Worried About the SEC? Here Are 3 Compliance Tips For Ya…

When getting private money, there are some things you need to know as far as the SEC (Securities and Exchange Commission) is concerned. The SEC Mission (in my words… not theirs): To protect the end consumer/investor from fraud, deceit, and dishonest investment practices.

In a moment, I’m going to share a few tips to help you stay SEC compliant when getting private money… BUT, this is not to be taken as legal advice and is no substitute for legal advice.

Treat your real estate investing business like a true *business* and get your legal bases covered… have an attorney on your team advise you based on your specific business model and the area you’re doing business.

Also, keep in mind that the SEC is nothing to be scared of… some real estate investors use the SEC as an “excuse” for not getting private money… and there’s no need for that. Simply get educated and get good legal advice. 🙂

3 Tips to Help You Stay SEC Compliant

1) Adhere to the 45-day rule
Only present specific investment opportunities to people who you have a “relationship with” as defined by the SEC (i.e. – get to know your prospects BEFORE you start offering your private lending opportunities).

The 45-day rule states that you cannot present a specific investment opportunity to a new prospect for 45 days… AND within that time frame, you must contact the prospect 3 times (could be via phone, face to face, email, mail, etc)… with at least one of those contacts being face to face or phone.

This makes complete sense and truthfully… is in your best interest to do so anyway.

Getting private money is all about relationships. And a private lender is essentially “going into business” with you on a particular deal. So you want to make sure you get to know them, and vice versa before they put up their hard earned money with you on a deal.

2) Be honest and upfront with the way you represent yourself, your company, and your investments… and fully disclose ALL risks and details of what your private lenders will be investing in.
This boils down to basic… “Do unto others as you’d like others to do unto you.”

Some people feel like they need to hide certain bits of information from their private lenders about the risks of a deal. DON’T!!

Your lenders will appreciate you for being upfront and the SEC requires that you fully disclose all risks of the investment, what you’re going to do with the funds, and the details of the investment. Your attorney can draft a proper disclosure statement for you to cover all your bases.

3) Protect the investor (your private lender) at all costs… including that the investor has the financial means to invest their funds in these types of “non- traditional” investments.
It’s best (safest) for someone’s investment portfolio to be diversified. So for example… don’t bring in a private lender who makes $30,000 per year and is investing their entire $20,000 nest egg with you.

Happy Private Money Getting!

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