I have no education in legal matters and was only thinking about some investments. I stumbled on something called the Howey Test and tried to read a little about it. I still don't understand it, and will demonstrate my confusion with a scenario.
Renzo owns a house. Renzo sells the house to Samir. Samir wants to generate rental income with the house. Samir has no experience in the rental business. Samir pays Renzo $2k per month to perform the following services:
- find suitable tenants for the house by performing marketing services, background checks of tenants etc...
- maintain the property (eg. cut the grass, fix toilet, re-shingle root etc...)
- manage any financial issues such as paying taxes, etc...
Based on the above points, does this scenario pass the Howey Test? Do any of the following points (or combination of points) affect the scenario's ability to pass the Howey Test?
- Samir and Renzo are siblings
- Samir and Renzo agree to split any profit/loss generated from the rental income
- Samir owns all the profit/loss generated from rental income. Renzo does not make any other income beyond his $2k per month.
- The value of the house at time of transaction was under $100k USD
- The value of the house at time of transaction was over $100k USD
I don't fully understand the term common enterprise. I was hoping someone can give an example of common enterprise based on the points I mentioned in the scenario.
When trying to read wikipedia's article on SEC v. W. J. Howey Co., I couldn't confirm why anyone would want to buy land from W. J. Howey if both of these conditions are true:
- they have no agricultural experience
- they have "no right of entry and no right to any produce harvested" (is this the same as saying you own nothing but the land? If you don't own the produce harvested, then how do you sell it for money/profit? What use is the land then? Buyer's of the land only opportunity to profit is based on capital gains appreciation?)