I am excited to feature a guest writer to JustAskBenWhy. Douglas Dowell is an accomplished real estate guy, a fellow writer on BiggerPockets.com, and an all around nice guy!
*Consult legal counsel before acting.
You’ve got the basics of real estate investing down. You know how to spot a great deal. Now what? Real estate investors from Donald “nice hair” Trump to the neighborhood fix and flip Investor all face the same problem. More great deals than their own equity will support.
The investor then must use two options: stay small and grind it out over time or choose a group investment vehicle to go bigger faster.
The purpose of this article is to give a brief overview of the group investing options. We will first look at the traits required for a successful group investor. Second we will briefly describe the decision making process on whether you wish your group investment to qualify as a security.
There are four central traits required for successful group investing:
1. Can I make really great deals? Poorly structured deals that fail are the basis of most securities enforcement. If everybody made money no complaints right?
2. Do you want to be responsible for others money? Money and emotions go hand-in-hand. Are you willing to accept that fact? Are you willing to manage others emotions on this point?
3. Are you willing to be selective? Friends and family are often cited As a great source for private money. Is that wise? Is it wise to let someone invest 100% of their net worth in your business? Are you willing to turn down widow and orphan money?
4. Do you have an abundance mentality? Do you believe that money is everywhere to invest in your great deals? It is…over 1 TRILLION was raised in just one segment of the private money arena.
If you believe you possess the four traits you’re ready for the next step.
What vehicle should I use for my group investments?:
The best way to answer that question is to determine if your investment will be a security? The SEC vs Howey case provides the basic frame work for determining if it is a security if the structure does the following:
1.Investment of money due to
2.an expectation of profits arising from
3.a common enterprise
4.which depends solely on the efforts of a promoter or third party
Whether you want to trigger the fourth question is the central question for investors.
Will my investment depend solely on my efforts? If so then you will need to comply with the private placement rules of your State and the Federal Securities regulations. If you do not wish to undertake the legal expense of that option then consider a joint venture or LLC structure where all the members:
• make a joint decision
• participation is documented
In conclusion, the superior way for investors to transition to bigger investments faster is a group investment. For most, the optimal way will be an LLC or joint venture structure. You’re on your way to being Donald Trump….with better hair!!
Douglas Dowell J.D. is commercial and multi-family investor. His areas of expertise are raising money legally, risk mitigation with due-diligence, and management science. Douglas is an avid student of success principals with a focus on modeling success factors.
Connect with Douglas at:
eMail: [email protected]