Leave it to the federal government to beef up the red tape quotient. It seems no matter where you turn when trying to raise private capital for real estate investments, there is just one more form to fill out. Well, the reality isn’t quite that bad, but there are some things you should know. Here’s a quick look at what to be aware of as you begin to raise funding.
Federal SEC Registration
A federal registration doesn’t cost anything to file, but it allows you to raise an unlimited amount of money, it allows you to cross state lines, and it allows you to raise money from HULT PRIVATE CAPITAL international investors. The registration is the easy part. The hard part is creating the proper documentation.
Creating proper disclosure documentation
If you’re going to do a federal registration you need to have a full set of proper disclosure documents. There is a potential risk when a private lender invests with you. You will need to have a good securities lawyer create the proper disclosure documents. The two most critical are called an Executive Summary and a Private Placement Memorandum. These will protect you in case any issues come up between you and your lender.
Why do you need an Executive Summary and Private Placement Memorandum?
If the private lender tells a judge that you promised them one thing and you’re saying something else, and there’s a dispute, that’s when the disclosure documents come in handy. If it ever comes down to a lawsuit and you’re facing a federal judge and jury, you will need to have supporting documentation. The documentation reveals what you said and what you offered to your lender. This will insure you have the ability to protect yourself should a problem arise.
If you’re the borrower, and you promised your lender you’d pay him 8%, but you don’t have it in writing, and the lender says you promised him 12%, the odds are that almost every single time the verdict will go to the lender. Shocking but true in federal court.
The Executive Summary is not everything; however, it does tell people the highlights of the deal. It describes the who, what, when, where, how and why. Meaning you’re just telling people a little bit of the story to give them a taste of what you’re doing. You do that because even though you might get money right away from people you already know, or from accredited investors who are allowed to invest immediately, most people want to get to know you and what you’re offering over time. So you want something to whet their whistle and to get them interested beyond what you’ve told them, and also to protect yourself. So that’s what an Executive Summary is for. As the name implies, it’s just a summary.