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The Truth About Investing through Equity Crowdfunding as an Unaccredited Investor

09/04/2014
Fundrise blog, crowdfunding blog, CRE blog, RE investing blog

Expanding access to quality real estate investments is one of the main reasons that we started Fundrise.

As urban retail developers, we spent our time building unique real estate projects...but more often than not we found that our investment partners were large funds with very little connection to the places we were building.

Meanwhile, the people with real understanding of the projects couldn’t invest. Even though they understood the opportunity and our vision, there was no feasible way to allow them to participate.

Why not?

Currently, the vast majority of investments are only available to high net-worth investors, aka accredited investors. Accredited investors make up roughly 3% of the population, meaning that the other 97% of individuals are restricted from these types of investment opportunities.

So, we set out to fix this. Allowing individuals to invest together in real estate (“crowdfund”) had never been done before, but we figured out a way to do it using a little-known regulation called Regulation A.*

Since 2010, we’ve used Regulation A to allow more than 1,200 unaccredited investors to participate in private real estate offerings -- many for the first time ever.

However, filing a Regulation A is no small task.

Regulation A requires that an offering be both qualified with the SEC, and registered in each state where you plan on offering the securities -- this process can take months to accomplish and cost upwards of $50,000.

Here’s a specific breakdown of what it took to make our most recent offering possible -- a commercial building in Washington, DC:

        

Working within the confines of today’s regulations makes structuring offerings available to unaccredited investors extremely difficult.

For almost every real estate company, it’s unlikely to be economically feasible to spend $50,000 and wait six months to raise $500,000 or even $1M in investment capital. As a result, the majority will continue to opt to use Regulation D Rule 506, a more traditional offering type, limited to accredited investors.

We still believe that the true power in crowdfunding comes from changing who has the power to invest. Doing so in a way that is economically viable for the project and the sponsors raising capital will be the ultimate game changer.

* Fun Fact: In 2011, 19 Regulation A offerings were filed. Only one was eventually qualified by the SEC: a revival of the Broadway musical Godspell.

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By: Ben Miller

Co-Founder | Fundrise

Twitter: https://twitter.com/BenMillerise

Visit Ben's Website: www.fundrise.com

Email: contact@fundrise.com

Visit Ben's blog: blog.fundrise.com

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