I am looking for private lenders in ohio, but I have been hearing that there are laws about the way you can or even if you can advertise ( like in the new paper). I think that it was cowgill that said you had to word it a certain way, but I’m not really sure where you would find out what the rules are.
thanks,
Patrick
Patrick,
I’m also from Ohio and have attended a couple of seminars where this topic was discussed. There is no definitive answer to this question. The general consensus was that you have to be VERY careful in advertising in the newspaper, lest you receive a visit from the SEC, attorney general, etc. Almost everyone agrees that you can’t advertise a guaranteed interest rate and that you can’t advertise to pool money from more than one investor to buy properties. The consensus also was that you should run any ad by a good attorney BEFORE placing it in the paper.
I also have an interest in finding these private money lenders, but haven’t advertised in the paper yet due to the above concerns. You might want to contact Vena Cox Jones (the REI Goddess) - try a google search. She is from the Cincinnati area and has a course on this subject.
Good Luck,
Mike
Patrick -
The answer from the other gentlemen was correct. I have been a private lender for some time across the U.S. and I am pretty well versed in this subject (my partner is also one of the top guys in the U.S. for utilizing IRA’s to invest with). The issue is this.
There is a fine line between private mortgage lending and offering a security as defined by the SEC. The main issues come in the form of advertising a guaranteed rate of return along with misleading terms such as ‘low risk’ or similar. Private lending is generally fine and it is not an SEC-governed issue, but when you (as a lender) are fishing or advertising for investors, the semantics of what you say is very important, otherwise, you may be violating SEC regulataions by unintentionally ‘offering a security with a license’ and it can cause a LOT of problems. NEVER ‘guarantee’ a return or claim low risk.
On the flip side, you (as a potential borrower looking for lenders) can say or advertise anything you want (to a degree). There is no SEC issue as you are LOOKING for a loan - not offering a security.
CAVEAT: You can say stuff like “Private lender wanted for a $100,000 rehab loan. I will pay above-market interest rates! Short-term!.” But the same rules applies in that you can’t advertise SPECIFIC information such as “Borrower Looking for $100,000 rehab loan. I guarantee 14% interest with Low risk and High return!”
Although it sounds appealing in #2, you just ‘Guaranteed’ a rate of return, claimed it was ‘low risk’ (which is undefinable and ambiguous) and claimed a ‘high return’ - you just offered a security and you might get a visit from the government who is NOT here to help you.
Also, do not ‘pool’ funds, meaning do not get $30K from person A, $50K from person B, and $20K from person C and then combine them together for a $100,000 loan. The same thing happens - you created an unregistered REIT and you might be considered an unlicensed security. What you can do it take those same three people and do a ‘fractionalized mortgage’, which listes each investor individually on the deed and gives each one a percentage of the first lien collateral dependent upon the amount invested. Person A would have a 30% secured lien, person B 50%, and so forth.
KRT