| Have you ever heard of the the 'Howey' test? | | | | 2. an expectation of profits arising from |
| If you want to raise money from private investors | | | | 3. a common enterprise |
| to fund real estate investments, you should know | | | | 4. which depends solely on the efforts of a promoter |
| what the Howey test is and what it means to you. | | | | or third party |
| J. Howey was a Florida entrepreneur who was selling | | | | What this meant for J. Howey, and for all real estate |
| real estate contracts to finance the development of | | | | investors in the future, was that anytime you're |
| citrus groves that he owned (a sale-leaseback type | | | | searching for investors, no matter if the investor |
| of deal). Howey was offering people to buy his | | | | goes on the deed or has a mortgage, if the investor |
| groves and then he would lease them back - so the | | | | is relying on you to make their profits you are |
| buyer would earn their returns from rents received | | | | considered to be selling a security. The Howey Test |
| for Howey tending the land. | | | | set the standard for securities laws in raising money |
| So what? Who cares? How does this impact you? | | | | for real estate investments. |
| Read on... | | | | Since you're selling a security when you raise private |
| The issue that the SEC took with J. Howey and his | | | | money, you must comply with the securities laws. |
| real estate deal was how he was marketing his | | | | I've found it helpful when raising private money, as |
| investment opportunity. You see, Howey marketed | | | | well as when I teach real estate investors about |
| his land sales via promotional materials at the tourist | | | | raising private money, to go through the basics of |
| resorts in his area. He promised large profits to those | | | | securities laws and how they came to effect us. |
| who received the sales presentation by expressing | | | | Honestly, when you're focused on your financial goals |
| interest. Most of Howey's buyers were neither | | | | (and real estate investing as your vehicle to achieve |
| residents of Florida nor experienced in farming or | | | | them), nothing should deter you - especially |
| agriculture. | | | | regulations. Once you know the rules of the game, |
| The SEC (which regulates securities laws for real | | | | you can play it much better. |
| estate investors) filed a lawsuit against Howey, | | | | You should always have a qualified securities lawyer |
| where they sought an injunction to stop Howey | | | | help you with your private money offerings. I have a |
| from using mail and other means of "interstate | | | | trusted team of professional advisors and my |
| commerce" in offering what they called the sale of | | | | securities lawyer is at the top of the list - and I seek |
| non-exempt, unregistered security. | | | | their counsel often. Never be penny wise and pound |
| The Supreme Court ruled that Howey was offering | | | | foolish when it comes to your power team of |
| an "investment contract" as defined by the Securities | | | | advisors. |
| Act of 1933. As a part of this ruling, the Supreme | | | | ***This information is intended for educational |
| Court developed a test to see whether an | | | | purposes only. The contents of this article does not |
| opportunity constitutes an "investment contract." This | | | | constitute legal or tax advice. The author is not |
| test was called the "Howey Test." | | | | rendering any legal, tax or professional advice. Before |
| An investment contract under the Howey Test was | | | | conducting any business transaction, please consult |
| defined as follows: | | | | proper legal and tax counsel. |
| 1. an investment of money due to | | | | |