Do I Need An LLC When Using OPM To Invest In Tax-lien Certificates?
Hello all, i have a number of investors who want to invest money with me to purchase tax-lien certificates. They each have varying amounts, one has $15K, the other has $300K and one has just under $1 million. They are all wealthy and retired individuals and are just looking for guaranteed better returns than the stock market. To cut a long story short, my strategy is to go after properties that have a low likelihood of redeeming, that way i can maximize profit. I've told them that if the certificate gets redeemed, i get zero and they get all the returns. If the property doesn't redeem and we get title, as an investor i plan to rehab and flip and we split profits 60% (for them), 40% for me.
My question is what's the best way to register for bidding at the tax lien auction? I will be using 3 different "pools" based on how i categorize the desired properties, and will invest funds accordingly. But when the property redeems, doesn't it go to the owner listed on the certificate? So do we form an LLC beforehand, with just the 2 people, myself and the investor (So i'll be using 3 LLC's) or do we just do 3 simple partnerships and record interest in the property as tenants-in-common with our percentages of ownership recorded?
Hope I made sense. Thanks.
Actually I will be purchasing the certificates in an LLC, with whoever the investor is as the other member. so these will be 2 member LLC's. But are there any other investors out there who are or have been in similar situations, and what have you done?
[ Edited by stonelove_mvmt on Date 05/20/2004 ]
Well I see at least three or four ways for you to end up in jail with this plan. Run don't walk to an attny who knows security law. Plan on spending $10,000 to $20,000 for a good offering memorandum and partnership/LLC agreement. After that expense your cost to do each pool will drop way off. You can take up to 35 non-qualified investors per pool.
How so? I will only be doing it seperately with 3 different individuals. It's sort of like using hard money in a sense ... As long as we have a standard LLC and a memorandum of agreement that states everything, i don't see how i could be breaking the law.
stonelove_mvmt--(MD)-------------------
If you can say "... I don't see how that would be breaking the law." Then you are nowhere near ready to start investing in real estate nor to handle other people's money.
Take the advice you have already been given. Understand the laws before you run roughshod over them.
Good Investing***********Ron Starr************
I agree with Ron and John.
I'm surprised that individuals would give you so much money in the first place when you don't even have an LLC or Corporation set up. What security do they have? Who in their right frame of mind would give anyone a million bucks without a "pink slip" of some sort in exchange?
I'm saying your not a trustworthy person, and I hope you see this. But taking other people's money and then having something happen to it can get you in trouble with the SEC.
Just look at TLA (Tax Lien Agents). They are doing what you want to do and they are in massive amounts of trouble because they are not running a smooth operation. And I believe they are attorney owned!
There are companies out there who do what you do, very successfully, but mind you, it has taken them years to get to the place they are today and much hard work. It's not as easy as it sounds.
Definitely get a security's attorney AND you must get a real estate attorney as well. There might be a way for you to structure your company where you sell shares (Corp.) or memberships (LLC) of your company instead of what you're planning. But this defnitely needs the pros.
Good luck with this!
Francoise
For the attorneys who frequent this board or those in the know, do tax-lien certificates qualify as securities instruments such as stocks, bonds etc?
I am not an attorney but a tax lien investment educator. I use a professional purchasing company to purchase my own liens and before I invested I contacted several attorneys to get this question answered. I spoke to a minimum of 5 attorneys and I got 5 different answers. I even called the SEC and spoke to 3 of their attorneys. One of whom told me that tax liens are exempt from SEC regulations, 2 of whom told me that anything to do with someone making money off another person's investment, no matter the investment, is bound to be SEC regulated. The individual securities attorneys I contacted gave me various responses as well. One said: "When in doubt, always SEC regulate." (gee, don't know about that one).
Another one said that if the check from the investor is made out to the tax collectors office (and not the purchasing company) then the transaction would not be SEC regulated. But if the check goes first to the purchasing company and they then turn around and write one of their company checks to the tax collector, then it would be bound to regulations.
I have asked every attorney to provide me with written documentation, codes if you will, that state (in writing) where tax liens fall or do not fall under SEC guidelines. None of them were able to deliver.
If there is indeed a securities attorney on this board who has the written codes for this type of investment, please enlighten us all.
Well Dynamic this is what I have found out so far. Tax-liens in themselves are not securities, however when one accepts money from an outside investor, whatever contract one enters into with this investor is an investment contract, which apparently is considered a security. It has more to do with the way the money is accepted than with the nature of the investment itself in this case. Either way such an entity has to be registered with the SEC when you're dealing with outside money. If it's your own personal money you don't have to register. Go online and check out the SEC cases against TLC Investments for more info. Thanks everyone for the enlightenment.
Well. thinking about this further there is a very simple way to do this. Let your investor buy the liens directly. He can hold them in his name. You enter into an agreement with him regarding how to split profits. As long as you don't put more than one investor into a given parcel you should be ok.
Quote:
On 2004-06-07 15:27, commercialking wrote:
Well. thinking about this further there is a very simple way to do this. Let your investor buy the liens directly. He can hold them in his name. You enter into an agreement with him regarding how to split profits. As long as you don't put more than one investor into a given parcel you should be ok.
Almost but not quite.
TLC investing is about investing in a lot of 'small' deals most of the time. Hence it is a bit time intensive relative to the deal size.
If the investors are buying in their own name are they at the auction and responsible for the selection of which TLC's to buy? If not then you are acting as their agent or buyer and you need to make sure you do this correctly.
There are some lawyers who will do this for their clients. Look for TLC investors who are lawyer and see if they will set it up for you so you can do something similar even though you are not a lawyer.
I have seen email from a few over a about a year when I was watching a TLC investment BB (not here). Many times they are the same lawyers you will want if you try to pick up a property from a TLC foreclosure.
John
[addsig]
The problem isn't so much what you're going to invest in, but how you raise the $$.
Are these people friends or family?
Also look at what a "qualified investor" is.