STR investment group

[Maged Habib]

Hi All - I'm about to close on my 2nd STR and i have friends / family who want to get in on the third. This has mostly been a side hustle for me as I have W2 income job. I was thinking go start some sort of investment club or syndication where say they want to each invest 25-50K and i pool about 400K or so to put down on the next STR get it stood up and and try and look to give them a 10-12% return on money with and return principle back after say 3-5, it would be like any normal investment for them. My current STRs will pull in rought 100k in profit, so i can support the 40K annual interest payments. if i can prove it works and the numbers make sense, i can just rinse and repeat to scale. Was just wondering if this was something any has done before and is there any advice on how to actually set this up. Would prefer not to have to go down the path of SEC filings etc.

Thanks in advance! 

[Don Konipol]

Quote from @Maged Habib:

Hi All - I'm about to close on my 2nd STR and i have friends / family who want to get in on the third. This has mostly been a side hustle for me as I have W2 income job. I was thinking go start some sort of investment club or syndication where say they want to each invest 25-50K and i pool about 400K or so to put down on the next STR get it stood up and and try and look to give them a 10-12% return on money with and return principle back after say 3-5, it would be like any normal investment for them. My current STRs will pull in rought 100k in profit, so i can support the 40K annual interest payments. if i can prove it works and the numbers make sense, i can just rinse and repeat to scale. Was just wondering if this was something any has done before and is there any advice on how to actually set this up. Would prefer not to have to go down the path of SEC filings etc.

Thanks in advance! 

Here’s a short article I wrote that may help you with what you need to do in order to comply with SEC regulations when syndicating deals 

There’s lots of confusion, incorrect information, and false assumptions being made about

the legality of raising capital for investment. So here is a very short, quick outline of the

legal process in the U.S.A.

Any capital raised for investment purposes, in which one or more parties is NOT active in

the management of the investment entity, is a securities offering.

All securities offering must be REGISTERED with the Securities and Exchange

Commission, unless the offering is covered under an exemption from registration.

There are three primary exemptions from SEC registration.

The exemption for intra state offerings (the offer is made to investors residing in a single

state), the exemption for investors with FEDERAL accreditation (Federal banks, investment

banks of a certain size, Federal funds dealers, etc) and the private placement exemption.

Since single state offerings are very limiting, and many states require state registration and compliance with inherent costs, therefore the private placement exemption remains the most popular.

There are two methods of “private placement”. The old traditional one was the general

exemption for private placement.

The sponsor, with the help of a securities attorney, determines that the offering meets the

(often ambiguous) requirements for determination of private placement and proceeds with

the offering. The advantageous of this type of offering is simplicity, cost, and speed.

The second method of private placement, is compliance with the SEC “safe harbor” Reg

D. Sec 504, 505, or 506 b or c. This will necessitate the production of a Private

Placement Memorandum (PPM), Operating Agreement, and Subscription Agreement.

Current cost are $8,000 to $15,000 for legal fees, inclusive of Form D filing with SEC

and notification filing for the states the initial investors reside in. The advantages of the

Reg D are (1) if the sponsor complies with the Reg D requirements, the offering as to it

being a private placement will NEVER be challenged by the SEC. Further, if disgruntled

investors sue, the sponsor has a “definitive defense” as well as a “statutory defense” in a

lawsuit. This means that by merely complying with the Reg D requirements, the sponsor

should have enough of a defense to beat any lawsuit. I can tell you from personal

experience that a small few investors will consider suing EVEN IF THEY MADE MONEY;

and that no attorney will take their case (at least not on contingency) if the sponsor

complied with Reg D, absence fraud. As important, all sophisticated investors will only

consider investment in private offerings that are Reg D, or occasionally Reg A, compliant.

The most important aspect of Reg D is the 506 c offering, which ALLOWS general

solicitation and advertising, and eliminates the requirement of the sponsor and investor

having a previously established relationship.