Most real estate investors, when starting out, are made to believe the only way to finance their real estate deals are through banks and major lending institutions. However, as the banking crisis has proven, this has become increasingly difficult.
This is the best time ever (at least in my lifetime) to invest in real estate. The prices are at historical lows and often times, deals can be found at below replacement cost. So, below are some ideas on how to get money to take advantages of the many opportunities now present.
1.) Find a good, liquid, hard money lender.
Private lenders are popping up all over the place. If you don't want to deal with individual investors via a private placement memorandum and would rather deal with one party, you could use the services of a hard money lender. However, these lenders are costly. Currently, the cost of a hard money lender is about 5 points and 12% APR.
2.) Use a private placement memorandum to find private investors.
Right now, people are very shy about investing in the stock market after seeing their 401(k)'s and IRA's be cut in half over the last year. However, many folks do not have the time to take on full time real estate investing. Therefore, they look to the professional real estate investors such as yourself to find deals. Before taking the money of a potential investor, however, you must present them with a private placement memorandum. The investor also must be qualified to invest (see other blog posts on accredited investors vs. unaccredited investors.)
3.) Start a REIT
A Real Estate Investment Trust is great if you want to purchase large projects and need large amounts of capital. It is also a structure that insures the investor that you will be making some sort of distribution every year as REIT law requires that 90% of all proceeds be distributed.
4.) Go Public
Going public is not that hard and it provides a market place for investors to sell their interest in the event they want to get out. There are reporting requirements and a financial audit is required.
To find out more about financing your real estate deals like how to go public, fund a private placement memorandum, or even find investors, attend OPTIMAL OPM on August 1st and 2nd in San Diego, CA.
Thursday, June 11, 2009
Thursday, June 4, 2009
Advertise without Going Public
Often times, a company trying to raise money from investors will have a hard time raising money from their current network. It’s at this point they call me and say
“Can we advertise?”
Generally speaking, no.
Under Regulation D of the Securities Act of 1933, which governs private offerings, does not allow any type of general solicitations. It also is restrictive of the type of investors that may invest in your company, and the amount of money you may raise.
So, if you have a private placement memorandum, and no one is biting, what is a company to do to get investors without going public? I have been suggesting the Small Conditional Offering under Regulation A.
A Regulation A filing will allow you to do advertising without going through the usual rigors of a public filing. Some of the features:
1.) A company can raise up to $5,000,000 in a 12 month period.
2.) In “test the waters” states, company’s may even advertise their securities (with the appropriate disclaimer) before they have even filed with the SEC.
3.) No audit is needed.
4.) There is no restriction on the type of investor you may solicit (i.e. accredited vs. unaccredited)
5.) There are no ongoing reporting requirements.
However, as with everything in life, there are some drawbacks:
1.) They are complicated. The review process of a Regulation A filing can be just as arduous as a regular public filing.
2.) You need an attorney to file. These aren’t easy filings and it’s best to not go it alone Further, a Regulation A filing requires the opinion of an attorney even though it does not require audited financial statements.
3.) There is no telling how long it will take to get through the SEC channels. Also, you have to get it through each state in which you want to advertise. This may be easier if you are able to do “regional review” and hit many states at once.
4.) Regulation A filings are paper filings. So, anytime you receive a round of comments from the SEC, corrections must be made and sent through the mail. This is unlike any other type of filing which uses the “EDGAR” system.
Interested in doing a Regulation A offering? I am not trying to be overly suggestive, but I know an attorney you could call…..
“Can we advertise?”
Generally speaking, no.
Under Regulation D of the Securities Act of 1933, which governs private offerings, does not allow any type of general solicitations. It also is restrictive of the type of investors that may invest in your company, and the amount of money you may raise.
So, if you have a private placement memorandum, and no one is biting, what is a company to do to get investors without going public? I have been suggesting the Small Conditional Offering under Regulation A.
A Regulation A filing will allow you to do advertising without going through the usual rigors of a public filing. Some of the features:
1.) A company can raise up to $5,000,000 in a 12 month period.
2.) In “test the waters” states, company’s may even advertise their securities (with the appropriate disclaimer) before they have even filed with the SEC.
3.) No audit is needed.
4.) There is no restriction on the type of investor you may solicit (i.e. accredited vs. unaccredited)
5.) There are no ongoing reporting requirements.
However, as with everything in life, there are some drawbacks:
1.) They are complicated. The review process of a Regulation A filing can be just as arduous as a regular public filing.
2.) You need an attorney to file. These aren’t easy filings and it’s best to not go it alone Further, a Regulation A filing requires the opinion of an attorney even though it does not require audited financial statements.
3.) There is no telling how long it will take to get through the SEC channels. Also, you have to get it through each state in which you want to advertise. This may be easier if you are able to do “regional review” and hit many states at once.
4.) Regulation A filings are paper filings. So, anytime you receive a round of comments from the SEC, corrections must be made and sent through the mail. This is unlike any other type of filing which uses the “EDGAR” system.
Interested in doing a Regulation A offering? I am not trying to be overly suggestive, but I know an attorney you could call…..
Wednesday, June 3, 2009
Monday, May 25, 2009
How to pay someone for investors without breaking the law.
Having a hard time finding investors? Pay a commission!
What? Pay a commission? To someone? Anyone? Isn’t that illegal?
Well, kind of.
Yes, it is true that in order to sell securities you must be licensed by FINRA in order to receive a commission as a broker-dealer or an agent that sells securities on the behalf of an issuer. To find someone to do it for a startup or smaller venture is particular difficult as the major B/D’s and agents will sell only publicly traded securities or sell major projects ($25 million or more).
However, let’s say you know an individual that might have the drive to go out, network for you, and drum up some investors from their existing network, there are ways to pay them a commission for bringing you investors and selling your securities.
Here are some generalities that are not applicable to all states. You should consult with an attorney or someone in the know before attempting this. The individual selling your securities:
1.) Must exclusively sell for you and your business.
2.) May need to take some kind of exam in the state in which they wish to sell the securities and will be restricted to that state or those states in which they qualify. (Not all states require an exam and exemptions from exams may apply.)
3.) Must fill out a form U-4, pay the filing fee (approx. $75), and have it approved.
4.) Must not be otherwise disqualified from selling securities.
There is also a designation granted by FINRA for the selling of private securities.
I will cover this in a future article.
If anyone or any company approaches you with an interest in funding your company or finding investors for you, be sure of the following:
1.) A real, bonafide broker or agent will not charge an upfront fee for ANYTHING. The broker or agent may insist that you have a Private Placement Memorandum (PPM) written prior to fundraising, as this is required. They may want to write your PPM for a fee. Before agreeing to this, be sure they have actual experience in writing a PPM and that the fee is reasonable. (I always recommend using an attorney for such things, but hey, that’s just me.)
2.) Ask the agent or broker if they are licensed and what their license is.
3.) Check the broker or agent out at FINRA.org’s broker check – make sure their license is real and they don’t have any disciplinary marks.
4.) Find out where they plan to search for investors.
Remember, whether you hire someone you know or someone you don’t know, their actions will have an effect on you legally. You will be responsible for how they represent your company, so choose wisely!
Want to learn more? Visit www.optimalopm.com
What? Pay a commission? To someone? Anyone? Isn’t that illegal?
Well, kind of.
Yes, it is true that in order to sell securities you must be licensed by FINRA in order to receive a commission as a broker-dealer or an agent that sells securities on the behalf of an issuer. To find someone to do it for a startup or smaller venture is particular difficult as the major B/D’s and agents will sell only publicly traded securities or sell major projects ($25 million or more).
However, let’s say you know an individual that might have the drive to go out, network for you, and drum up some investors from their existing network, there are ways to pay them a commission for bringing you investors and selling your securities.
Here are some generalities that are not applicable to all states. You should consult with an attorney or someone in the know before attempting this. The individual selling your securities:
1.) Must exclusively sell for you and your business.
2.) May need to take some kind of exam in the state in which they wish to sell the securities and will be restricted to that state or those states in which they qualify. (Not all states require an exam and exemptions from exams may apply.)
3.) Must fill out a form U-4, pay the filing fee (approx. $75), and have it approved.
4.) Must not be otherwise disqualified from selling securities.
There is also a designation granted by FINRA for the selling of private securities.
I will cover this in a future article.
If anyone or any company approaches you with an interest in funding your company or finding investors for you, be sure of the following:
1.) A real, bonafide broker or agent will not charge an upfront fee for ANYTHING. The broker or agent may insist that you have a Private Placement Memorandum (PPM) written prior to fundraising, as this is required. They may want to write your PPM for a fee. Before agreeing to this, be sure they have actual experience in writing a PPM and that the fee is reasonable. (I always recommend using an attorney for such things, but hey, that’s just me.)
2.) Ask the agent or broker if they are licensed and what their license is.
3.) Check the broker or agent out at FINRA.org’s broker check – make sure their license is real and they don’t have any disciplinary marks.
4.) Find out where they plan to search for investors.
Remember, whether you hire someone you know or someone you don’t know, their actions will have an effect on you legally. You will be responsible for how they represent your company, so choose wisely!
Want to learn more? Visit www.optimalopm.com
Monday, February 2, 2009
Hey! I am looking for investors!!
I must hear the phrase "I am looking for investors" every. single. day.
What most innocent folks don't know is that they are violating securities laws by uttering those very words. Now these normally law abiding citizens don't mean to offend the SEC or their local, friendly state securities board, but unfortunately, they are, because they may just have made an offer to sell securities.
The definition for a "security" was outlined in SEC V. HOWEY CO., 328 U. S. 293 (1946):
"Under Section 2(a)(1) of the Securities Act of 1933, “unless the context
otherwise requires,” the term “security” includes
any note, stock, treasury stock, security future, bond, debenture,
evidence of indebtedness, certificate of interest or participation in
any profit-sharing agreement, collateral-trust certificate,
preorganization certificate or subscription, transferable share,
investment contract, voting-trust certificate, certificate of deposit for
a security, fractional undivided interest in oil, gas, or other mineral
rights, any put, call, straddle, option, or privilege on any security,
certificate of deposit, or group or index of securities (including any
interest therein or based on the value thereof), or any put, call,
straddle, option, or privilege entered into on a national securities
exchange relating to foreign currency, or, in general, any interest or
instrument commonly known as a “security”, or any certificate of
interest or participation in, temporary or interim certificate for,
receipt for, guarantee of, or warrant or right to subscribe to or
purchase, any of the foregoing."
This means that any time you ask for money, that you will have control over, to gain a profit for the "investing" party, you have sold a security. It does not matter if you term it as a loan or as a "percentage of the profits." It's a security.
What most innocent folks don't know is that they are violating securities laws by uttering those very words. Now these normally law abiding citizens don't mean to offend the SEC or their local, friendly state securities board, but unfortunately, they are, because they may just have made an offer to sell securities.
The definition for a "security" was outlined in SEC V. HOWEY CO., 328 U. S. 293 (1946):
"Under Section 2(a)(1) of the Securities Act of 1933, “unless the context
otherwise requires,” the term “security” includes
any note, stock, treasury stock, security future, bond, debenture,
evidence of indebtedness, certificate of interest or participation in
any profit-sharing agreement, collateral-trust certificate,
preorganization certificate or subscription, transferable share,
investment contract, voting-trust certificate, certificate of deposit for
a security, fractional undivided interest in oil, gas, or other mineral
rights, any put, call, straddle, option, or privilege on any security,
certificate of deposit, or group or index of securities (including any
interest therein or based on the value thereof), or any put, call,
straddle, option, or privilege entered into on a national securities
exchange relating to foreign currency, or, in general, any interest or
instrument commonly known as a “security”, or any certificate of
interest or participation in, temporary or interim certificate for,
receipt for, guarantee of, or warrant or right to subscribe to or
purchase, any of the foregoing."
This means that any time you ask for money, that you will have control over, to gain a profit for the "investing" party, you have sold a security. It does not matter if you term it as a loan or as a "percentage of the profits." It's a security.
What about a partnership?
Is the individual (or company) investing as a "partner" only investing money and has no control over the company or the money? It's a security.
What if it's only a small investment?
It's a security - it could be $10 - it's a security.
What if I tie the investment to real estate?
It does not matter, if there is no control over the estate or the underlying investment, it's a security. As a matter of fact, the Howey case that defines a security, was about land: the defendants in the case had sold one acre parcels of land to the investors. The investors were on the title of the land, but the defendants had also said to the investors "purchase this land and we will farm the land, sell the fruit from those farming efforts, and give you the profits." This was deemed a security.
So how can a small business owner avoid such malfeasance? Well, for starters, they can check out future blogs....(and that's what we call a "cliffhanger" in the biz...)
I am extremely important
Hello,
My name is Jillian Ivey Sidoti. I use my maiden name not to be one of those hyphenated jerks, but because if you were to search the California Bar website for my name under "Jillian Sidoti", alas, you will not find me.
I am an attorney in California. Like most attorneys, I think I am very important and like to use big words as to confuse those around me. Also like most attorneys, I am an attorney because I can't hack it as a doctor. (I was never good at the "sciences" if you will, and I don't like the sight of blood.) If you will notice, I am located in California - this makes me even more of a pariah....fun!
I am also a professor at the University of Redlands. I teach business, finance, and accounting. I am not sure why they won't let me teach law...maybe it's because they don't have a law school...at least I am hoping that's the reason. This designation of "professor" allows me to be even more pompous.
So why am I here? Well, so I can bestow all of my wonderful knowledge on you, silly! Isn't that exciting? I knew you would be excited! And guess what? It's all FREE! I am going to give you FREE information. Hopefully you will find it as useful as the folks who pay me for it....
However, before I go on, here is the legal disclaimer that you must expect from an attorney:
"The materials on this web site have been prepared by Jillian Ivey Sidoti, Esq. for information purposes only and are not intended as legal advice. This web site is not an offer to represent you. Our transmission of this information and your receipt of this information is not intended to create and does not constitute an attorney-client relationship. Internet subscribers and on-line readers should not act upon this information without seeking advice from professional counsel. Jillian Ivey Sidoti, Esq. does not maintain and is not responsible for the information, contents, accuracy, completeness, usefulness or adequacy of any resources that can be accessed with hypertext links from this site.
"Jillian Ivey Sidoti, Esq. articles and publications should not be construed as legal advice on any specific facts or circumstances. Their contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of Jillian Ivey Sidoti, to be given or withheld at our discretion. "
My name is Jillian Ivey Sidoti. I use my maiden name not to be one of those hyphenated jerks, but because if you were to search the California Bar website for my name under "Jillian Sidoti", alas, you will not find me.
I am an attorney in California. Like most attorneys, I think I am very important and like to use big words as to confuse those around me. Also like most attorneys, I am an attorney because I can't hack it as a doctor. (I was never good at the "sciences" if you will, and I don't like the sight of blood.) If you will notice, I am located in California - this makes me even more of a pariah....fun!
I am also a professor at the University of Redlands. I teach business, finance, and accounting. I am not sure why they won't let me teach law...maybe it's because they don't have a law school...at least I am hoping that's the reason. This designation of "professor" allows me to be even more pompous.
So why am I here? Well, so I can bestow all of my wonderful knowledge on you, silly! Isn't that exciting? I knew you would be excited! And guess what? It's all FREE! I am going to give you FREE information. Hopefully you will find it as useful as the folks who pay me for it....
However, before I go on, here is the legal disclaimer that you must expect from an attorney:
"The materials on this web site have been prepared by Jillian Ivey Sidoti, Esq. for information purposes only and are not intended as legal advice. This web site is not an offer to represent you. Our transmission of this information and your receipt of this information is not intended to create and does not constitute an attorney-client relationship. Internet subscribers and on-line readers should not act upon this information without seeking advice from professional counsel. Jillian Ivey Sidoti, Esq. does not maintain and is not responsible for the information, contents, accuracy, completeness, usefulness or adequacy of any resources that can be accessed with hypertext links from this site.
"Jillian Ivey Sidoti, Esq. articles and publications should not be construed as legal advice on any specific facts or circumstances. Their contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of Jillian Ivey Sidoti, to be given or withheld at our discretion. "
Now, I would have been an awful attorney if I did not write that....
So with that out of the way - enjoy reading. I hope you find something useful here!
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