RE Crowdfunding FAQ’s

Q: What is Real Estate Crowdfunding?

A: Crowdfunding is the process of raising capital from a large number of investors who each make a relatively small financial investment in a particular venture.  Real estate crowdfunding is the application of crowdfunding to real estate investments and projects.

Q: Is Real Estate Crowdfunding legal?

A: It depends.  Despite the fact that in April 2012, the Jumpstart our Business Startups Act (the “JOBS Act”) was signed into law legalizing crowdfunding, the Securities and Exchange Commission (“SEC”) is still finalizing the rules for how crowdfunding will work and therefore crowdfunding remains prohibited.  In the meantime, individuals have been taking part in a more restrictive versions of crowdfunding which are either limited to “accredited investors” (those who meet certain high net worth / income requirements set forth by SEC) or applicable in limited circumstances (i.e. Regulation A, state blue sky laws).   In addition donation or perks based crowdfunding projects which are not equity based (the kind that have become popular on sites such as Kickstarter and Indiegogo) are legal.

Q: Tell me more about Private Placements

A: A ‘Private Placement’ is the offer and sale of any security not involving a public offering.   A popular Private Placement mechanism is Regulation D of the Securities Exchange Act (the “Act”) which exempts certain investments from the requirements of filing a registration statement with the SEC (a costly and time consuming process).

Q: Who is an Accredited Investor?

A: For a natural person an ‘Accredited Investor’ must meet one of the following criteria: 1) a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person; 2) a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year;  For more information visit www.sec.gov/answers/accred.htm.

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