Hey everyone, I wanted your opinion on the legality of raising funds without a syndication or ppm. When Syndicators raise funds for their deals, they typically use a 506B or 506C exclusion. The limited partners are equity shareholders of an LLC that owns real estate (the syndicated apartment building or other commercial asset).
What if you're raising money as debt? i.e. trying to raise money through a second lien position? Do you still need to create a ppm and limit your advertising to accredited and a limited amount of sophisticated investors?
I'm certainly not an expert on this subject yet, but as I understand it there is a significant distinction between raising money from friends and family (or other people with whom you have an established relationship) versus soliciting individuals (or business entities, I suppose) with whom you have no connection. I believe the SEC mostly concerns itself with the latter.
@Sean Pan - Hey Sean! We met at Joe Fairless's conference in Denver! Glad to see you making big moves man. Keep it up!
Are you taking on debt from many different people for 1 deal?
Syndications (aka the rulings you mentioned) are utilized for the most part to raise private equity. If you're looking to offer a debt position, that's a different structure. Ideally you should reach out to a real estate attorney to discuss the best structure for your offering. Keep in mind, since it is a second position, your interest rate will most likely have to be higher than the first position.
Thanks @Aaron Froggatt , yes that's true. Getting a few friends to invest in a deal with you is definitely different then going out to meetups or message boards to raise funds. I was just wondering about the differences between raising for equity positions vs debt positions.
@Michael Ablan Hey man, good hearing from you again! How are you doing? I'm not making big moves haha I'm just wondering on behalf of someone I know. I want to help them raise funds but not sure if this structure is legit or not.
@Alina Trigub Thanks for that. Yes, debt raising is a different structure than equity raising. Are we allowed to advertise our investments if we're looking for a debt position and not an equity position?
To the best of my knowledge, and depending on how the loan is structured, it should not be considered as a sale of security. However I'm not an attorney, and your best bet is to work with a real estate attorney to record such loan properly.
Look at Crowd Funding Lawyers dot net
They’ve got libraries of good solid info on this topic.