PPM: When to use it and when it's uneccessary

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I have my own thoughts on this, but I'm interested in hearing others' opinions on the subject. 

We often talk here on BP about using "private money" for our real estate investing. Whether having someone else fund the down payment, the acquistion or the rehab, using someone else's money is a common strategy.

Certainly, as we get into larger and larger deals, we will eventually reach a point in which our own funds will be insufficient to take down a bigger deal. If we're using other peoples' money, at some point, we'll need to gather funds from more than one investor.

So, my question to all of you is this: At what point in using other peoples' money do I need to use a Private Placement Memorandum (PPM) to raise funds and, conjunctively, when do I need to restrict participants in my deals to only those who qualify as accredited investors?

Anytime someone is a passive investor in your deal and is not lending in a secured position with a deed of trust you're likely to have a securities arrangement.  In any of these scenarios you need to have offering documents drawn up unless you have some sort of exemption.  Exemptions vary by state and thus posters would need more information to be able to answer your questions.  If all of the investors are in Utah and the project is in Utah you're likely to have more options than if the project and/or the investors come from different states.  

The accreditation question is a difficult one.  Recent securities laws have, in theory, removed a lot of restrictions at the national level for accreditation.  The trouble is that the cost of these offerings is very large and they generally won't work for syndicated transactions given the lead time.  There is also a legal haze over the industry right now with Massachusetts and Montana suing the SEC.  

There are other exemptions that allow for up to 35 non-accredited investors at the national level as long as they're sophisticated.  Those are likely to be better options for your right now.  

Note that the size of the transaction DOES NOT MATTER from a legal point of view.  From a practical point of view if you can pay the investor back if things don't go well then you probably don't need a full-blown set of documents.  Nobody ever complains if things go well.  When they don't go well your first course of action would be to self-insure by paying the investor back.  If you're raising a lot of money this is difficult or impossible to do and you need more protection from an offering circular or private placement.  Think of these documents as your insurance policy if you can't self-insure and I think it will go a long way to giving you a good idea about when they're needed practically.  LEGALLY, you need them anytime you have a passive investor and a securities arrangement where you don't have another exemption given the circumstances of your project.  

Oh yeah....and get an attorney.  

Rob, if you're not doing a general solicitation and only intros via a word of mouth, a PPM won't be necessary.  And as Bryan stated, you're permitted up to 35 non-accredited investors.  Size doesn't matter either.