The Howey Test (Otherwise Known As Why Private Money Investing Involves the SEC)
Have y'all ever heard of the the 'Howey' test?If y'all desire to heighten coin from individual investors to fund existent estate investments, y'all should know what the Howey exam is in addition to what it agency to you.
J. Howey was a Florida entrepreneur who was selling existent estate contracts to finance the evolution of citrus groves that he owned (a sale-leaseback type of deal). Howey was offering people to purchase his groves in addition to therefore he would lease them dorsum - therefore the buyer would earn their returns from rents received for Howey tending the land.
So what? Who cares? How does this bear upon you? Read on...
The number that the SEC took alongside J. Howey in addition to his existent estate bargain was how he was marketing his investment opportunity. You see, Howey marketed his earth sales via promotional materials at the tourist resorts inwards his area. He promised big profits to those who received the sales presentation past expressing interest. Most of Howey's buyers were neither residents of Florida nor experienced inwards farming or agriculture.
The SEC (which regulates securities laws for existent estate investors) filed a trial against Howey, where they sought an injunction to halt Howey from using post service in addition to other agency of "interstate commerce" inwards offering what they called the sale of non-exempt, unregistered security.
The Supreme Court ruled that Howey was offering an "investment contract" every bit defined past the Securities Act of 1933. As a office of this ruling, the Supreme Court developed a exam to come across whether an chance constitutes an "investment contract." This exam was called the "Howey Test."
An investment contract nether the Howey Test was defined every bit follows:
1. an investment of coin due to
2. an expectation of profits arising from
3. a mutual enterprise
4. which depends alone on the efforts of a promoter or 3rd party
What this meant for J. Howey, in addition to for all existent estate investors inwards the future, was that anytime you're searching for investors, no thing if the investor goes on the deed or has a mortgage, if the investor is relying on y'all to brand their profits y'all are considered to live selling a security. The Howey Test ready the measure for securities laws inwards raising coin for existent estate investments.
Since you're selling a safety when y'all heighten individual money, y'all must comply alongside the securities laws.
I've constitute it helpful when raising individual money, every bit good every bit when I learn existent estate investors nigh raising individual money, to become through the basics of securities laws in addition to how they came to number us. Honestly, when you're focused on your fiscal goals (and existent estate investing every bit your vehicle to attain them), aught should deter y'all - specially regulations. Once y'all know the rules of the game, y'all tin play it much better.
You should ever take a qualified securities lawyer assistance y'all alongside your individual coin offerings. I take a trusted squad of professional person advisors in addition to my securities lawyer is at the peak of the listing - in addition to I assay their counsel often. Never live penny wise in addition to pound foolish when it comes to your ability squad of advisors.
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