I am buying a cash flowing property and receiving a preferred equity investment from an institutional source (Fundrise) which does crowd funding. Fundrise was started by Jews but now has many other institutional investors – Asian funds, etc. Fundrise commits to provide me money to purchase the property and they get 7% interest current and 6% accruing and then it is due in 8 years. If the property is not worth enough to pay the interest or the accrual they don’t get anything else. After we purchase the property, Fundrise then goes to their database of thousands of people and gets small amounts of money from anyone interested in this particular property. Even if Fundrise is not majority Jewish, would it matter if the investors they went to were Jewish? Do I need a heter iska? Thank you.

I am purchasing a real estate property and getting a traditional loan from a bank. In addition to the bank loan I am raising money from individual investors for what we call preferred equity. The investors get their prorata share of any profits until they have earned 18% per year. There are no monthly payments or guarantees. This is a development deal, so if there is a large profit upon sale in 3 years investors would get 18% x 3 or 54% and my company would get the rest. If it only generated 10% that is all investors would get. If it lost money, everyone would lose their share. Do I need to have a heter iska with each preferred equity investor who is Jewish? Thank you.

Answer:

The question as to whether these deals themselves constitute an iska which would obviate the need for a tradtional “heter iska” depends on many factors, many of which could change as time goes on.  A heter Iska should be signed and a clause added to all your deals that they are being done in accordance to the above heter iska.

 

Tags: investment ribbis

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