Sending Letters to Try to Get Private Lenders- Is this a Security?

Question

I'm looking to send letters to people who I've found through public records who I know have loaned money on real estate in the past.  I've researched this on BP, but can't seem to find a good, definitive answer.

The letters would basically say: I'm an experienced investor, I'm looking for private lenders, if you're interested, give me a call.

The thing I'm worried about is that this could be considered a security.  I would NOT be pooling money- I would give individual notes and deeds of trust on each property so that the lender has security.  I was told by a securities lawyer today that this would make it NOT a security, but he wanted $5,000 for an opinion letter to officially state this, which I'd rather not have to pay for a couple hundred letters.

Does anyone have any real world experience with this?  Has anyone actually paid a lawyer to really review this and provide definitive answer?  I'm hoping we can leverage the $2500-$10,000 someone else may have paid to have this formally reviewed.

Thanks for any information.  Jon

Scott Carson · Answer

I think the biggest thing to keep in mind when sending a letter out to investors is to go the route of looking to either JOINT VENTURE with them or that you have deals that they might be interested in.

You don't want to offer them a specific deal at first.  You will want to build rapport and try to have your letter lead to a phone call and then a meeting.  Keep in mind that if you do ever run into a SEC issue that you can show the 3 touch rule.

We mail a lot out to SD IRA investors through public records with the content being that we come across a ton of deals and wanted to see if they were still an active investor.  We also try to find a phone number on Whitepages.com and Spokeo.com to follow up after we send the letter out.

We also include some sample deals with photos and outcomes to help get them interested in calling us.

We also send out multiple letters over several weeks to get them to call us....letter followed by a post card, followed by another letter with phone calls after each round.

Account Closed · Answer

Simple Make sure the people bringing money to the table are Active Home Buyers. I do not use the term investor. I use the term Short Term Home Buyer. They are an active participant. They are a member and a manager. That is it.

Jay Hinrichs · Answer

@Jonathan C.

and yes I have paid for opinion letters in the past ... never had issue to be challenged negatively etc.

Josh Caldwell · Answer

I am not a lawyer and I dont offer legal advice, but here is my 2 cents anyway.

In general you are ok, but you need to do one of two things here.  You can advertise for acredited investors and you can form LP's with other investors.  Where some people get into trouble is that each state also has their own sets of laws for what is a security.  Check with a local securites attorney to make sure you are in the clear.  Then make sure that you are backing up any loans with notes to specific properties.  I do know a guy who went to prison for comingliing investor funds in deals, it was not a good idea.

To your success

Josh

Joel Owens · Answer

Yeah the attorneys are not going to stand by their opinion to you unless you pay for it.

It should not be an expectation to get  a legal standing answer without compensation.

Nobody on here can answer definitely to your specific situation because there are lots of variables involved. Legalities and the law are like taxes in that there are various interpretations and understandings of the rules. Even the laws themselves are not specific enough in some cases.

I would want to know what is the worst case scenario that could happen and make sure you are protected against it and that the benefits of running the campaign outweigh the posed risks.

Bill Gulley · Answer

I have lots of experience in this matter but none in approaching investors with mailings.

IMO, that just won't cut it, if you are an "experienced investor" why are you asking me for a loan? Why are you looking for private money, the bank is down the street? Tells me you might be tapped out at the bank, or for some reason you're looking for folks like me instead of taking the proven, conventional and accepted method of financing real estate deals. No, I don't think I'll be calling. If I kept getting junk mail you might hear from me or my attorney.

That said, depends on who you are calling "private lenders" you're probably going to be mailing to unregistered hard money lenders, you'll find them in the public records and you'll see them several times......that's  not really a private lender. Other may be registered hard money lenders.

Again, private lenders are those you know, have had relationships with, which was the attempt to cover that 3 contact rule mentioned above, but junk mail isn't really a relationship......unless they inquire and that's a maybe.

If you are hitting up known lenders, no, you don't have a securities issue seeking a mortgage loan from known lenders.....you can if you don't have a clue who they are and that depends on what you say too.

Good points on the link given above, he said less than 5, but 3 is better and if you really have investors, in small RE, you won't need 5 in one entity anyway.

I also don't like seeing new investor types trying to raise funding in writing, since you don't have an extensive understanding of lending and SEC regulations, you may not know what you can and can't say, you might mention an interest rate, a LTV or other matters that can effect your solicitations. Best, just meet folks, explain what you do and after winning confidence, offer them an opportunity.

You are not asking for an investor, you're offering an opportunity, they need to understand their position and the structure having confidence in you. I have had investors beg me to let them in on deals, I didn't look for them, they sought me out.....at least that's how they saw it. :)

Caleb Asbridge · Answer

Jonathan, I'm not sure this fits exactly what you are asking but I thought this might be helpful.

Raising Money in an LLC or Joint Partnership-Securities Law

Full disclosure--I'm a client of Mat's law firm but this article is on a public blog and meant for general consumption and is not specific to clients of their firm.

There's a podcast that I've listened to on this subject (not BP Podcast), if I can find it I'll post it here too.  Hope that helps!

Christopher B. · Answer

This is good information.  Have you considered contacting companies listed on the AAPl?

@Jonathan C.  @Scott Carson  Account Closed

Shaniqua Dupree · Answer

That link has helped tremendously. Thanks

I need to read SEC rules and regulations. Because just thinking that i could incur criminal charges just sounds terrifying.

Shaniqua Dupree · Answer

This thread was very helpful. I am in the same boat. Well trying to find info anyway. PRISON!!! Thats scary. Did the guy not know any better or took advantage? OAN so just so i am clear, i can partner with one other person in a fix and flip (we both have money in) and split profits if i know him, have sat down and got to know him? But i CAN NOT get 5 people to fund my project without proper documents ie notes?

Sending Letters to Try to Get Private Lenders- Is this a Security?

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