All Forum Posts by: Marc C.

Here are some generic info on the Rule 147 (intrastate) securities exemption to SEC registration requirements. 

The following items must be satisfied to comply with Rule 147:

One more thing: If you can just use investors and projects in your state, the regulations will be a lot easier, as many states have a Rule 147 exemption that allows you to raise up to $1-5M from even unaccredited investors...and even do general solicitation/advertising. Each state's rules are different, though, so begin with your state's securities regulator and speak with them (IN PERSON...go visit them at the capitol. Not many people visit them, and you'll find them to be very friendly and helpful.) 

I like your idea on the pitch book. The pitch book/deck is a fine way to show you have thought things through and know what you are talking about. (If it's good and professional looking.) You can mention generics in it, like, "typical investor returns in the apartment market are an 8% preferred cash return plus 50% of any appreciation once the property is sold or refinanced." But stress that each deal will be different, and the returns you are offering will be contained in the Private Placement Memorandum you will distribute to investors after you have a deal. 

All you are trying to do is establish a business relationship with these people so you can legally pitch them later. That doesn't mean one meeting over coffee...that means multiple meetings, i.e., getting to know them. 

As to reaching high net-worth individuals, start with your local REIA groups. TheThen maybe put on a seminar on how to invest in RE with your IRA, or why multifamily RE is the best, etc.

The key though is building your network: You need to meet lots of millionaires. Get on it. 

First off, HUD's 2017 Fair Market Rents have been posted at: https://www.huduser.gov/portal/datasets/fmr/fmrs/F.... That will tell you the max rents that the local housing authority can choose to pay INCLUDING UTILITIES. If you don't include utilities in your rental, then you need the Payment Standards or Utility Allowance from your local housing authoirity in order to tell how much you can really charge. 

Secondly, you must advertise the same rents to Section 8 tenants as everyone else. 

Thirdly, you must screen the tenants the same as any other. 

Story: When I saw a prospective Section 8 tenant's application, there was only one source of income: Welfare for 2 of the residents, out of 8 total planned residents (mostly children). Just where were these folks going to get the money to pay renter's insurance and utilities? I rejected their application based on income (not 3X the rent, as I require; I included their Section 8 voucher in the income calc.) and the fact that they didn't fill out the app completely. 

There had been some discussion on the issue of securities laws and how they apply to partnerships and investors in real estate projects. Well, worry no longer: The State of New Mexico will allow 10 investors to form a syndication and raise up to $1M and be exempt from SEC and state securities regs. There isn't even a fee. You just send this 2-page form to the Regulation and Licensing department:
http://www.rld.state.nm.us/uplo…/files/Form%20202N%20(U).pdf. Is that cool or what? 

The state's Small Offerings Brochure has the basics on all the available exemptions to SEC registration the state offers:
http://www.rld.state.nm.us/…/Small%20Offerings%20-%20Brochu…

Here is what is says:
The exemption provided by Statute 58-13C-202N
is a state level private placement exemption. A
completed Form 202N must be filed with the
Director no less than five (5) business days before
the first sale of securities in this state. The issuer
may not sell to more than 10 persons in New
Mexico within any 12-month period.

Here is the statute:

SECTION 58-13C-202N - SALES TO TEN OR FEWER PURCHASERS:
A. Filings required. To claim the exemption provided by Section 58-13C-202N, a completed form 202N must be filed with the director no less than five business days before the first sale of securities in this state.
B. Counting purchasers and security holders. The following rules apply in counting the number of purchasers pursuant to Section 58-13C-202N(1) and the number of beneficial owners pursuant to Section 58-13C-202N(3)(b):
(1) a husband, wife and minor children of either spouse, or any two or more of them, residing in the same household shall count as one purchaser or beneficial owner; and
(2) a limited partnership, limited liability company, trust, corporation or limited liability partnership shall count as one purchaser or beneficial owner if it was not formed for the purpose of investing or trading in the securities of the issuer claiming this exemption and such entity has substantial other business or investments.
C. Reasonable belief of purchase for investment. An issuer will be presumed to have a reasonable belief that all of the purchasers of its securities in this state are purchasing for investment pursuant to Section 58-13C-202N(3)(a) if:
(1) the issuer, prior to a sale of its securities to a purchaser, obtains from that purchaser a signed statement that the purchaser is acquiring the securities for its own account and does not intend to resell the securities within twelve months of the purchase date;
(2) the issuer maintains a record of all statements obtained pursuant to Paragraph (1) of this subsection;
(3) written disclosure is provided to each purchaser prior to sale that the securities have not been registered under the New Mexico Uniform Securities Act and cannot be resold unless the securities are so registered or can qualify for an exemption from registration; and
(4) a legend is placed on the certificate or other document that evidences the security stating that the securities have not been registered under the New Mexico Uniform Securities Act and cannot be resold unless the securities are so registered or can qualify for an exemption from registration.
D. Reasonable belief of fifty or fewer beneficial owners. An issuer will be presumed to have a reasonable belief that its securities are held by fifty or fewer beneficial owners pursuant to Section 58-13C-202N(3)(b) if:
(1) the issuer or the issuer’s transfer agent maintains an adequate record of security holders and requires security holders to notify the issuer or the issuer’s transfer agent of its intent to sell or otherwise dispose of securities of the issuer; and

(2) a legend is placed on the certificate or other document that evidences the security stating that the securities have not been registered under the New Mexico Uniform Securities Act and cannot be resold unless the securities are so registered or can qualify for an exemption from registration.

I ALWAYS look for opportunities to add storage units to apartment properties. I have had good luck adding $600-$1000 storage sheds to the back of the properties and charging $35/mo. for them. (I always try to earn my money back within 24-30 mos. on any improvements I do, NOT including the value added to the property....at an 8% cap rate, you just added over $5000 to the value of your property.) ((($35 x 12)/.08)=$5,250))

They are portable, so you don't need permits, and you can add them as the demand arises. Once you put in two, then you start hearing from other tenants who'd like one. They aren't that secure (anyone with a crowbar could access a locked one), so I think next time I'll stick an outdoor web camera facing them. 

GO FOR IT! Anything you can do to raise your NOI adds value to your property.

I hear ya, JD. One deal I've been offered had a $15,000 "repair" last year, which was actually the cost to paint the entire building...a capex cost that shouldn't have been in his P&L. He is illegally try to deduct capital additions in the year the work was performed, instead of over 27.5 years. Makes me suspect the rest of his numbers. 

 Thanks, JD. Yeah, that's my fear: That it will go over the heads of the seller. 

I agree with you: In the end, we "buy" on actuals, but we run on our own projected rent and expenses.

There are ALWAYS people who are sick of owning their own properties. And there are always slumlords who do very little maintenance, and, therefore, can't get market rents. 

I do direct mail to Mom and Pops and the people who respond are usually over 65 and looking to retire...and interested in carrying seller financing. 

What happened with TIC (Tenants-in-Common) deals? I was part of several c. 2003-2005 and now there are none. Securities laws?

I recently inherited enough to become an "accredited" investor. I've since purchased a few 506c deals on Fundrise, RealtyShares, Crowdstreet, and RealtyMogul. For me, I like to put $50K into multiple deals, and this has been working so far. (Nice cash flow checks.) 

But why should only millionaires get to play? Wouldn't it be nice if those with $50K who are not rich get to invest?

There are ways, via state "intrastate" securities offering exemptions specifically designed for small companies. These are available to unaccredited investors who are residents of that state, and for deals that are at least 50% in that state. For example, in my state (New Mexico), you can raise up to $2.5M debt or equity for any deal from anyone who is a state resident, or a company that is HQ'ed in the state. You still need a prospectus that discloses all of the risks (check out www.regdresources.com for an example of a "presentation grade" Private Placement Memorandum which meets Reg D and intrastate disclosure requirements), and the offering must be approved by the state. You're still looking at $8K in legal fees or so to make the offering. Another option is SCOR, the Small Corporate Offering Registration. You can read about that here:

http://www.dfi.wa.gov/small-business/small-company...

Another option is to have the holding LLC be member-managed, not manager-managed. And the members have to vote (some say unanimously) on management decisions. If I were you, I'd look for co-investors among your contacts at real estate networking events that you can joint-venture with. Get to know the guys doing multifamily deals.