All Forum Posts by: John Corey

In theory, yes. If everything lines up and everyone is happy with the structure.

Some issues.

Most lenders are not going to be happy with the equity coming into the deal as a loan from people who are not on the title of the property. The lender sees extra risk that the borrower will walk away when things go bad. They have no skin in the game. The LTV for the 1st loan has a cap for a reason. Borrowing the rest of the funds defeats many of the benefits of the LTV cap.

The pooling of funds from multiple investors so the deposit is funded as a loan could be consider a regulated activity. The Canadian regulators may see this as a collective investment scheme. If so, you would need to be approved before you can even speak to people. You might need extra approvals to accept the funds. Financial promotion is different from running a pooled investment so likely to be two sets of regulations. 

The timing of the refinance is an issue. Assuming you got past the other issues I have highlighted, you would likely be better off with a 1st loan that was longer than a 5 year term. So you do not hit the wall at 5 years. No telling what the mortgage market will look like in 5 years. You might need 6 years before you could refinance. 

In addition to the risk that the lenders will have pulled back on new loans, the value of the property might not have gone up enough to fund refinance where the original deposit is paid back to the investors. Maybe the lenders are happy to lend yet you just do not have the equity in the property after 5 years to make it work for your passive investors.

The above info will largely apply north or south of the USA/Canadian boarder. Similar for the UK as it happens.

Why does she care about the repayments being $10K or higher? You will be making monthly payment on the loan and they will be smaller. Understanding her thinking on this could result in a better deal structure.

I recognise it would be her money tied up. It is also your working capital. If you finished a project and she received her cash plus profit back, you could go on to the next project. Hence, your ability to expand will change if you can recycle the funds. 

@Tyler Bobo, Brian covered your question rather well. 

Something you did not ask needs to be highlighted. Having conversations with investors about pooling funds for a project could be a regulated conversation. Failure to comply with the state and SEC regulations will be a criminal act even if you did not take any money from the investors you spoke with.

Master the state and SEC requirements before talking about any investment.

Bryan,

How does a group ask you anything? 

How did the group form? Who is speaking for the group? Under what authority?

Assuming you could have meant you have had a number of individual conversations and none of them are organised as a group, then you have a different situation.

There are regulations (state and Federal) which apply to investments that are passive or pooled. So, my questions are to tickle apart what is really going on. You can successfully work with private funds if you know where the lines are. 

Check out Basit's reply. He covered a number of important points in his post.

Second, the tax implications in the USA is one issue. How that income will then be taxed in the home country is another. Depreciation in the USA will lower the tax bill. The depreciation might not be a legitimate deduction in the home country. So, best solution for you could be an issue for the foreign investor. 

How do you expect to attract investors to the project? You might need to follow the SEC rules for the USA and then equivalent regulatory agency in the foreign country. What works in one country might not work in the other.

I work across the USA and UK regulatory environment. That picks up the EU indirectly.

Is this meant to be a buy and hold investment? Assuming it is, are you going to stop your investing given you will have all the funds tied up? What about a sale after the work is down so you can go around again?

Provide some numbers. How much do you need? What will it be worth? What is your exit plan? What is your current loan balance? What is the property worth if it was sold as-is?

The credit card debt could be closing the door to refinancing. The HML will want to be in 1st position in most cases.

Why is this structure not syndication? 

 Greg,

Assume for a minute that you have 15 days to file with the SEC after the first receipt of funds. How much earlier do you thing a SEC competent lawyer should be engaged to create the offering documents and required filing documentation? Working backwards from the 15 day deadline, how early should one start?

Are you expecting the full offer document, consistent with the SEC regulations, is finished before first pitch to investors?

Oh, stop telling yourself you are not creative. It is a trainable skill. Some start with more natural talent in this area. That said, you can do better by reinforcement through practice (the journaling of what you have learned and how you learned it).

Some people really are very creative. Spend more time speaking with them and making notes. They are happy to share ideas and you will end up with a catalog of ideas.