Private Money-Where Not find

[Account Closed]

The other day, I posted a question on the Forums: Private Money in FL-Where to find? After not receiving more than one answer, I just decided to go out and do some homework and here is what I found. (Probably more experienced investors in BP already knows this information, but I have just decided to share it anyway):

1. I read tons of articles, posts, offer from gurus, everything about private money. I also read an eBook that was recommended by the REI Club titled "Finding Private Money Lenders" by William Johnson. After all of that, here is my opinion:

2. Private money can be a good alternative when you approach people that you know and do know you. However, approaching people that you don't know is another story.

3. The SEC compliance issue is no joke, everyone seems to claim that they have the secret formula to approach possible private money lenders in an SEC compliance way. Federal Government regulations are very complex and even when we might think that we are doing it in the correct way, a federal inspector can see it in a different way, which does not excuse anyone from penalties and fines. Personally, I don't like and I don't want to play with fire.

3. Things like approaching people that are not in the RE business to teach them how to get better returns on their investments by using their IRAS, CD'S, Savings (the book explains a couple of other ones) and retirement income for Real Estate investing is very risky and to me, a no, no. You can even find the person that agrees to invest with you and feel comfortable at the time, but something can go wrong with the deal in the future, and you are still exposed that this personal files a claim against you. Even when you approach someone that had invested before in the Stock Market, we can not forget that the market is very regulated in terms of disclosures and regulations, and if anything adverse happen, the stock broker is a Licensed Securities Broker.

4. But, do not think that I'm seeing it on the negative way, just the opposite. To me is a matter of going outside on the field and network, network and network with fellow Real Estate Investors in the places where Real Estate investors used to network. After you meet them, is easy to develop a relationship with fellow investors since everyone is on the same page and you will be in a more safest position approaching someone that is one the same business as you are.

It takes a little bit more time to develop relationships, but to me that's the safest way to do it in the correct and compliance way.

[Don Konipol]

There is a lot of grey area in this . Here are two examples hopefully to clarify. You place an ad in the newspaper offering 12% interest for private money. If you are soliciting money in only one state then your "offering" is exempt from SEC regulations and subject only to the regulations of that state. So that state's definition of a security will determine if your offering needs to comply with state securities laws, including whether that state allows "general solicitation" without registration. If that state's definition of security excludes promissory notes secured by real estate, than you will need to determine if state has real estate offering, business opportunity or investment laws and regulations that may apply.

Example number 2. You attend meeting of your real estate investment club, and announce at a have/wants session that you are looking for a private loan to purchase a property. An investor contacts you at the meeting, says he does some private lending, and you strike a deal. He has his attorney draw up the note and deed of trust. Federally, even if this transaction is considered a security (and it is not for sure that it would be), you are safe under the private offering exemption. If only state law applies, or if state law applies additionally, I would be hard pressed to think of a state that would not have a similar exemption as to federal.

The truth of the matter is that the government, state or federal, do not have the time or resources to regulate personal, private transactions. The people who get busted are the people who scale up with larger operations with a large number of investors and a large advertising and promotional budget. These can attract the attention of regulators two ways, through general solicitation and advertising, or through a large number of complaints by burnt investors.