Financing Investment Deals - Important Read

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On the BiggerPockets Blog, our contributor, Clint Coons - an attorney focused on asset protection - wrote an important post that anyone raising capital for their real estate investments needs to read.

Please make sure to have a look at:
Things to consider if you plan on raising money for your real estate investments.

This may save you from serious legal problems and cost . . .

Clint is right on about the importance of complying with securities laws when raising money from investors. As a former syndicator and 1982 National President of the Real Estate Securities & Syndication Institute I have personally witnessed to many horror stories of well meaning folks trying to raise money from investors without good legal advice.
Be sure to contact a good securities attorney in your state to inquire about small capital raising exemptions which are not too difficult to comply with.
I recently got a private letter ruling from my state allowing me to bring in one limited investor without having to file anything with the state.

Clint Coons also just wrote a great article on liability protection for landlords on Jeff Brown's blog.

http://www.bawldguy.com/liability-protection-for-real-estate-investors/

By the way, Jeff's Blog is excellent on a regular basis.

http://www.bawldguy.com/

Thanks Josh, for introducing the bawld guy to us.

Good stuff Josh and thanks to Clint, who I've spoken to starting off here, really good guy!

A new final rule with the SEC, BTW, your investor may not include equity of the residence and the mortgage has a 90 day look back as it can be counted as a liability in determining net worth. That may play on someone refinancing a larger home to have cash to play, so vet the investors with care! :)

Hi @Joshua Dorkin  ,

Thanks for bringing awareness to this important topic.  As someone who is planning to raise money with capital partners to invest in multi-family RE, I would like to understand more.  Specifically, the exemptions for investing with "friends and family."

I think a Podcast with Clint Coons to cover the details would be super helpful.  Since I am both intrigued and confused on what all this means, I'm sure there are many other BP members who feel the same.  Thanks again!

Happy investing,

Mike

Great Information!!!

A lot of people don't consider the ramifications of their actions. Some times taking a step back and thinking about what you are doing and consulting with a professional can save you a lot of hassel. Coming from someone in the securities industry the perils are all too real

I'm going to start by apologizing if I have posted my question in the wrong spot. I have entered into a partnership with a local investor in my hometown. He advises me against financing deals that can't be paid off within 10-15 years. I found a 12 unit apartment that could feasibly cash flow 1k-1.2k per month with a 20 year note and 20% down. I came to this conclusion using the BP analysis tool. I have to do more research on the deal but I think it's defiantly worth looking into. If someone could please point me to some insight on what would make a good or bad deal based on amortization periods I would appreciate it thank you.

Not specifically. The local investor I talk to uses the strategy of paying notes off as soon as possible to gain equity quickly and pay less interest. Which is all well and good, but he has other assets so he doesn't necessarily need any cash flow from his properties. My strategy is to operate my properties as a business with an expectation of profit. He also doesn't want to invest out of the local area because he want's to be able to sent a couple guys, on maintenance calls, that are already on payroll. This is exceedingly frustrating because I have found a couple deals worth exploring that are a little ways off. 

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So what is the difference between raising funds as securities and taking out loans with friends and family? Most of my family does not meet the requirements laid out in the article to be considered an investor. Can I still take out a loan with them to use as start up capital? 

Originally posted by @TJ Patton :

So what is the difference between raising funds as securities and taking out loans with friends and family? Most of my family does not meet the requirements laid out in the article to be considered an investor. Can I still take out a loan with them to use as start up capital? 

 The short answer is yes.  As long as you do no general solicitation and advertising, arranging financing with those you have a pre existing relationship with should place you under the private offering exemption from securities registration.  

Further, doing a filing to comply with Reg D, which is a safe harbor method of doing a private offering, may also not ad any practical value in your case.  However, an hour or two spent with an attorney who specializes in securities offerings, would give you a clearer understanding of what is in actuality a very murky legal area.  The majority of small private offerings never really know for sure if they are in compliance.  

You can also become your own bank and finance yourself to a wealthy retirement, with a properly structured , asset-based life insurance policy with living benefits.  Covers all bases.   

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