Obtaining Private Money Vs. Securities Laws
Hey folks,
I have two associates that I introduced to each other (both I had existing relationships with, so it was done via word of mouth) who are contemplating a joint venture whereby one acts as a cash investor, and the other as a real estate investor flipping properties out of preforeclosure, sometimes doing fixups, sometimes just cleanups with short sales to junior lienholders to create equity, if applicable.
Foreclosing lienholders are made FULLY AWARE that property is being taken over via subject to method allowing transfer of deed into cash investors name, and they have never called due on sale clause (the real estate investor has done this many times with no problems) because they just want their loan to be made whole.
Having said that, the cash investor was worried about having to comply with SEC and syndication laws, but I told him that there is no pooling of funds, no securities being issued and no syndication issues (one investor per deal) because it does not apply to these two investors, and that there is no need to involve SEC because these kinds of cash/investor partnerships happen all the time in a simple two-party format. I see posts all the time of people looking for private cash to do rehab and other kinds of deals, though I believe you cannot solicit the public via advertising, which I did not do in this case, so as to avoid any legal issues.
I am wondering if you would agree that there is no issue of securities law violation going on here?
Am I missing anything?
Let me know what you think, and I am hoping people with direct experience obtaining private cash in this way for their deals (which seems to be the way the major investors do it) will reply, thanks so much , Dave
[ Edited by JohnMerchant on Date 08/04/2004 ]
Dave,
It would appear you have managed to hit all the major points necessary to keep yourself and your friends out of hot water.
1) no general solicitiation of the public
2) No big pools (the actual rule is 35 investors, so as long as this is a one and one deal your in the clear)
3) full disclosure. (You might want to have these fellows write up a biz plan that discusses the possible pitfalls).
so the Feds are unlikely to show up at anybodys door.
Now they get to figure out how they will actually deal with each other. My advice, Clear partnership agreements, clear goals and clear division of responsiblities.
If you read the web site you put up you should conclude that there is no securities problem here since you have two guys who know each other that want to go into business together.
Garrett Sutton (author of the web site) writes for Robert Kiyosaki and I believe is an attorney who practices in Nevada.
I don't see any issues to be concerned about. I think you have a really clean approach.
[addsig]
I would suggest you find a lawyer whom you both like & trust, and have him/her write up your agreement & help you plan & form your new entity, corp., LLC, whatever, to get you started.
A do-it-yourself partnership agreement is all too often the basis for a future disagreement/argument/lawsuit, and can be avoided by using formal, well-done corp or LLC that's professionally done for you.