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Understanding Real Estate Crowd Investing

Crowdfunding vs. Crowd Investing
The terms crowdfunding and crowd investing are often used interchangeably. But even though they are both ways of financing, there are key differences between the two. Crowd investing, which is what Acquire investors participate in, is equity-based and takes place when investors become shareholders in an asset and share in the profits and potential sale of a property. Crowdfunding, the more commonly used term, is when investors cooperate to finance a specific project but are not shareholders and do not participate in the profits or sale.

What is real estate crowd investing?
Real estate crowd investing leverages modern technology and new federal laws to create a centralized process for financing efforts. Instead of pitching an opportunity to investors on an individual basis, real estate operators can now present an opportunity on a single portal and connect with Accredited Investors across the U.S.—allowing investors unprecedented access to institutional-quality real estate opportunities. These opportunities were not previously available to many Accredited Investors unless they had inside relationships with owners.

Important Rules and Regulations that Affect Real Estate Crowd Investing:
The Jumpstart Our Business Startups (JOBS) Act
The JOBS Act was signed into law on April 5, 2012 and eased federal regulations to encourage small business and startup investment.

There are seven articles to the JOBS Act, but two are the most important when it comes to real estate crowdfunding.

Title II: General Solicitation
Signed into effect in September 2013, this article lifts the ban on general solicitation and advertising of private investment opportunities to Accredited Investors, provided that the issuer has taken reasonable steps to verify that the investors are in fact accredited.

Title III: Public Securities Crowd Investing
This article is currently under an SEC rulemaking period. Title III would enable non-Accredited Investors access to equity crowd investing opportunities with certain conditions.

Regulation D
Regulation D is composed of various rules advising the qualifications needed to meet exemptions from registration requirements for the issuance of securities. Below are the most relevant rules in regards to real estate crowdfunding.

Rule 501 – Accredited Investor
An Accredited Investor is defined as someone meeting one or more of the following criteria:

  • Made $200,000 or more individually or over $300,000 jointly with your spouse, in each of the two most recent years and has a reasonable expectation of reaching the same income level in the current year;
  • Has a net worth of more than $1 million, individually or jointly with a spouse, excluding a primary residence.

Click here for a full definition of an Accredited Investor.

Rule 506(b)
Rule 506(b) prohibits general solicitation and advertising to market the sale of securities. For an investor to review opportunities, they must have a pre-existing relationship with the issuer (see below for more information on the 30-day cool-off period) and be registered and logged into the private, password-protected website. Proof of Accreditation is based upon representation from the investor.

The 30-Day Cool-Off Period
The 30-Day Cool-Off Period is recommended by the SEC as a means of forging a pre-existing relationship between issuers operating under 506(b) and investors. It is meant to allow investors time to familiarize themselves with the given investment platform and opportunities and to avoid making a quick investment decision on a platform they might not fully understand.

Since Acquire features mainly 506(b) offerings, if you sign up on August 1, 2015 your cool-off period would be over on August 31, 2015. You will then be able to view and begin investing in our current opportunities as soon as you have completed your investor profile.

Rule 506(c)
Rule 506(c) allows issuers to use general solicitation and advertising for offerings and issuers are not obligated to forge a pre-existing relationship with the investors. However under 506(c), there are more stringent rules for determining if an investor is accredited. Issuers must reasonably verify accreditation by collecting information, such as tax returns, from aninvestors.

 

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