obtaining private money vs. securities laws

Hey folks,

I have two associates that I introduced to each other (both I had existing relationships with, so it was done via word of mouth) who are contemplating a joint venture whereby one acts as a cash investor, and the other as a real estate investor flipping properties out of preforeclosure, sometimes doing fixups, sometimes just cleanups with short sales to junior lienholders to create equity, if applicable.

Foreclosing lienholders are made FULLY AWARE that property is being taken over via subject to method allowing transfer of deed into cash investors name, and they have never called due on sale clause (the real estate investor has done this many times with no problems) because they just want their loan to be made whole.

Having said that, the cash investor was worried about having to comply with SEC and syndication laws, but I told him that there is no pooling of funds, no securities being issued and no syndication issues (one investor per deal) because it does not apply to these two investors, and that there is no need to involve SEC because these kinds of cash/investor partnerships happen all the time in a simple two-party format. I see posts all the time of people looking for private cash to do rehab and other kinds of deals, though I believe you cannot solicit the public via advertising, which I did not do in this case, so as to avoid any legal issues.

I am wondering if you would agree that there is no issue of securities law violation going on here? Here is a link from a guy who has very deep pockets to pick if he was giving out illegal advice to the public:


Am I missing anything?

Let me know what you think, and I am hoping people with direct experience obtaining private cash in this way for their deals (which seems to be the way the major investors do it) will reply, thanks so much , Dave

Howdy Dave:

In no way are you even coming close to having to register with the SEC. Small offerings of securities are even exemp and you are not even dealing with securities. Here is the website where you can check the laws etc for yourself.


I wanted to point out that just because one person has not had a DOS called does not mean that the next deal or no one else has ever had it happen. As long as your cash investor has the deep pockets it should not be a problem.

The next point is that many investors want high returns. If you develop a history and establish a good line of credit you do not need the cash investor as often as you think.

While you should not have a securities involvement you may still want to consider how you do joint ventures, Is a deed of trust and note not better than a verbal or written partnership. Participatory notes can resolve issue of usuary rates.

Bud and Ted,

Thanks for your replies, I appreciate it. Bud, there is a written JV agreement, but if they went with note/DOT, doesn’t the “lender” (aka the cash investor) have to comply with applicable RESPA laws and paperwork? Aren’t there are other issues with that route?

The real estate investor doing the flipping does not want to do line of credit because he is adamant (as I know many other pros who are) about not using any of his own credit or money.

Thanks, Dave


It is admiral for someone not to want to use any of their own money or credit and to be able to borrow private money at low rates without recourse, but reality must be dealt with. Many deals will be missed if you don’t have access to funds. Sure there is hard money. Because of the high rates they call it hard money. If you, not him, develop a line of credit then you don’t have to split profits for your efforts. Even hard money is cheaper than giving away up to half the profits. Private money is usually cheaper than hard money. But the best source for cash deals is a bank at a point or two above prime.

Subject to deals or owner financing deals are fine but much of the time you can buy at deeper discounts for cash. Each approach has its own benefits but they are all tools to get the job done. You talked about flipping preforeclosures. In Texas if you wait for the public notice you will be at least 6-8% into the deal. Not such a good subject to in many cases.

As a private lender RESPA only applies when you do more than 6 loans. It does not apply to purchase of existing notes. In your case RESPA and the SEC is like the the DOS, build your house of bricks and the big bad wolf will not get in.

Partnerships/joint ventures may work when each side brings a different talent to the table. Most do not work. Years of experience have pointed to the better solution of no partnership.