All Forum Posts by: John Corey

 Your ability to invest in the USA is going to be tied to being able to access finance.You do not fit the avatar for ideal customer for most lenders. There is extra risk or extra hassle so they just pass on applications from applicants outside the USA.

Having an LLC will not change things much. It is mostly a pass through structure. They will still care about you.

You can build credit over time. That said, you may still not fit the profile.

As you move towards larger properties, the lenders look less to the individual and more to the property only. The logic is simple. Once you are bigger than X, a person and their day job income could not make a real difference on the monthly debt service.

You also want to think carefully about the legal entity. An LLC could be exactly the WRONG entity for you given your tax status. Having a pass through entity in the USA might work great for your IRS obligations and yet force too much exposure to your home country's tax regulations. It might, just might, be better to have a C-corp or something else. You will need an experience CPA in the USA who is used to dealing with USA to German tax planning. If you were in the UK, I could share what i know about that combination.

A complete tangent. You said you are based in Germany and are finding it not appropriate to invest there. Fine. That is why some EU nationals investor in the UK. So, I am used to the conversation.

If you wanted to grow past your own funds, you may be able to set up a structure where others in your home country invest in your deals. You would need to understand the regulations for Germany before you launch anything. In the UK, I can use crowdfunding under UK FCA regulations (and passport to the rest of the EU) for USA investments. So, you have choices and possibilities which others might not understand as it is niche when dealing with cross boarder.

Coming in a bit late to the thread. And with a narrow focus.

1. Any sale of shares could be considered a securities offering. So, we can ignore the words and focus on what is going on. You can get great legal advice from a securities attorney about what is or is not allowed when promotion or selling shares in a passive investment. Google 'sec howey test'.

2. If we park the SEC issues ...

What is your vision and goal for your business/brand? Ignore the specific property and tell me what your vision is. Would bringing in investors help get you to your future goal? 

My opinion is to bring in investors when you do not need them if you want to grow larger than you can fund out of your own funds. Warm them and you up on the process of building an investor network (how to manage the, legal process, reporting, nurturing them from deal to deal). When you have an attractive deal, it is easier to build a successful track record. You want them begging for more investments before you need them for your next deal. 

The responses make it clear that a 10% preferred return will be great bait to attract investors. If the project is rich enough to consistently deliver, you might choose to offer an 'above market return' to build demand.

John,

Warren Buffett is reported as saying that 'diversification' was invented by sales people on Wall Street so they can sell you stuff. He prefer to focus on opportunities where he can create alpha (apply what he knows to gain an advantage) rather than trying to reduce his upside to the market averages.

There is a lot of friction to selling a property you already own (taxes, transaction fees, an asset you already know vs the unknown).

Given your age, you have a 'long runway' before you need to live on your savings. As SF is bounded by water on 3 sides and hills on the fourth, values there will be fine long term.

Grow your knowledge, consider other investments and keep the rental occupied. I would not be in a rush to exit the property. And I would not be in a rush to drain all the equity from it. The logic there is you can lose the property to the bank if you over leverage. 

I lived in SF for a while and was there for the 7.1 earthquake. Look into the insurance options rather than sell the property. You do not need perfect coverage to largely protect the asset. There were fine choices for insurance in the past. I expect there will be some now. Note: Insurance companies will close access to new policies for 90 days after an earthquake. Most people fail to think about insurance until after a big one. Get it sorted now and rest easier.

Two other things. Earthquakes are a big risk yet they are not that often. Other risks exists. Review your coverage so you are well protected. A lawsuit might be a bigger risk than an earthquake. Second, you can do things to improve the resiliency of a building to earthquakes. Bolting the house to the foundation, bracing if there is a garage below the house, etc. Nothing too complex. Lots of info out there.

There is a legal difference between a syndicate that was correctly set up and one that you stumbled into. In other words, it is not about a decision to get a lawyer and file the paperwork. The issue is what you are saying, how passive the investors are, how many investors (more than 1?) and other criteria. You could already be operating illegally is you are not extremely careful.

Even if you were just asking to borrow funds, you could trip over an unseen line. 

Google 'sec howey test'. It will help you understand how the conversations can be taking you over the line. The 'test' was established in the 1930s. This is not a new issue.

Opening it up to foreign investors can be opening a can of worms. Fine if you are prepared to deal with the complications. You do need to stay compliant with the laws / regulations where the people live. So, the IRS and the SEC cares on this side and the equivalent entities for where the investor is based.

All the closings were at title companies. 

@Rex Waldon,

When someone else said syndication takes time, there is a legal reason. You can not just approach people to invest.

Go to InvestorPedia and read up on the Howey test.  https://www.investopedia.com/terms/h/howey-test.asp A simple way to see if a deal crosses the line. Not legal advice yet good enough for many conversations. And do book a call with Amy.

This should be interesting. I happen to have a lot of experience with the UK process. Way easier than what the SEC came up with. I am still trying to figure out if the average USA property person can put a deal up on a USA platform. As I split my time and my investing, learning about the USA differences has become a mini project.

In the UK, I can fund a SFR or similar for £500 up front and up to 5% of what is raise. Debt or equity can be raised. Very curious to hear what people have done on this side of the pond (in PA for a few more hours and then off to speak at an investor summit in Glasgow Scotland). I am explaining how to raise funding in the UK to a room of investors (approx 120 attending).