Is This A Legal Business Venture
I have been thinking for awhile now about starting a company that would allow the little man and or timid investor to join the REI world. With a small investment just about anyone would be able to get started. My plan is to allow as little as $500-1000 to be invested in a pool which would in return be used to purchase property. With a set return (20-30% within two years) on investment, which can continue to be rolled back into the pool. I plan on contacting a real estate attorney as well as an accountant to get further details and plans on what needs to be done to start this venture. My question is whether or not this is legal. Does this fall into real estate stock? Mutual funds? Or what? I'm sure an attorney would be able to guide me, but before I spend the money in consultation fees, I'd prefer some feedback from the members of this forum on if this is legal, what I need to look for, has anyone done this, what problems will I run into and generally just what to expect. I'm not looking for people to join, just feedback. I'd prefer to start out small and grow into something larger. Any feedback would be very beneficial and greatly appreciated. Thanks in advance. :-o
It can be structured in multiple ways and be legal.
They problem is the cost of setting up such an entity. State regs in ea. state you plan to have investors from or investments in, and then there is the SEC (since you're selling to the public) rules.
The frequent work around is to sell to high net worth people that can qualifiy as a "qualified investor" or the friends and family. But this does limit the pool of investors.
This topic comes up rather often. I have not heard of anyone forming such a structure.
One that seemed quit interesting was using offshore investors/money.
"With a set return (20-30% within two years"
I was doing a flyer for such a business and for "fun" floated it past my atty. He laughed. "Without even looking hard I see 5 violations of state or fed laws".
Quoting a return was one of them.
Thanks CJ, yeah I figured this wasn't going to be as easy as I had wanted. But it can be done. Thats the good thing ,I am definately going to need a strong "Dream Team" to keep all the ducks in a row. But with the need for such a program, this could definately be a major undertaking as well as profitable. All you have to do is just look at this website, I can almost bet with such a program this could explode, I bet over half of the people on this website and sites like it haven't even purchased an investment property but would if given a chance like this. I also like I said would definately keep it small {Missouri, Kansas} area that I live in. I would love to see what was on your flyer, though. LOL Thanks again :-D
The atty if just the type of guy you wanted to look at it. He's done RE, Securities, taken people public, estate planning (managing retirement $$), check it out.
I forgot the term, but in CA you can do you own private IPO over the Internet if raising < $2m (I think). So That might be a route as well.
D,
I've seen programs that are structured in ways similar to this. As CJ said, they CAN be legal, but can just as easily not be... I know of one such program which was actually legal, and many people benefited, but alas, the SEC saw it as something other that what it was and it is no more. You may want to consider setting this up offshore to keep those out of your hair whom you'd like to keep out of your hair.
Here in California, the simple route seems to be you start a Limited Partnership with a few investors, You are the General Partner and you take all the risks. You comply with the Secretary of States requirements and the first year in business you have the pleasure of paying the $800 fee. Win or lose.
Assume your are doing well, then you procede on to Corporate Status and you then become a corporation and your limited partners all come in on the ground floor.
All continues well. You have gathered a few properties, you soaked up a few discounted notes secured by Trust Deeds and they all payed off and Mr. Greenspan starts to call and ask for advice. Don't give him any, he never takes it. His staff meetings are run like the way old Georgie Patton ran his. He would listen then start shaking his head, hit the table with his little fly swatter. Kick his chair back and then start dictating the upcoming field order off the top of his head. The advice he had received? Forget it.
Ok now you are really rolling. Your original Limited Partners are now stockholders and you decide in view of the high cash income from all the slums that you own, to float your IPO. This is done with the help of a skilled floater of issues. For a few shares he takes it over and it flys. Oh my god everything goes up you sell your shares, wait for the drop and buy in again and away you go. Perhaps the Empire State Building, Or the Board of Trade in Chicago. Or you launch a rumor that Scientology has just produced the new Mahdi and then buy all their Hollywood properties for chump change and you never look back to thank them for their Reality.
Sounds like a nice Screen Play, has been many times, but guess what? In these the last days of the Spike it has been done.
So fear not, listen to no negative voice just go and do it. If you are a skilled, I mean really skilled negotiator, it just might happen.
Put me down for a share or two. I would roll the dice anyday.
Lucus
8-) 8-)
Lufos, thanks for the reassurance. My thing is I will definately do my due dilligence before I undertake any task like this and hopefully be able to have many well qualified individuals to guide me. I am going to explore all avenues I have. The few original investors is a great idea, but I'm not sure what you mean by a few because I envision at least 10 or more at the onset, and I'm not sure if that would be considered a few. You are definately an entertaining read though. Thanks
:-D
Hey,
You actually have two ideas here:
One--A pool of "investors" to purchase properties (or whatever) and that is a very good idea.
Two--To attract small investors, with $500 to $1000, and that is a VERY bad idea.
You will spend half your ime trying to persuade a few "pikers" to give you their grocery money for the week and the other half keeping them updated about the progress of the projects.
Concentrate on large investors.
What you are describing is, in essence a REIT or a publicly traded corporation engaged in real estate. I don't like to disagree with Lucius but this is a game for big boys. To give you an idea of price tags for legal fees:
For the initial offering memorandum for the Limited Partnership ----- $25,000
For the Reg D filing to move from LP to Corporation ------ $100,000
For the IPO offering to go from privately offered Corporation to Publicly traded Corporation-- one to two Million
Now the reason for these big fees is that they more-or-less reflect the complexity of the transaction.and the risk to the law firm that one or more investors will decide that something was wrong and will sue.
It is possible to argue that it is not necessary for you to understand how to do all these things personally, after all that is why you're going to pay these big fees. However if you're not familiar enough with this field to have a pretty good understanding of the process so you can look over the attnys sholders and know whats going on then I think you'd better stay home.
As I have from time to time pointed out on this board I have a good friend who just left the federal prison camp in Terre Haute IN after 40 months as a guest. He attempted to do exactly the thing you are suggesting.
So, theoretically, yes it is possible to do what you are suggesting. The odds of pulling it off without violating the SEC act or the blue sky laws of one or more states in which you will take investors are close enough to zero that you should find another plan. Quite frankly, just asking the question means you are no way ready to play in this league.
CommercialKing, I appreciate what you have to say, but you make it as though all of this will be done within a months time which in no way is correct. Just because you are a mayor of a small town in Idaho doesn't mean you are going to run for President. You are absolutely correct that because I'm asking the question I am no way ready to do this, but if I don't ask the question then I never will be. I am not looking for the next Microsoft, I want to keep it small just as I have stated. There are many investment groups around the nation from large investment groups to little old ladies who sit around and quilt and have investment chit chat and then pool their money and buy a little rental house on the edge of town. By no means am I going to jump head first into this, hence the question in the first place. It's not how you start but how you finish.
so long as you eyes are open.
Opened and Learning!! :-D