Crowdfunding, a way of funding a project from a large number
of individual contributions, has become very popular in the commercial real
estate world as a result of the JOBS
Act of 2012, which eased securities regulations to give small businesses
better access to funding. For example, Fundrise,
a leading crowdfunding website, allows individuals to invest in commercial real
estate projects, such as hotel or restaurant construction, for a low amount of
money, opening up investment opportunities to everyone and not just wealthy accredited
investors.
Now that crowdfunding is on the rise, it is important that
everyone who is looking to invest in a project knows that they are entitled to
certain disclosures under law. Rule 506(b) of Regulation D under the Securities Act is a new rule
as of 2013 which established specific requirements to determine whether or not
a transaction or project is exempt from Securities Act registration.
When securities (i.e. investments) are registered, they provide important
disclosure information to investors, such as a description of the company’s
properties/businesses, a description of the securities, the company’s
management information, and the company’s financials. Under Rule 506(b), some
companies do not need to register their securities if they do not advertise
their securities to the general public and do not sell the securities to more
than 35 non-accredited investors. Therefore, it should be noted that if
companies on Fundrise want certain
transactions or projects exempt from registration, they must be careful not to
sell securities to more than 35 non-accredited investors. However, these
companies, despite being exempt from registration, must still give the same
important disclosure documents and financial information to non-accredited
investors and must answer questions from non-accredited investors. This rule is
in place to protect individuals, who are not as knowledgeable or savvy as
accredited investors, from being victims of fraud or misrepresentation.
If you are thinking of investing in a real estate project in
the near future, remember that you are entitled under law to certain
disclosures about the project and company in question. Regardless of any
exemption, this information must be given to you as long as you are a
non-accredited investor.
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if you would like to know the top 60 real estate crowdfunding platforms.
