Of all the topics in real estate, lending, syndicating and crowdfunding are the most confusing for me.
Simply stated, my LLC wants to be able to receive a loan from individuals to finance a rehab. I am finding so much conflicting information in regards to this scenario. I do not want to become a full-time syndicator or anything but I don't want to get in trouble with the law. These people are not accredited investors, just regular people who want a return on their money.
There has to be a simple way and term to permit this transaction with little paperwork and without an online platform as a custodian. Does a promissory note suffice for the private lenders?
Let me preface this by saying I am not an attorney, CPA or tax adviser and you should consult those types before about this situation.
In the past I have setup an LLC and created an operating agreement with all of the investors that spelled out everyone's interests and roles. This was an entity with 3-4 investors in it who were all friends/family who could AFFORD to lose the invested money and are savvy individuals who have made previous investments and understand the pros/cons of investing. In this deal it worked for me.
However, I would caution you about doing this if you do not fully understand how the process works and will be taking on investors who do not understand the risks involved. The last thing you want to do is get sued or investigated by the SEC for selling securities to non accredited investors and be banned from raising money ever again.
There are some SEC/Tax attorneys on this site and I recommend talking to them or finding a local one to discuss. SEC docs are not cheap, but can be modified and reused for other deals in the future.
In your scenario, did you still have to deal with SEC? My understanding was that if you form an LLC with the partners, you can avoid the SEC, as you are not selling securities or crowd funding, or etc. @Garrett Hogan
@Bab Adetiba in my situation I did not have to. These types of situations are always good until they’re not.
So say you borrow $50k from your friends mom and the project goes south and you lose the money. Well now she can’t pay her bills and her house is going into foreclosure. You can bet on her suing you for not properly disclosing the investment risks and because she’s not an accredited investor the SEC will get involved.
So if you take the LLC route just make sure you're working with people who are accredited investors or understand the business.
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