Pooling Investments in Real Estate using SEC Registration

[alexsmith]

Hi all,

I wanted to gauge your temperature on an idea I've had for a while - I've been in real estate for a while, but I've found that one of the biggest hassles is to find partners to buy in with.  My thought is to create a platform that is able to pool investments in a particular property, with the interests then being sold to the public that want to invest in RE. Of course this would have to registered with the SEC, but after preliminary research I think it may be doable.

I haven't worked out the details, but wanted to get your thoughts on the demand, if any, for this sort of platform. Would buyers/investors that want to pool their assets purchase property in this manner?

Thanks so much...

[dood]

I think you could make this work. Of-course there are liability concerns and SEC restrictions but it would make investing somewhat easier for common folk. There's definitely a demand but the start-up would be your major hurdle.

[alexsmith]

Do you think more sophisticated investors would adopt this platform (if the fees weren't too high)?

[Gold River]

Hi,

    The SEC (Securities Exchange Administration) regulates public companies and allows new businesses to raise capital through Regulation D offerings namely sections 504, 505 and 506. This allows a business to raise between $1,000,000 and unlimited capital by way of either a combination of non-sophisticated and sophisticated investors, generally speaking the SEC limits investment to no more than 35 non-sophisticated (Non-Accredited) investors and up to an unlimited number of sophisticated (Accredited) investors.

The SEC prohibits advertising offerings for investment and all non-accredited investors must be known to you and accredited investors may be recruited through a broker or financial adviser. You must prepare a prospectus, financial projections and must supply audits (Quarterly and Yearly) and must make full disclosure.

If you were going to do this for each single family property cost's would be to high to make money against value. Now for commercial property there are two choices, you can do an investment club 1 to 100 members each one contributing the minimum to operating cost and the group as a whole voting to purchase and manage a specific property or you can create a Real Estate Investment Trust (REIT) which allows a company to raise money for real estate investment either as a Equity Investment or Mortgage Investment or as a Hybrid of Both!

You can join a group of people together for a "Real" Property combining them all in escrow however there must be an operating agreement agreed upon by all owners, all owners must agree on management and all owners must be recorded at closing to the title and title insured. The minute you substitute a LLC or Corporation for ownership it becomes a Regulation D group of people operating as a 504, 505 or 506 investment.

A REIT ensures that 90% of income is distributed to all owners and limits maximum ownership of any one person to not more than 9.9%!


                                      GR

[alexsmith]

Thanks Gold Water. That's the existing paradigm, but what if it was registered with the SEC. That way there could be general solicitation... If it was registered at the parent level, which held the property assets, the SEC compliance costs wouldn't be that high on a marginal basis, right?

[andydallas]

anytime your dealing with the SEC compliance is way too expensive unless you are looking at a very large amount of money.

[BTL]

Thanks Gold Water. That's the existing paradigm, but what if it was registered with the SEC. That way there could be general solicitation... If it was registered at the parent level, which held the property assets, the SEC compliance costs wouldn't be that high on a marginal basis, right?

Alex,

Andy has spotted the problem.

Registration is a very expensive process unless you have a large transaction or series of transactions. Lots of fixed costs to become registered and you need to pay the costs upfront, more or less.