8/29/10: Public or Private Pool? The New Rules for Accredited Investing

Honey, they shrunk my net worth!

In case you haven’t heard, the financial reform bill redefines who qualifies as an accredited investor.  So, if you like to pool your money with other people’s money so you can get in on bigger deals, there are some new rules to play by.

And if you’re syndicating deals now, then you REALLY need to listen up – because the new rules are effective IMMEDIATELY!

Diving into the deep end of The Real Estate Guys™ pool to discuss the ramifications for real estate investors:

  • Your host and lifeguard, Robert Helms
  • Your co-host and wading pool watcher, Russell Gray
  • Cannonball champion, the Godfather of Real Estate, Bob Helms

OMG!  OPM is r BFF.  TDM rulz!

Sorry.  Too much time at the teen pool.  Back to the topic at hand…

Our friend and real estate attorney Jeff Lerman sent us an important update about something buried in the 2,300 pages of the financial reform bill:  Congress decided to change the definition of “accredited investor” so that you can’t count your home equity in your net worth.  Maybe it’s a good time to do it since so few people have any home equity any way.

Public pools can get crowded. It's sometimes hard to find a unique opportunity.

But for those of us who like to invest in private placements – and even more importantly, those who like to have people invest in our private placements – the new definition just demoted a lot of investors.  They’ve effectively been kicked out of the private pool and are now only allowed to swim in public securities.  You know, the ones run by the fine folks on Wall Street and “supervised” by the SEC.  We’re feeling safer already.

What’s really amazing is the new rules went into effect immediately. That means if you were in the middle of getting into a deal or putting one together, nothing is grandfathered.  So you could have good faith money in a deal based on capital pledges from people who were qualified to invest and poof!  Now those people are unqualified and you’re scrambling to find replacement money before you lose your opportunity – or worse, your earnest money.

We’re guessing the folks who decided to do this have never put a deal together.  But, perhaps just a little too much of our opinion is showing.  Sorry, we’ll throw a towel around ourselves.

A big thanks for Jeff for bringing this to our attention.  It’s changes like this that keep us subscribed to all of our newsletters, podcasts and blogs.  You never know (especially now) when the winds of change are going to blow across the game board and shuffle things around.  But when they do, you can count on The Real Estate Guys™ and our network of experts to let you know – and to help you adjust and adapt.  So be sure you’re subscribed to everything and keep your eyes and ears open!

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