Professional · Murrieta, CA · Member since 2013 · 405 posts · 458 votes
8y
Hello everyone,
I have done a lot of Rule 504s in my time. I do NOT recommend them at all. The state securities boards are NOT friendly to them at all. Here are some reasons why:
1. Some states (like Michigan and NH) do not even allow Rule 504's in their states.
2. Rule 504 offerings (and Rule 505) are not federally covered securities. This means the states that do allow 504 offerings may require you to send all of your offering documents to the state for review prior to allowing you to sell in their state.
3. Some states (like Arkansas) will require you to provide a list of investors to the state.
4. Although it is true that the SEC expanded Rule 504 (or is in the process of doing so) this does not change the way the states will treat Rule 504. It is also true that the change to Rule 504 will eradicate Rule 505.
My recommendation is to stick with Rule 506 offerings, under either (b) or (c).
506(b)
1. You need to have a "substantive pre-existing relationship" with a potential investor prior to making an offer to invest. This means having an "intimate awareness of one's financial ability to invest." This can be accomplished with an investor qualification form.
2. No general solicitation allowed.
3. Up to 35 sophisticated (unaccredited) investors and unlimited accredited investors.
4. Raise as much money as you want.
506(c)
1. No pre-existing relationship required.
2. General solicitation allowed.
3. Only accredited investors.
4. Raise as much money as you want.
I hope this helps.
@Todd Dexheimer if you want me to check on any states for you, I am happy to do that.
Investor · Centennial, CO · Member since 2012 · 327 posts · 232 votes
8y
Not at all. You just have to find the right people that allow non-accredited investors in their deals, like me!!! PM me if you'd like to be added to my Investor List.
Rental Property Investor · Doylestown, PA · Member since 2008 · 1k+ posts · 1k+ votes
8y
@Collin Borns PM me so we can establish a relationship.... then you don't need to be accredited. I have a portfolio of SFR, multi family and office buildings. My investors include family, friends, my Realtor, two of my lawyers, my banking manager etc. They have all approached me to invest because they've watched me grow my portfolio over the years and they like what they saw.
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
8y
@Collin Borns Just make sure that you are getting set up in the right structure. My company is currently in the process of doing 2 capital raising for apartments buildings (84 unit and 131 unit) and using several non-accredited investors. We are using a 504 offering. They key is to have an attorney that knows the rules, especially when bringing in investors from out of state.
@Collin Borns Just make sure that you are getting set up in the right structure. My company is currently in the process of doing 2 capital raising for apartments buildings (84 unit and 131 unit) and using several non-accredited investors. We are using a 504 offering. They key is to have an attorney that knows the rules, especially when bringing in investors from out of state.
Todd, what was the reasoning for going with a 504 offering?
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
8y
@Anthony Chara I don't think that is accurate, but of course it's always prudent to check with your attorney. Either way, I am doing it because I have 2 really close friends that are non-accredited that want to invest in my apartment deal. It works in their states. According to my attorney every state has specific filing fees and requirements. I did not specifically ask if I could raise from investors in every state, but with a 10 minute search I could not find anything that would lead me to believe that I could not. Unlucky for me though, because I do not have friends or family in every state that would like to invest with me.
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
8y
@Anthony Chara certainly Jillian Sidoti is an excellent source. From what I have heard the 505's have been replaced by the 504 since 2016, but if your attorney says to go with a certain type of offering, certainly don't take what I think :)
Rental Property Investor · Houston, TX · Member since 2015 · 454 posts · 273 votes
8y
Lots of good information in this thread. Yes, passive investments can be made with investment entities. A lot of those individuals are on BP and can also be found listening on podcasts. Do your due diligence on the deal sponsors\syndicators, because not all syndicators are a like. Remember google is your friend.
Attorney · Houston, TX · Member since 2016 · 61 posts · 38 votes
8y
I'm not a securities attorney, but I wish I played one on TV. My understanding is that Rule 504 and 505 each allow non-accredited investors, but 504 places a $1M on your capital raise (unlimited non-accredited investors, though). Rule 505 limits you to a $5M capital raise and 35 non-accredited investors, plus it requires certain extra disclosures. I would be interested to see which states no longer recognize 504s. They must have more restrictive state securities laws, which is always confusing.
Professional · Murrieta, CA · Member since 2013 · 405 posts · 458 votes
8y
Hello everyone,
I have done a lot of Rule 504s in my time. I do NOT recommend them at all. The state securities boards are NOT friendly to them at all. Here are some reasons why:
1. Some states (like Michigan and NH) do not even allow Rule 504's in their states.
2. Rule 504 offerings (and Rule 505) are not federally covered securities. This means the states that do allow 504 offerings may require you to send all of your offering documents to the state for review prior to allowing you to sell in their state.
3. Some states (like Arkansas) will require you to provide a list of investors to the state.
4. Although it is true that the SEC expanded Rule 504 (or is in the process of doing so) this does not change the way the states will treat Rule 504. It is also true that the change to Rule 504 will eradicate Rule 505.
My recommendation is to stick with Rule 506 offerings, under either (b) or (c).
506(b)
1. You need to have a "substantive pre-existing relationship" with a potential investor prior to making an offer to invest. This means having an "intimate awareness of one's financial ability to invest." This can be accomplished with an investor qualification form.
2. No general solicitation allowed.
3. Up to 35 sophisticated (unaccredited) investors and unlimited accredited investors.
4. Raise as much money as you want.
506(c)
1. No pre-existing relationship required.
2. General solicitation allowed.
3. Only accredited investors.
4. Raise as much money as you want.
I hope this helps.
@Todd Dexheimer if you want me to check on any states for you, I am happy to do that.
Investor · Leawood, KS · Member since 2017 · 178 posts · 108 votes
7y
@Collin Borns as you see there are many opportunities for non accredited investors to invest in bigger deals. Most syndications do allow for a set # of non-accredited investors, but you have to have prior relationship with the sponsor. So take your time getting to know good sponsors and the markets they invest in.
Let me know how I can help. I also am a syndicator and recently closed a 144 unit deal south of Memphis and had non accredited investors invest alongside of us.