How to Raise Money for Real Estate Investment from Family and Friends

Getting a start in real estate can require a significant capital investment that may be out of reach for many individuals. One way to overcome this hurdle is by investing with your family and friends who may not have experience managing or operating real estate investments but want to invest in real estate projects with an experienced operator or developer.

Federal and State Securities Laws

Securities offered to the general public must be registered with federal and state agencies, such as the Securities and Exchange Commission. However, private offerings made exclusively to a limited number of individuals, such as family and close friends, may be exempt from registration if they meet specific criteria.  This "friends and family" exemption applies when the investment is limited to individuals with whom you share a strong personal connection and have already established a relationship, such as family members, close friends, and current or prior business partners.  These investors may also need to meet certain requirements in terms of their investment experience and net worth.

Best Practices for Raising Money from Family and Friends

There are several best practices to follow if you want your family and friends to participate in an investment:

1. Consult with an Attorney: It is highly recommended to consult with an attorney with experience in small private placements before approaching family and friends. They can help you understand the legal and regulatory requirements to structure your offering.  
2. Provide Full Written Disclosure: You need to provide all relevant information about the investment opportunity, including potential risks to anyone whom you may want to invest. This will not only protect you legally but also build trust with your investors.  You must have a written agreement in place that outlines the terms and conditions of the investment.  This disclosure is ordinarily done through a private placement memorandum (a "PPM") or a subscription agreement.
3. Keep it Limited: To ensure compliance with securities laws, you must limit the number and type of people you approach for investment.
4. Avoid Advertising: Securities laws have very strict restrictions on advertising for private offerings.  This includes not promoting or mentioning your investment opportunity on social media or other public platforms.  

How an Attorney Can Help

Raising money from family and friends can be a great way to fund real estate projects.  However, it is important to understand and follow relevant federal and state laws to ensure compliance and protect both yourself and your investors. Consulting with an attorneys at David Austin Law and providing full disclosure of the investment opportunity are key steps in successfully raising money.

So, if you are considering this route, make sure you seek professional legal advice we can provide for you for a smooth and compliant fundraising process. Happy investing!

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