Lender · NJ · Member since 2015 · 32 posts · 3 votes
I have two investors with cash and ready to join me , one problem is that they want to join my company and thats an issue because at the moment my partners and i are new and are waiting for a deal so that we can work our own kinks out before even thinking of adding people to the mix that have no strategic purpose aside from the cash. Now we weren't planning on raising money because of that particular reason but we all have great reputations and the more we talked around friends and family they became interested but these are the first to say lets sit down and get it on paper. They are looking to 100K investment, for us it would be wise to sue them as a lender as oppose to a direct company partner . I want to know your feedback on what you would do so that everyone gets a good deal.
My structure currently is: 100K minimum investment 6 months
Guarantees: 1 point monthly on total loan + 4-6% on the back end once sold.
For our multifamily syndications, we operate under a GP/LP agreement. The gp has all the rights and the LP is just providing capital with minimal rights. There is a separate agreement between the GP's called the partnership agreement that states our indivisible responsibilities.
This later agreement is equally important. When having an attorney draft the partnership agreement , imagine you are in the future and your partner did something very stupid that cost you money. What would you wish it said that would allow you to get rid of them and/or claim damages? That is how you should approach it. Like a prenuptial agreement.
Hi Ivan. Are those your terms or theirs? If they are just bringing cash, then a lien position should be sufficient. No need to make them a formal partner unless they are insisting upon it, in which case you should find out why.
For our multifamily syndications, we operate under a GP/LP agreement. The gp has all the rights and the LP is just providing capital with minimal rights. There is a separate agreement between the GP's called the partnership agreement that states our indivisible responsibilities.
This later agreement is equally important. When having an attorney draft the partnership agreement , imagine you are in the future and your partner did something very stupid that cost you money. What would you wish it said that would allow you to get rid of them and/or claim damages? That is how you should approach it. Like a prenuptial agreement.
@Ram Gonzales they are insisting in being partners because they believe that it will secure their interest. The terms i wrote above are ours we believe their decent and it allows them to get to know our work with great guarantees. even if we have cash capital we always believe in a healthy leverage and would use a hard money loan.
Thank you that makes great sense just didn't apply to how they were looking at us. i do have a questions is there legal limits to how much capital you can raise and how etc etc?
@Ivan Correa In general, for the average investor, the sky is the limit. Once you start raising billions, i imagine things change, but I am not certain on that.
@Joseph Bramante thank you but just to be clear... if i had two people who were interested i can use the amount we can come to terms together as long as it makes sense for the both of us lets say 100K between the two without having to jump through any sec hoops?
Ivan Correa yes. Keep your group under 5 ppl and have an existing relationship with all of them and you shouldn't need to do a formal
Syndication. If all of the investors are new with no prior relation, you should probably get a syndication just to CYA. I have dont then for as cheap at 10k all in.
No-one has mentioned the securities implications of obtaining money from family and friends. Promissory Notes are "securities," so are selling interests in a company to passive investors. Those are called "investment contracts", which are also securities. If you are selling securities, you must either "register" the securities with a regulatory agency (SEC or state securities regulators) or qualify for an exemption from registration.
Each exemption has a specific set of rules. Unfortunately, there isn't a "less than 5 person" rule, or a "do-nothing" rule - even for family and friends; and you can't typically just use a Limited Partnership Agreement or LLC Agreement with passive investors, without further providing disclosures, securities notice filings, and making sure your investors have the appropriate financial qualifications before accepting their funds. Securities exemptions are generally "self-executing", meaning the burden is on you to establish a record-keeping system to prove how you complied with the exemption's rules (just like claiming a tax deduction).
Depending on what state you live in, there may well be a state securities exemption that will allow you to issue promissory notes to investors in limited circumstances (offers to a limited number of accredited investors, etc.), but it behooves you to figure out the rules first as doing it wrong can have dire consequences if the deal fails or someone wants their money back early. A securities attorney can help you figure out the best securities compliance strategy for your business model.
Hey @Ivan Correa , I would speak to @Amy Wan about your situation. She might have a less expensive solution for you then calling a securities attorney for a deal this small.
Our rule (which is not a law, by the way, just our internal rule) is if you have more than 5 investors or are raising more than $500,000, you should have a PPM. It just takes one of those investors (or one crappy state, like PA) to ruin the deal for everyone.
@Kim Lisa Taylor That makes sense when I worked for one of the big investment houses they would not allow you to raise money. For right now i talked my partners out of any investors i think its not in the cards for now specially with a impending gigantic market correction thank you for your advice.
@Jillian Sidoti I will be reaching out to her thank you for your advice .