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INVESTORS’ CORNER: Raising capital

When you are looking at an opportunity to raise money for a real estate deal, ask yourself this question: Is it a specific, single, isolated asset that is being offered, or does it look like an opportunity to collaborate with or be pooled with other investors in a general enterprise? If the answer is more likely the latter, then it is a security. 

You must understand the bureaucratic mindset that regulators bring to these situations. The typical regulator and investigator in the real estate or securities realm will always be of the position that they have jurisdiction unless it is abundantly clear that they do not. If it is even close or questionable, you are going to be in the position of trying to prove it really isn’t a security. The burden of proof and the uphill fight will be on your shoulders.

If there is one disturbing process I see in the minds of some investors, it is that they do not understand how the public and various government officials charged with a public duty perceive our industry, whether looking at it or looking at a specific situation, investment or transaction. In many cases in which I have been involved, the investors generally have far more education and sophistication than the government representatives who are looking at the matter. The representatives, however, have a near-infinite budget and the law on their side.

Therefore, you need to be very careful before you set up a deal. Make sure you get good legal guidance in writing from a securities lawyer that the investment opportunity you might be sharing among individuals is not a security because it clearly fits inside known and established security exemptions.

Another scary assumption I see among most real estate investors is that they are going to get away with it and will not be caught. I wish that were the case, but ever since Al Gore “invented the internet,” any aggrieved or angered individual can file an anonymous complaint online against an investor, and it is very easy for investigators and regulators to dive into their activities via the internet, making it more likely than ever that an investor engaged in a questionable activity will get caught.


Attorney Jeffrey S. Watson, Esquire is council to the National Association of Real Estate Investors and an advisor to the Metrolina Real Estate Investors Association,, which provides education, networking, and mentoring to investors in the greater Charlotte area. You may contact Jeff at [email protected].



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