QUOTE (cmontminy @ May 28 2010, 07:56 AM)
We are four individuals and we are thinking of incorporating a company to invest in real estate mainly with multi-family buildings.
One of us went to the lawyer and ask him how to go about incorporating and told him that we will be raising capital for some deals with OPM (other's people money). The lawyer said that we cannot ask for OPM without having at least 100,000$ in security.
We found this very strange as many books we read has strategies to use OPM.
What's the regulations regarding raising capital to purchase Real Estate?
Do we have to go through Alberta Securites Commission?
Consider finding another lawyer .. or 4 .. as much misinformation exists even in legal circles.
Of course you can use OPM. But there are rules to follow.
The line between a real estate JV and a security is poorly defined. I have heard 50 investors. I have heard 12. I have heard: "If not all cash is raised at once". I have heard "if you use shares in a corporation even if only 3 guys do it".
If you have up to 12 people (or so) the most common form is a USA (unanimous shareholder agreement). All parties unanimously agree on certain terms and off they go. It is HARD to get 12 people to agree to one document and all sign it. But it is VERY DOABLE !
This is probably what would work in your case with 10'ish people ... and terms have to include what happens if someone dies, if someone wants out, what the fees are for the active person/syndicator/RE expert .. it can be very nebolous and extremely lopsided to the syndicator .. or it can be very balanced .. whatever the parties agree to !
A USA can be based on an LP, a corporation or a simple undivided interest in a piece of real estate.
Once you're using many people or not a USA, in Alberta and most Western Provinces, there are 4 other "exemptions" you can use to raise money as a so called "exempt security". They are called exempt securities because you do not have to issue a prospectus and certain financial filings on a quarterly basis like a publicly traded (non exempt if you will) firm.
1) from friends, family and/or close business associates
2) from accredited investors ( those are investors with over $1M in net asset to invest [excl. their house] or an income of $200,000 alone or $300,000 with a spouse)
3) aggregate acquisition cost (over $150,000)
4) using an offering memorandum (OM) for eligible investors [People with $400,000 or more to invest and incomes over $70,000 .. or in BC: up to $10,000 .. note: OM route for eligible investors is not available in Ontario right now !!]
We use all 5 options .. and have done so for 6+ years .. and raise the most through the OM route these days as we have a template and our cost are now lower per new OM. An OM costs about 20-30K .. or up to 50K initially if you have the wrong lawyer or need many iterations .. and if RRSP eligible another 12-15K. There are initial and ongoing filing and accounting requirements. I know have a staff of 3 to administer 6 LPs.
Consider using the OM route if you need/want to raise $1M or more .. as otherwise costs are too prohibitive.
As of Sept. 28 the rules for fund raising are changing in that sales people and I also believe promoters (like me) have to pass a written test.
Much havoc, for yourself and investors, can be created without following those rules.
4 related posts:
8 mistakes to avoid in real estate syndications:
http://myreinspace.com/public_forums1/Real_Estate_Discussion/62-13817-Real_Estate_Syndications_-_A_Good_Idea_.html
50/50 in a JV ` is this fair ?
http://myreinspace.com/public_forums1/Real_Estate_Discussion/62-2015-5050__is_this_fair_.html
Pro`s and Con`s of creating a company for real estate holding:
http://myreinspace.com/public_forums/Real_Estate_Discussion/62-10292-54272-To_create_a_company_or_not.html#54272
JV options: Pro`s and Con`s of LP vs. Corporation
http://myreinspace.com/search/public_forums/General_Discussion/61-10979-57096-JV_vs_Limited_Partnership.html#57096
