Passive Investment Opportunities

Right now there are deals going on that you may be able to review. Some are Regulation D and Some are Regulation C. What is the Difference? While there are many differences, a couple of the major ones are the financial qualifying factors you need to participate in the investment. 

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*Qualifications are set by the Securities and Exchange Commission, otherwise known as the SEC which sets rules and guidelines for Multifamily Real Estate investments. 

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What is Regulation D?

Regulation D includes two SEC rules—Rules 504 and 506—that issuers often rely on to sell securities in unregistered offerings.  Most private placements are conducted pursuant to Rule 506.   

Rule 506

Issuers may raise an unlimited amount of money in offerings relying on one of two possible Rule 506 exemptions—Rules 506(b) and 506(c).  An issuer relying on Rule 506(b) may sell to an unlimited number of accredited investors, but to no more than 35 non-accredited investors.

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What is an Accredited Investor?

Accredited investor.  One reason these offerings are limited to accredited investors is to ensure that all participating investors are financially sophisticated and able to fend for themselves or sustain the risk of loss, thus rendering less necessary the protections that come from a registered offering.  An individual is an accredited investor if they:

• earned income that exceeded $200,000 (or $300,000 together with a spouse or spousal equivalent) in each of the prior two years, and reasonably expects the same for the current year, OR

• has a net worth over $1 million, either alone or together with a spouse or spousal equivalent (excluding the value of the person’s primary residence and any loans secured by the residence (up to the value of the residence)), OR

• are a broker or other financial professional holding certain certifications, designations or credentials in good standing, including a Series 7, 65 or 82 license.

A spousal equivalent means a cohabitant occupying a relationship generally equivalent to that of a spouse.

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Any non-accredited investors in the offering must be financially sophisticated or, in other words, have sufficient knowledge and experience in financial and business matters to evaluate the investment.  This financial sophistication requirement may be satisfied by having a purchaser representative for the investor who satisfies the criteria.  An investor engaging a purchaser representative should pay particular attention to any conflicts of interest the representative may have, such as having a financial interest in the offering or separately being compensated by the issuer.

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Visit: https://www.sec.gov/oiea/investor-alerts-and-bulletins/private-placements-under-regulation-d-investor-bulletin for the complete information of these terms.

 

*MFRE or its owners, officers, board members, associates, partners are not an Attorney, CPA or CFP and are not offering financial advice anywhere on this website.

 

*Information herein is given for educational and entertainment purposes only and it is recommended that you consult with an Attorney, CPA and CFP before making any investing decisions. 

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Other Exempt Offerings.  You may also come across offerings that rely on exemptions from registration other than Regulation D.  These may include crowdfunding and Regulation A offerings. 

Each exemption is governed by one or more rules setting forth specific requirements that the company offering the securities—called the issuer—must meet in order to qualify for the exemption.  Most exempt offering materials will indicate that the issuer is relying on an exemption.  If you have reason to believe that an unregistered offering claiming to rely on an exemption does not satisfy the applicable requirements, consider this to be a red flag about the investment. 

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What should you do before investing?

Private placements may be pitched as a unique opportunity being offered to only a handful of investors, including you.  Be careful.  Don’t be fooled by this high-pressure sales tactic.  Even if the deal is “unique,” it may not be a good investment.  It is important for you to obtain all the information that you need to make an informed investment decision.  In fact, issuers relying on the Rule 506(b) exemption must provide non-accredited investors an opportunity to ask questions and receive answers regarding the investment.  If an issuer fails to adequately answer your questions, consider this a warning against making the investment.

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*Some information on this webpage obtained from the U.S. Securities and Exchange Commissions' website.

**Information on this page and website is for information and entertainment purposes only and is not considered to be legal, financial or investment advice in any way, shape or form. You should always consult your own Attorney, CPA or CFP before making any investment decisions. There is always a risk of capital loss in every investment and due diligence is your responsibility.