MORE Passive Investing for the Unaccredited Real Estate Investor
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Hi, I’m Brooke
And I’m Dan with the High Yield Real Estate Investing Podcast
In our last episode we discussed two options for unaccredited investors to invest passively in real estate. If you haven’t listened to that episode, go back and listen to it before listening to this one. In this episode, we’ll show you even more options for the unaccredited investor.
To continue our discussion, let’s talk about another SEC rule that’s new. It’s actually an older regulation called regulation A that’s been modified and is now known as Regulation A Plus+. You can think of Regulation A Plus+ like crowdfunding, but with much higher dollar amounts. If you know what an IPO is in the stock market world, then this is very similar. A company can raise up to 50 million dollars using Regulation A Plus. Why would they want to do this? Well, it’s faster and cheaper than an IPO. Companies also have access to millions of individual investors instead of relying on Wall Street investment banks. Plus, savvy unaccredited investors can get in on the ground level of a company offering up shares. Can you get in on an IPO? Probably not, unless you’re in the investment banking industry. There are some income and net worth requirements for unaccredited investors we’ll discuss next. There are also a number of other requirements that we won’t cover since they specifically pertain to the company offering securities. Expect to find mature startups, real estate developers, and mid-sized companies offering equity or debt in their company under Regulation A Plus+ offerings. You can even invest using your credit card in some cases.
So how much money can you invest in a Regulation A Plus offering if you’re unaccredited? Well, first there are two tiers that an offering can be registered in. Tier 1, which can raise up to 20 million, and tier 2 which can raise up to 50 million. Unaccredited investors have no limit to how much they can invest in a Tier 1 offering1 offering. For Tier 2 offerings you’re limited to 10% of your net worth (excluding your primary residence) or income, whichever is greater. You also don’t have to show documentation of your income or net worth. Investors who aren’t US citizens can also invest with the same limitations. If you’re an Accredited Investor, then the investment limits don’t apply.
Investing your money in a Regulation A Plus security has an advantage over the previously discussed Rule 506 syndications since your investment is liquid. This means you can sell your investment to another party without restriction if you desire. If you had invested in a Rule 506 syndication, then you’re restricted for at least a year from selling your investment to someone else should you needed to cash out your investment. Also, companies offering securities under Regulation CF or Regulation A Plus are allowed to publicly advertise their offerings. If you remember from our last episode, companies offering securities to unaccredited investors aren’t allowed to advertise their investment to the public under Rule 506(b). You’ll also find a really low minimum dollar amount to invest. Many Crowdfunding and Regulation A Plus investments advertise a low $500 or $1,000 dollar minimum investment. Most Rule 506 syndications will probably want 25 thousand as a minimum!
So what can you invest in and how can you find those investments? Well, the easiest thing to do I open up your favorite search engine and type in Regulation A Plus real estate. Most of what you’ll find will be private REITs, or Real Estate Investment Trusts. But some will be offering private equity in individual properties as opposed to a whole portfolio of properties like the REITs. Take a look through all the options that pop up in the search engine. For each site, you’ll have to create an account to be able to really look at what they’re offering. There are a few questions to answer then you’ll be all set. It’s pretty easy. While researching for this episode I found an offering for a large multifamily property that was advertising a 30% yearly return, 26% cash yield with a 2.5 equity multiple over a 5 year investment. If you put in $1,000 dollars you’d eventually get back 2,500 dollars when the investment was done. Plus, you’d also get cash flow of about $260 dollars a year. Returns like that were once reserved for only accredited investors in Rule 506(c) syndications. But the savvy unaccredited investor who ventures outside of the stock market can find high yield investments in real estate like the one I just mentioned. We’ll put a short list of companies that offer Regulation A Plus investments to unaccredited investors on our website. We have no association with these websites and can’t say we endorse them. They are solely listed for your convenience.
We should also mention that more than just real estate is available for investment with Regulation A Plus. If you want to invest in the next software startup or retail idea, go for it. You can use retirement funds and invest through a self-directed IRA or 401k in most cases also.
In our next episode, we’ll be talking about why the publicly traded REITs you can invest in with your stock portfolio don’t come close to comparing to investing in real estate whether it’s actively by owning property yourself, or passively through methods we already described. But the private REITs we’ve just mentioned fare a little better. You can find some promising 8-9% dividends as opposed to 4-6% in public REITs. Also, your equity invested won’t be affected by the latest stock market fluctuation. However, you’re still taxed at long term capital gains and your ordinary income rate. The intricacies of how these are actually calculated is another episode. In fact, for most Reg CF and A+ offerings, you’ll be given a 1099-DIV for the tax year. That means that you’ll probably have a decent tax burden on any returns you received but that’s offset by the privilege of being able to invest smaller dollar amounts as an unaccredited investor. If you invest the higher dollar amounts in the Rule 506 syndications, you’ll most likely pay no, or very little, tax each year.
Thanks for listening. If you want to learn more go to our website highyieldre.com. There, you’ll find a complete list of previous episodes and transcripts. Don’t forget to subscribe to get updates on our latest episodes. You can also find us through your favorite podcast service or YouTube. You can contact us through our website or by emailing info at highyieldre.com