Private Money Blueprint Coaching Program

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Private Money Blueprint Coaching Program

• Module 5 Staying SEC Compliant w/ Jillian Sidoti

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About this presentation

• You are not going to learn this in 90 minutes, so
  relax.
• Securities Laws are very complicated laws that
  involve various state laws and federal laws.
• This presentation just gives you ideas of things
  you might be able to do.
• You need professional assistance to carry this
  out the first time, so dont hesitate to ask for
  help.

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Introduction

• Experience in Real Estate development
• Attorney specializing in private placements for
  the real estate industry
• Public offerings for companies in multiple
  industries and countries
• Professor of finance, accounting, and management

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Disclaimer

• No attorney client relationship is created
• Mere overview
• No reliability

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First things first

• Looking for Private Lenders Selling Securities

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Trying to call it something elsewont work

• How many legs does a dog have if you call the
  tail a leg? Four. Calling a tail a leg doesn't
  make it a leg. - Abraham Lincoln

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• This is not a security. The information provided
  herein is not intended to be for the purposes of
  soliciting a security under state or federal
  regulations. This information is intended to give
  the private investor alternatives to stock market
  investments, but is not intended to be a
  solicitation of a security under SEC rules and
  definitions. This is intended to be a private
  borrowing transaction.

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• 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

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Securities Laws You Should Know

• Making it Easier to Understand
• SEC v WJ Howey Co established what is now known
  as the Howey Test
• Is your offering a security? The answer is yes
  if the following factors are met
• There is an investment of money
• In a common enterprise
• With the expectation of profits
• Solely through the efforts of a promoter

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Securities Laws You Should Know

• It is EXTREMELY important to carefully follow
  securities laws and to be sure follow the THREE
  DS
• DISCLOSE
• all material facts
• DISCLAIM
• all potential liabilities the best you can
• DETAILS
• be sure to include all relevant details and be
  sure nothing is ambiguous
• WHAT COULD HAPPEN IF YOU FAIL TO FOLLOW THE THREE
  DS?????

• DISCLOSE

• DISCLAIM

• DETAILS

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• HEREBY ORDERED TO CEASE AND DESIST.

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There is hope.

• Real estate specific exemption in many states

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Sample Self-Executing Exemption

• FLORIDA
• The exemption for each transaction listed below
  is self-executing and does not require any filing
  with the office prior to claiming such exemption.
  Any person who claims entitlement to any of the
  exemptions bears the burden of proving such
  entitlement in any proceeding brought under this
  chapter. The registration provisions of
  s. 517.07 do not apply to any of the following
  transactions however, such transactions are
  subject to the provisions of ss. 517.301,517.311,
  and 517.312

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Florida, cont.

• (10)The issuance of notes or bonds in connection
  with the acquisition of real property or renewals
  thereof, if such notes or bonds are issued to the
  sellers of, and are secured by all or part of,
  the real property so acquired.

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• Investor Receives a Promissory Note
• Secured by a Mortgage or DOT

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If I am looking for Private Lenders

• BEFORE you even make an offer
• Qualify the investor
• Use an investor qualification form
• Establish a pre-existing relationship
• You intimately understand the financial status of
  the individual or entity.
• You are aware of their ability to invest
• You can accomplish this with an investor
  qualification form

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If I am looking for Private Lenders

• In order to invest
• Promissory Note
• Deed of Trust or Mortgage (depending on the
  state)
• Required disclosure document
• Subscription Agreement

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Disclosure Document

• What it says
• All the risks
• History
• Exemptions used
• Terms and Conditions of investing

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Record Keeping

• Every investor file should have the following
• Executed Investor Questionnaire
• Executed Subscription Agreement
• Executed Promissory Note
• Copy of check or wire
• Every company should have the following
• Copies of FORM Ds
• Copies of U-2s
• Master Investor list/spreadsheet

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Why do I need an attorney

• If you needed an appendectomy you would not give
  it to yourself. That would be silly. Same goes
  for the law.
• You cant possibly know all the rules for every
  state.
• Securities laws are complicated and hard to read.
  They dont make much sense unless you know what
  you are looking for.
• Why concentrate on this when you should be
  concentrating on your core business?

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Pooling vs. Specific Property
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How do I do this without a property?
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POOL THE MONEY!

• HOW?
• You dont need to identify any properties
• You dont need a bank
• You dont need hard money lenders
• You just need a PLAN FOR INVESTORS!

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What to do?

• POOLING WORKS!

• INVESTORS FEEL POWERFUL!

• MAKE YOUR PLAN
• FIND INVESTORS
• POOL THE MONEY
• BUY AS MANY PROPERTIES AS YOU CAN!!!

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Moving to bigger deals

• Sample property
• 65 units
• Louisville, KY
• 2,050,000
• 550 per unit rents
• 70 LTV with 8

• Assumptions
• 5 vacancy rate
• Management 4 of gross
• Other expenses 200,000
• NOI of 375,598
• Not including debt service

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Compare to SFR

• Mortgage 10,925.00
• Income 31,299.00
• Profit 20,374.00

• Apartment financing

• SFR financing

• Purchase price of 155,000
• Rent of 800
• Expenses of 10 (probably more) - 80 per month
• Mortgage 796.00

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What do I need to do this?

• Either a specific property or a business plan to
  purchase properties
• A PRIVATE PLACEMENT MEMORANDUM (this is your
  OFFER)
• Subscription Agreement
• Investor Questionnaire
• Supporting Documents
• Need to file FORM D with states and possibly SEC
• Need to file U-2 with certain states

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Private Placement Memorandum
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Private Placement Memorandum
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Private Placement Memorandum
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Private Placement Memorandum
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How much money can I raise?

• As much as you want!
• (but there are rules)
• Thresholds
• Up to 1,000,000
• Up to 5,000,000
• Beyond 5,000,000

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What Kind of Investor?
ACCREDITED UNACCREDITED SOPHISTICATED
SMART, RICH NOT SO SMART, NO SO RICH SMART, BUT NOT SO RICH
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What is Sophisticated?

• For those investors that want to be considered
  sophisticated, not only must they be
  sufficiently sophisticated to fully understand
  the risks involved with the investment, the
  investor also must be able to bear those risks.
  Of course, the ability to bear risks, standing
  alone, does not satisfy the suitability rule. In
  Re. Dambro, 51 S.E.C. 513, 517 (1993)

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What is Accredited?

• Single person makes 200,000 per year
• Married couple makes 300,000 per year
• Net worth of 1,000,000 (exclusive of primary
  residence)

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Thresholds
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Questions section maybe? How can I find Private
Lenders or Investors?
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• This is not a security. The information provided
  herein is not intended to be for the purposes of
  soliciting a security under state or federal
  regulations. This information is intended to give
  he private investor alternatives to stock market
  investments, but is not intended to be a
  solicitation of a security under SEC rules and
  definitions. This is intended to be a private
  borrowing transaction.

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So what should be on my website?

• Information on the properties you actually own
• Be clear, dont color the truth
• Information on the principals
• Mission Statement
• Contact information
• Investor Qualification
• Education

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What shouldnt be on my site?

• Guarantees or words like safe and secure
• Overt requests for money
• Details on your offering too many details can
  be construed as a general solicitation
• Promises of certain returns

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Things to remember

• Seek professional advicedont go it alone!
• Start small, build confidence
• Set the terms of the investment opportunity,
  dont let your investors dictate YOUR business.
• You can do this! You just have to find whats
  right for you.

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Questions?