Series 7 License Needed To Solicit Investors?

Question

Hello all,

I own a real estate company that buys @ foreclosure auctions at the courthouse. We have had success with friends and family requesting that we represent them @ the courthouse to bid/buy properties for them and in return, they pay us a small fee. We realized there is demand in this type of investing and we're @ the point now where we're confident enough to deal with investors to help them buy @ auctions as well.

We're licensed Real Estate Brokers. Do we or someone in our company need a Series 7 License to solicit investors to invest in Real Estate? I've had a couple of different opinions, but am truly stuck and don't know what to do. Any piece of advice would be appreciated - thank you!

Bryan Hancock · Answer

No....you need a Series 7 to take a commission on brokering investments.  If the money is raised for your own account you don't need it.

I am not an attorney, but that is what I have been told and it makes sense to me.

Chris Martin · Answer

You can hold property 50/50 with other people via Joint tenancy. In this case, you would be a principal buyer. The ownership percentages can also be spelled out in the deed. It's also possible to achieve a similar effect with a jointly owned LLC... depends on what your ultimate goals are. In NC, and I suspect most if not all states, no license of any kind is required for principal owners, not even a real estate brokers license.

Chris Martin · Answer

Tony, what you are doing is brokering, and that's what brokers do. No S-7 needed. You said "they pay us a small fee", which I would call a commission, and you "represent them @ the courthouse to bid/buy properties for them." The key words are "for them." This isn't your investment, it's theirs. I assume on the bid forms (I assume FL is like NC) your name is on the form as the agent, and the buyer (your "friends and family" principal buyer) is identified as the buyer. I also assume you have a buyer's broker agreement, probably for the specific property, and you collect payment on "closing" on a standard HUD-1. This is what happens here, at least. I personally don't use a broker so pay no commission.

NC reference: http://www.nccourts.org/Forms/Documents/452.pdf

Jay Orlauski · Answer

Hi Tony - you don't need a series 7 license to solicit real estate investors unless you plan on selling REITs which open up an entirely new can of worms.

I held a Series 7 for several years working as a financial consultant. It's required if you are getting paid to give advice about securities  or are selling securities covered by the SEC ( securities and exchange commission)

As long as none of your business involves selling or advising people about stocks, bonds, and other 'securities'  , then you should be OK .

By the way - good luck on your strategy - hope you do well. Could be a good market to look at on my end too.

Vikram C. · Answer

Bryan is right.  You do not need a series 7 if you are trying to raise funds for yourself.  If you are a middleman selling securities, then you need it.

Having said that, it does not mean that you can go ahead and solicit investments for your business with just a broker's license.  You will either need your investments to not be classified as securities, or you will need to find an exemption from the registration requirements for securities, or you will need to issue registered securities.  Consult a securities lawyer before you proceed.

Another option is to contact me and see if I can solve your funding problems.  I will most definitely qualify as an accredited investor. :)

Tony Nguyen · Answer

Thanks Chris. You're right it can be help via joint tenancy or the ownership % can be spelled out in the LLC. Just wanted to see if my assumptions were align with yours!

Tony Nguyen · Answer

Jayme - thank you for your response. It's great to hear advice from you because you actually have a series 7 license!

Adam - thanks for your response. so you're saying a series 7 IS REQUIRED?

Chris - thanks for your response. good point. your assumptions are correct. What do you think of this scenario if I were to buy an investment WITH one of my friends? let's say we buy something for 100k, i put in 50 and they put in 50. Is a license needed then?

Adam Tracy · Answer

The SEC has come down on unlicensed individuals taking commissions on brokering securities with greater frequency the lastbcouple years. Noy only do you need a 7, and arguably a 63/65, you need to be affiliated with a broker dealer. Although, there are creative contracts out there providing for "finders fees"

Tony Nguyen · Answer

Bryan - Thank you for your reply. This is what I thought as well, but wanted to hear from someone with more expereince than me. Thank you again.

Vikram - Thank you for your reply. You're correct, I'm either raising money to partner with investors to buy or using 100% of their money to buy something for them and making a commission off it. You will hear from me in regarding to funding, thank you =)

Champak - Thank you for your reply. I appreciate the detail you put into it. I do have some plans that I am working on to continue investing in it personally and also helping other investors buy auction properties to fulfill their needs in regards to holding or flipping as well.

To conclude, I will consult with an attorney, but am leaning towards NOT needing a series 7 in order to solicit investors. This will at least give me the boost to continue with my business plan and marketing activities.

Thanks again guys.

Champak Shah · Answer

No -You do not need Series 7 license - 
That is to sell Securities --
 
First what is your Objective ? 
Why should you work for a small fee --You should work as Consultant and expect to make 
 $100 to $300 per hour-- You should feel confident to give your investors 12% to 15 % return--they will come looking for you --they will find you --

If you can find good delas- and supervise repair work and turn around and sell at good profit  --or rent it out -- for  three to five years --you can  make good  profits for you and investors.

You can have  a LLC  -- with you being a General Partner ( Managing Partner ) and other Investors --as Silent Partner --you can  take small salary, pay all expenses --mileage etc --and  share profits -- you can also take reasonable fidner's fee for each property you find for your LLC --- give some thought - prepare a business plan and then solicit Invetsors-- be up front --all situations --

Also you can raise up to One Million --as Uniform Circular Offerings --

I belive that will be enough to get started --

Of course --you can do separate partenrship for each proeprty --with investor --

How much money they are offering to invest ?

You can contact attorney but also -Florida State  Banking and Insuarcne department for help--

Series 7 License Needed To Solicit Investors?

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