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One of the most shocking details to come out of the Private Money Magnet seminar was that you need to register with the SEC if you plan to raise money.
Many at the seminar were shocked to learn about this.
According to the SEC, if you raise money for your business by selling securities you need either to register your security or file an exemption. Typically, exemptions fall under Regulation D – rule 504, 505 or 506. Which one you file depends on how much money you raise.
Most small business people raise money using the 504 exemption, with which you can raise up to $1,000,000 in any 12 month period. Also, in some states you can advertise for investors provided that you only advertise for accredited investors.Selling securities is creating a note!!!
An accredited investor is someone that meets the criteria defined in Regulation D Rule 501. They have a net worth greater than $1,000,000 or an income of $200,000 per year for the last two years as well as the expectation of the same income for the current year. If the investor is married then they and their partner need a combined income of $300,000 per year for the last two years, with the same expectation for the current year.
Many states do not allow advertising at all for a rule 504 exempt investment.
So, check the SEC laws in your state! You need to be aware of what is legal in your state and then stay within the guidelines and rules. If you don?t you may pay for it in the future.
Besides, private lenders who know about these SEC rules will not work with someone that does not. They may wonder if you don?t know SEC rules then what else do you not know.
At the Private Money Magnet seminar, Craig Pettit suggested that you meet with an SEC attorney to reveal your business plan for raising money. The attorney will let you know whicH SEC exemptions you need to file and what you can and cannot do.
What’s the way around registering with the SEC?
Instead of borrowing money from the private lender, let them BUY THE HOUSE and you keep an option secured by a deed of trust or mortgage or they can sell it back to you with seller financing.
But you still need to make sure your advertising and marketing for private lenders does not get you in HOT WATER with the SEC. In most states they are ACTIVELY looking for violators now.
Thanks for the heads up on this.
Would these SEC regs hold true for recruiting private money “partners” if the money partner actually owns a partial interest in the property (i.e. they would be on title)? Further, they receive no interest on their investment and all funds related to their investment is held in escrow by a third party and can only be released as per partnership agreement.
P.S.
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If the private lender takes title, then the SEC rules do not apply. However, you need to do all advertising and marketing with that clearly stated upfront otherwise you do need to register with the SEC.
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