Pooling Private Money
by Alan Cowgill
When you pool money from private lenders, you're putting funds together from two
or more different private lenders.
You obviously need to look at doing something different where your state's
paperwork is concerned. This means you will need to file paperwork with your
state and provide a disclosure document to your potential private lenders.
In Ohio, for example, we have what is known as 6(A)1 filing. This filing allow
for pooling private lenders' money in running your real-estate investment
business.
This filing also allows advertising and unlimited private lenders.
Remember, securities laws and regulations vary from state to state and the
Federal SEC has its own set of laws and regulations.
Pooling money occurs when you combine funds from two or more different private
lenders.
You should use or form a new business entity. You should choose a corporation
(which could be an S-corporation) or an LLC. Some states have different filings
available depending upon whether you have a corporation or an LLC, and LLC's are
sometimes treated as partnerships. Most states won't allow you to pool money
when you're operating as a sole proprietorship or DBA.
You cannot use your state's exemption for real-estate transactions, similar to
Ohio's 3(H) exemption, when you pool lenders together. You can not use this
particular exemption because there is no paperwork involved. In Ohio, you must
"upgrade" to the 6(A)1 form, which allows pooling. All states have similar
paperwork levels.
You should use one of your state's filings that allow for pooling money. As an
example, Ohio has a number of these filings available, such as a 6(A)1.
These filings require you to fill out paperwork, informing the state regulator
about your business and what you're doing. It usually requires you to disclose
information to your potential private lenders, which is for your benefit as well
as your private lenders' benefit.
You'll pay a fee to your state regulator when you file your paperwork.
One of the things I've taught my students and continue to stress is that you
shouldn't be pooling money from private lenders unless you make sure you're in
compliance.
In order to be in compliance with your home state's securities laws, you'll need
to find the proper exemption, filing or registration option and comply with its
requirements.
The following is some general information on staying in compliance with your
state's requirements.
When you use an exemption to bring in private lenders, you are making an offer
and sale of a security. It's important to understand that an offer to sell is
usually treated the same as a sale when it comes to securities compliance.
Two key concepts to understand when you sell securities are that there are
exempt securities and there are exempt transactions. Whether you're selling
stock, equities, borrowing money, or debt, these are treated as securities. An
exempt security usually means a security issued by a governmental agency or
authority.
An exempt transaction refers to the sale of a security not issued by a
government agency that has been given an exemption under state law (or federal
law) because of the nature of the security and how it's sold.
Many of my students are basing their compliance on the exemptions in their
states that are similar to the one in Ohio found under 3(H):
Ohio Revised Code, Chapter XVII, Title 1707.03(H) The sale of notes, bonds, or
other evidences of indebtedness that are secured by a mortgage lien upon real
estate, leasehold estate other than oil, gas, or mining leasehold, or tangible
personal property, or which evidence of indebtedness is due under or based upon
a conditional-sale contract, if all such notes, bonds, or other evidences of
indebtedness are sold to a single purchaser at a single sale, is exempt.
Remember, these are still securities, and the sale of these securities can be
exempt under securities laws in Ohio. Compliance with the offer and sale of
these securities is still required.
Some states may offer you more than one choice, so you'll want to evaluate those
choices.
Bio:
Alan Cowgill is the owner of Colby Properties, LLC. and President of Integrity
Home Buyers, Inc. Alan is a full-time Real Estate Investor, investing in single
family and small multi-family properties in Springfield, Ohio.
Since 1995, Alan has bought and sold over 200 investment properties. Alan uses
Private Lenders, not banks; to fund his real estate purchases. By doing this, he
has created his own private bank of $2,000,000 in funds. Alan looks for "Win -
Win" situations, where the seller, the lender, and the eventual homeowner can
all "Win". He is not a Realtor, but a Private Investor.
Alan has served as an elected official to the Board of Directors for the Clark
County Property Management Association. He is an author, consultant and national
speaker. He has been asked to speak on the topics of “Investing for the
Beginning Investor.” and “Finding Private Lenders.” His home study system,
“Private Lending Made Easy”, shows new and seasoned real estate investors how to
find private lenders for their own real estate business.
In addition, Alan:
• Holds a BS Degree in Business Management.
• Has over a quarter century experience in Business Management.
• Is a published author not only for Real Estate but also in American Industry.
• Featured in the Business Section of the Springfield News-Sun newspaper in May,
2001. Article on real estate investing in Springfield, Ohio.
• Adjunct Professor for 5 years at Clark State University.
• Acknowledged in the book “e-Mail Basics” ISBN #0-9676313-1-9.
• Speaking Engagements include: Yovel, England; Dallas, Texas; Fort Collins,
Colorado; Atlanta, Ga.; Jacksonville, Florida; Cashiers, SC.; Las Vegas, Nevada
and Springfield, Ohio.
• Business trainer and consultant.
• Member of the Springfield Chamber of Commerce and Better Business Bureau.
• Appeared on a twenty-eight minute real estate infomercial that is shown
nationwide.
And best of all, Alan Cowgill is married and the father of three children.