In my efforts to finding private money lenders, I want to heed the call toward caution when dancing around the SEC regulations. I want to make sure I remain in compliance. And I’ve heard that any private lender I work with must be an “Accredited Investor” defined as having minimum annual income of $200K (or $300K combined family income) for the last two years, or have a net worth of at least $1 million. What happens if someone who does not meet these guidelines wants to be a private lender?
Private money lenders loan money! They usually require 20% down and can close relatively quickly! They as a business must be in legal compliance not you as your not running a lending business!
If the next door neighbor kid who works at McDonalds has $200k to loan you as a lender on a home for a 1st deed of trust and promissory note it is perfectly legal!
Now if you want to raise money from Linda, George, Carol, Tim, Dave, Betty, Dan, John, Megan and Erin you can without any requirements provided you don’t exceed 10 people on a 1st trust deed as fractional lenders! These 10 people do not need to be accredited, and can come from any walk of life! IE hairdresser, mechanic, carpenter, electrician, postman, FedEx guy, truck driver, store clerk, waitress or bank teller!
Now if your going to start a business where your making a securities offering as a REG D 506c private placement offer to raise $25m for your business then all investors must be accredited to receive a stock certificate or LLC units for there investment!
However in a REG D 504 private placement offer any investor can participate and do not need to meet accredited investor standards to raise $1m dollars in any single year!
Now if you approach someone with $250k to invest and ask them to be your lender for 80% LTV for $240k it is perfectly legal because there beneficial interest is a 1st TD and promissory note and is not a securities IE corporate stock shares or LLC units in exchange for investment!
Thanks GR. But how did you know my next door neighbor is such a smart kid? The pay at McDonalds must better than I expected it to be.