Private money for down payment

[Jason Eberhardt]

Hello. 

I am starting my search into buying a apartment building at some point in the next 6-8 months. i am interested to see what kind of deals are out there from private lenders or any other kind of financing that can cover the down payment on like a 5 year term loan. i could bring a portion of money down if need be, but would rather keep it so i can keep investing in flips and SFR rentals in my home time ( home prices are moving up in my area and i want to take advantage of this ) any help would be much appreciated.

Thanks 

Jason Eberhardt 

TMK Restorations  

[Don Konipol]

@Jason Eberhardt, here is a recent post of mine that will give you some knowledge of syndication.  Any time you are active in managing an investment, and you have passive partners, you are participating in the sale or management of "securities" and fall under applicable laws, or exceptions

""PPMs are not usually needed in a JV if its someone you know (friend of the family, coworker...), you are correct, but I believe the line in the sand is if you offer a security to anyone that you do not have a prior business or personal relationship with you need to start involving those documents and of course a securities attorney. "

Incorrect Above

The "line in the sand" is not prior relationship; it is whether the investor(s) is a material participant in the operation of the property or is a "passive" investor. And unless the investor(s) have the same decision making rights and responsibilities as you, the same rights and ability to hire and fire contractors and managers, and the same rights to manage the property, they are passive investors according to the SEC and most state security regulators.

So, if they are passive investors, you are offering a security. As such you would legally have to comply with securities law, be it registration or exemption from registration.

Where the existing relationship comes into play is that a private offering MAY be exempt from securities registration. Up until 2014 a private offering could not use 'general solicitation or advertising". The SEC had created a "safe harbor" which under rules 504, 505, and 506 spelled out parameters of a private offering, which, if followed, would not be challenged by the SEC as a private offering exempt from registration. Beside the ban on general solicitation and advertising, the rule provided that you had a prior relation with any investor.

In 2014, Under the JOBS Act, the SEC modified Rule 506 to include a part C which allows general solicitation and advertising if all investors are accredited investors and you or a third party have vetted them as accredited rather than merely accepting their written statement.

What makes 504, 505, and 506 offerings somewhat costly is that although it is an exemption from registration, it is not an exemption from filing notification documents with the SEC and with various state agencies in those states in which your investors reside, nor is it an exemption from providing those investors with informational documentation spelling out in detail all aspects of the offering, risks, experience, contingency plans, voting rights, etc. This is called the Private Placement Memorandum. Also needed is a Partnership Agreement, and usually a Subscription Agreement.

If all your investors live in one state, the property is located in that state, and your office is in that state, then your offering is exempt from Federal regulations because it is an intra state offering, subject only to the securities laws of that one state."