 267 posts · 72 votes15y
Yes--too many SEC regulations -- but there are other ways
1. Private Placement Offering-- two years ago
I was working on a Busienss Loan - there
are attorneys - who charge $10K to $15K
and Prepare a Private Palcement Letter
Even one attorney from California --suggetsed he can raise $1.5 million from
his clients --You can buy list from List Broekrs --of people with $250,000 liquid
casha nd $1.0 million net worth --and send them letter --2 Much simpler and easy --in 70's and 80's
I used to attend seminars and bought few courses --call Equity Sharing --You haev 12 houes with 50% equity --
over $300,000 in equity -- Approx Guess-
you can sell future equity -on Individual homes to local doctors, professors etcOR have these same people give you
mortgage on individual homes --give them
8% or 10% interest -- and many will be readyAlso use- equity in existing home to use as down payment to buy other house --unless you
are buying REOs and need all cashThere are hard money lenders --also
- Vero Beach, FL · Member since 2016 · 53 posts · 32 votes9y
I'm kind of curious as to why the SEC hasn't posted the relevant statutes which explain who and how this can be done; as well as an explanation as to why the particular rules were put into effect. I tend to feel that the comment about them not looking to stifle the small guy is probably the truth, but it would be nice to hear it from them to get it straight. Too much posturing on here to be able to know what is correct.
- Lender · Granite Bay, CA · Member since 2014 · 456 posts · 454 votes8y
There really is no need to advertise or solicit investors. If you go to real estate investor meetings and just simply network and tell people what you are doing, they will offer and want to partner, loan money, etc... If it sounds interesting. I run a big group and people constantly ask me if they can loan me money, partner w me, or be involved in what I'm doing. I see this with other investors as well.
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