All Forum Posts by: Mauricio Rauld

I am a syndication attorney so here are my thoughts.  Sounds like you intend to make all your investors managers of this property and contribute money.  If they are truly active and one of you is not taking the management roll and getting compensated for that, you may be OK SO LONG AS, you dont have many partners (i would call them partners not investors).  Once you get to about 5, it will be harder and harder to show that they are all actively pariticaping and inevitably one of you will be doing most of the work and generating the profit which the other one takes more of a passive roll.  This is where you cross the line and get into the world of securities.

You def want an LLC and most likely some sort of a JV Agreement in addition to a well drafted operating agreement.

hope this helps.

Mauricio

If you do just one note and secure it with the property, you may be ok.  Or there are other ways to structure so you stay out of the securities world.  But def tread lightly.  If you are getting more than one investor, then if they are not doing any of the work, then it will be considered a security.

Not a DIY project but another option is just 1 investor that provides you a note secured by a mortgage.  That may fall into an exception.  Also 1 investor for a loan less than 9 months may be another option.

Im a syndication attorney (SEC lawyer).  Its a security.  The 1st one you mention is also likely a security unless, as Greg correctly points out, everyone was actively participating in the deal.  You can have 1 investor and that could be a sale of security if investor is passive and not structured properly.  It going to be a challenge to argue that all 6 of you are actively participating in the deal and pulling their fair share.  I have some You Tube educational videos you can check out.

Re Syndication piece, that is what I do.  2 things to keep in mind.  The compliance cost vis-a-vis the relatively small raise.  If the numbers make sense, great, but you are probably looking at a 3%-4% compliance hit on the raise.  Also, remember you may have audited financial requirements (to add to your compliance costs) so you probably want to limit your search to Accredited Investors Only.  Happy to discuss further.

Mauricio

Your next call is probably to an SEC attorney (a Syndication attorney like myself) as what you describes sounds very much like you are selling a security. In general, any time you take monies from Investors where the returns are generated solely from your efforts, then you are dealing with a security and must comply with Federal and State securities laws. The actual structure (Loan, JV, LLC, Handshake) does not matter. If your investors are passive, likely a security unless not structured properly. Based on the compliance cost, you will want to work with an SEC lawyer to ensure you are structuring it properly so you avoid the securities laws.

Hope this helps!

Mauricio

This is definitely a security per the SEC.  I've done Crypto funds before and they are regulated by Federal and State Securities laws.

You don't necessity need to have a pre-existing substantive relationship.  That only applies to exemptions that prohibit advertising and general solicitations.  But there are other exemptions that allow you to advertise and talk to complete strangers if that is the route you want to go.  It is all about selecting the property exemption to registration.  Now that vast majority do rely on Rul 506b as an exemption and that prohibits advertising so a good way to get around that is to have a pre-exisitng relationship.  Just did a video on this on my FB page about how to establish substantive relationships.

Notes, in general, are considered securities.  So if you plan to raise money in order to buy a bunch of notes, be aware that you are selling securities and must comply with both federal and state securities laws.

And @gregscott is correct.  The actual structure (ie: land trust) is irrelevant.  The SEC defines a security very  broadly and essentially any time you take monies from investors where the returns are generated by your efforts, you are dealing with a security.