What sort of disclosure should I give my private lenders?
- Author Alan Cowgill
- Published September 7, 2010
- Word count 506
What sort of disclosure should I give my private lenders?
When you are reaching out to private lenders, whether it's just a handful or a large group, it's very important that you disclose the risks and benefits of the private lending opportunity you're offering them. There are several reasons you should do this. Some are for the benefit of your private lenders, who will want to know what your business is and how they can make money lending to you.
Securities laws also work to protect private lenders, so you must disclose to them what the potential downsides are. These might include how long it will take to sell a property; mortgage rate changes, housing market pricing fluctuations, or the cost of rehabbing a property. There are others you'll want to mention.
Disclosure documents will also help you protect yourself and business against possible claims that you didn't describe the business properly. A strong disclosure document will help you protect your reputation and protect you against frivolous litigation. It will also help you comply with securities laws and regulations and, should you get a question from a regulator, help you demonstrate to them you are working to be in compliance.
Commissions The bottom line on paying commissions is: don't. Unless you are using a proper registration or exemption and using a licensed or registered broker/dealer, almost every state prohibits paying commissions for the sale of securities.
Now, in Ohio, it is possible to pay someone to help you get potential private lenders to a luncheon, but only if you pay him or her whether or not these folks end up lending you money. That means that you can't pay them based on their success rate or anything that connects their compensation to getting private lenders. Other states won't even let you do that unless the people you're compensating are registered or licensed broker/dealers.
Public Offerings
You will hear the term public offering discussed in my interview with Attorney Ralph Sherman. You may also hear it discussed in your investing business. It's easiest to explain what it means by explaining what a public offering isn't.
Generally, any offering that is not exempt under the private offering exemption of the securities act of 1933 (Regulation D) is a public offering. This means that if you aren't using an exempt offering, as we talk about extensively in the interview and in the course materials, then you are getting involved in a public offering. Each and every state has its own definition of exempt offerings and these aren't considered to be public offerings.
Exempt offerings are what open the door for you to run your real estate investing business successfully and in compliance.
Remember, securities laws and regulations offer you many opportunities to do your real estate investing business and stay in compliance. Yes, there's going to be some paperwork that goes with these laws and regulations. It's just part of doing business. If you get into this business, do it the right way and you will be successful.
E. Alan Cowgill is the owner of Colby Properties, LLC. and President of Integrity Home Buyers, Inc. Since 1995, Alan has bought and sold hundreds of single family and small multi-family investment properties. His home study system, 'Private Lending Made Easy', shows others how to find private lenders for their very own real estate business.
His website is http://www.truthaboutprivatelending.com
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