So lost in the legal aspects of partners.

Account Closed · 2012-12-03T18:06:22-08:00

Hi everyone, I must say that I am completely lost with all of the legal aspects of bringing on a partner into a deal. I have heard multiple times that you shouldn't deal with investors who are not accredited. I also know that there are SEC laws that regulate how you are able to find and contact investors. The problem is that I don't really know the rules of this type of stuff and I want to make sure that I fully know what the rules are before I even attempt to contact investors. The last thing that I want to do is to break an SEC rule or law on accident because I don't know! I have a family member who has expressed some interest in partnering on a deal but this person does not have $1,000,000 net worth or a $250,000 yearly income so what does this mean for me? Does it mean that since they aren't an accredited investor that I can't do anything with this? As you can see, I am very, very confused on how this process works legally. Am I even close with this or am I making it harder that it really is? I really hope that this question/concern isn't too vague. As my profile states, I am a beginner and I am just trying to learn as much as I possibly can and I know this is a very important area I need to learn. If you have any information or maybe a source that could help me better understand all of this I would GREATLY appreciate it!

Brandon TurnerPro Member

Investor · Maui, HI · Member since 2009 · 13k+ posts · 3k+ votes

13y

Hey Nick K. Someone a lot smarter than me may come later and refute what I'm about to say, but here I go anyways!

I believe the rule only applies to soliciting investors. This means advertising for. You can't go and put up a billboard asking for investors to join you in a big apartment purchase (without a lot of SEC paperwork).

Anyone you find through personal connections is fair game. I use a lot of partnerships - and they are all built through relationships.

Anyone else have thoughts on this?

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Brian BurkePro Member

Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes

13y

Nick, any time you have investors in a deal, and they don't have an element of control (such as being on title with you), their investment is dependent upon the success of your efforts. This means that their investment is the purchase of a security and subject to the securities act of 1933.

This is not the kiss of death however. There are exemptions in the act that allow the sale of securities without registering as a publicly traded security. One example is through a private offering in compliance with regulation D.

Another example is doing a deal with 35 or fewer investors with whom you have a pre-existing personal or business relationship and you have not done any general solicitation (advertising). It sounds like your example might fit into this category. In this case, the investors don't have to be accredited.

There is a very simple solution when you are lost in the very complicated world of securities laws: go visit an attorney, describe exactly what you intend to do, and follow the attorney's instructions carefully. I am not an attorney, so take everything I said for what it is: an opinion, not legal advice.

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Brian BurkePro Member

Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes

13y

If the investor is family, proof is easy. If friend or colleague, some type of documentation as to when and how you met might do it. You are limited to 35 or fewer unaccredited investors so you are probably right that accreditation doesn't matter as long as you stay under the limit. There might also be other requirements, and your attorney can let you know if there are. A good, experienced, business attorney should be able to help you, until you grow bigger and start getting more investors. At that point you will be well served to employ a specialist in securities transactions.

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Bryan Hancock

Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes

13y

Nick K.

You have already received some good advice in this thread. Raising money with a private placement really only makes sense for larger deals that can absorb the cost of the raise or that will have common elements where the money you manage will go to work in similar projects repeatedly.

A lot really depends on what you're trying to finance. Are you doing a few small deals, one large deal, a hodgepodge, or something else? Are you buying CRE, SFRs, retail, or something else? Will there be debt financing involved?

This is not really a do-it-yourself type project. If you really are serious about raising money you need to work with a competent securities attorney. If, however, you just need some dough for some small projects then JV partners will likely be fine as long as they maintain an element of control over the investment and are not strictly passive.

With better information about what you're trying to do you can probably get some better guidance and advice; albeit not legal advice.

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Ben Bakhshi

Investor · Atlanta, GA · Member since 2012 · 408 posts · 37 votes

13y

Nick K. have you gotten anywhere yet? I am in the same position as you. If you find a good attorney to work with i would really appreciate a referral.

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Jeff S.

Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes

13y

Nick K. are you wanting to borrow money from another or are you looking for a partnership? This is 2 entirely different programs. You mention partner but you talk in the term of I and not we so that leads me to believe you want to borrow money.

In a partnership you are already starting off with an uneven footing because they have money and you don't. You will need to clear that up. As has been discussed before on here investors are leery when one doesn't have skin in the game.

There are lots of avenues into the RE business. You are starting off right by asking questions. Good luck.

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Joel OwensBusiness Member

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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

13y

A related article:

http://blog.nreionline.com/nrei-writes/2012/09/14/jobs-act-bonanza-for-real-estate-syndicators-and-condo-sponsors/

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NNN Invest53 Reviews

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Karen MargraveBusiness Member

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Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes

13y

Joel Owens Those changes will make a huge difference on soliciting financial investors for projects. Thanks for the info!

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Jeff S.

Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes

13y

Nick K. generally it is simpler to just have it be a loan. You have the security and the terms. Having said that, the investor is in a weak position if there is financing because his interest will be subordinate to any loans. In that, the individual may prefer a partnership. He needs to be able to understand the potential pitfalls of either arrangement.

Is this person very business savvy? Between the two of you there needs to be someone with some experience with RE and some basic understanding of the legalities that goes with contracts,
rentals, financing and the like.

If they have enough money to pay cash and it is a relatively small deal then everything will be pretty straight forward.

There are many ways to arrange this deal. Maybe someone from BP who is in your area (maybe a broker) can meet with you and see if what you are thinking might work, or not.

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So lost in the legal aspects of partners.

So lost in the legal aspects of partners.

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