How To Pool Lender Money To Fund Your Real Estate Deals

When you pool money from private lenders,file your paperwork.
you're putting funds together from two or moreOne of the things I've taught my students and
different private lenders.continue to stress is that you shouldn't be pooling
You obviously need to look at doing somethingmoney from private lenders unless you make
different where your state's paperwork issure you're in compliance.
concerned. This means you will need to fileIn order to be in compliance with your home
paperwork with your state and provide astate's securities laws, you'll need to find the
disclosure document to your potential privateproper exemption, filing or registration option and
lenders.comply with its requirements.
In Ohio, for example, we have what is known asThe following is some general information on
6(A)1 filing. This filing allow for pooling privatestaying in compliance with your state's
lenders' money in running your real-estaterequirements.
investment business.When you use an exemption to bring in private
This filing also allows advertising and unlimitedlenders, you are making an offer and sale of a
private lenders.security. It's important to understand that an
Remember, securities laws and regulations varyoffer to sell is usually treated the same as a sale
from state to state and the Federal SEC has itswhen it comes to securities compliance.
own set of laws and regulations.Two key concepts to understand when you sell
Pooling money occurs when you combine fundssecurities are that there are exempt securities
from two or more different private lenders.and there are exempt transactions. Whether
You should use or form a new business entity.you're selling stock, equities, borrowing money, or
You should choose a corporation which could bedebt, these are treated as securities. An exempt
an S-corporation or an LLC. Some states havesecurity usually means a security issued by a
different filings available depending upon whethergovernmental agency or authority.
you have a corporation or an LLC, and LLC's areAn exempt transaction refers to the sale of a
sometimes treated as partnerships. Most statessecurity not issued by a government agency that
won't allow you to pool money when you'rehas been given an exemption under state law (or
operating as a sole proprietorship or DBA.federal law) because of the nature of the security
You cannot use your state's exemption forand how it's sold.
real-estate transactions, similar to Ohio's 3(H)Many of my students are basing their compliance
exemption, when you pool lenders together. Youon the exemptions in their states that are similar
can not use this particular exemption becauseto the one in Ohio found under 3(H):
there is no paperwork involved. In Ohio, you mustOhio Revised Code, Chapter XVII, Title 1707.03(H)
"upgrade" to the 6(A)1 form, which allows pooling.The sale of notes, bonds, or other evidences of
All states have similar paperwork levels.indebtedness that are secured by a mortgage lien
You should use one of your state's filings thatupon real estate, leasehold estate other than oil,
allow for pooling money. As an example, Ohio hasgas, or mining leasehold, or tangible personal
a number of these filings available, such as aproperty, or which evidence of indebtedness is
6(A)1.due under or based upon a conditional-sale
These filings require you to fill out paperwork,contract, if all such notes, bonds, or other
informing the state regulator about your businessevidences of indebtedness are sold to a single
and what you're doing. It usually requires you topurchaser at a single sale, is exempt.
disclose information to your potential privateRemember, these are still securities, and the sale
lenders, which is for your benefit as well as yourof these securities can be exempt under
private lenders' benefit.securities laws in Ohio. Compliance with the offer
You'll pay a fee to your state regulator when youand sale of these securities is still required.