Best way to get funding for flips

[Stephanie Anson]

Seasoned flippers.....What is the best way/ most cost effective to get funding if you are going to only do 5 or so flips per year, small community bank, hard money lender or private investors.

[Chris Martin]

First of all, I am not an attorney and this post is for entertainment purposes only.

Regarding "you have to be careful advertising for private investors on line because of the SEC..." Well, maybe. You need to get a context, and that involves understanding state and federal regulations concerning securities. In summary... On the state level, a debt involving real estate is indeed a "security" by definition (Reference 1). You can't offer or sell a security (Reference 2) unless it is exempt. The key exemption (Reference 3) is (5) which I've put below:

(5) Any transaction in a bond or other evidence of indebtedness secured by a lien or security interest in real or personal property, or by an agreement for the sale of real estate or chattels, if the entire security interest or agreement, together with all the bonds or other evidences of indebtedness secured thereby, is offered and sold as a unit.

So my argument (for the sake of entertainment) is an offer or sale of a real estate note (secured debt) is exempt from state securities law. Further, I contend advertising for private investors to fund (or offer to fund) a specific property with a single debt secured by a deed of trust doesn't violate state securities law. On the federal level, the SEC has rules about selling securities. Specifically any offer to sell securities must either be registered with the SEC or meet an exemption (Reference 4). The lightweight exception is 504 (Reference 5) and says you can sell exclusively according to state law exemptions that permit general solicitation and advertising, so long as the company sells only to "accredited investors." So IMO you may want to have the investor assure you that they know what they are doing.

The bottom line is you have a good deal or you don't. Any financing investor you find (SDIRA, bank, HM lender, etc.) is going to look for solid collateral and a high potential for a successful project. If you have a 'no brainer' deal, contact me at the email below.

1) a security http://www.ncga.state.nc.us/EnactedLegislation/Statutes/HTML/BySection/Chapter_78A/GS_78A-2.html
2) registration http://www.ncga.state.nc.us/EnactedLegislation/Statutes/HTML/BySection/Chapter_78A/GS_78A-24.html
3) exempt transactions http://www.ncga.state.nc.us/EnactedLegislation/Statutes/HTML/BySection/Chapter_78A/GS_78A-17.html
4) Regulation D Offerings http://www.sec.gov/answers/regd.htm
5) 504 exemption http://www.sec.gov/answers/rule504.htm