How to Raise Capital to Acquire Real Estate
Buying real estate is a popular way to invest. Most real estate investments offer steady returns with the potential for significant capital appreciation.
However, real state investments are capital intensive. As a result, many commercial real estate sponsors seek to raise funds from investors in order to purchase real estate.
Following are some of the popular methods for raising capital to acquire real estate.
- Private offering with no advertising: In this method, the real estate sponsor approaches investors with whom he or she has a pre-existing relationship. No advertising is allowed. With this method, a private placement memorandum [ Link to PPM article] is prepared describing the investment opportunity, management, and risk factors. There is no limit on how much can be raised; however, if non-accredited investors invest, then detailed financial statements must be included. In addition, a maximum of 35 non-accredited investors may invest.
- Private offering with advertising: With this method, the offering can be advertised freely though any means. However, only accredited investors can invest in the offering, and the company must verify the accredited investor status of each investor. In order to use this method, a private placement memorandum [ Link to PPM article] is prepared describing the investment opportunity, management, and risk factors. There is no limit on how much can be raised, and there is no limit on the number of investors that can invest.
- Regulation A+: In a Regulation A+ offering, an offering circular (similar to a prospectus) must be filed with the SEC and declared effective. The offering can be advertised freely through any means; however, investors’ funds cannot be accepted until the offering circular is declared effective by the SEC. There are no limits on who can invest; however, there are limits on how much non-accredited investors can invest. In addition, audited financial statements are required. With a Regulation A+ offering, a maximum of $50 million can be raised. Furthermore, there are post-offering compliance requirements.
- Fully registered offering: A fully registered offering is similar to a Regulation A+ offering in that a registration statement (which contains the prospectus) must be filed with the SEC. The prospectus must include audited financial statements. Ironically, there are more restriction on advertising a fully registered offering than there are for a Regulation A+ offering. However, there are no limitations on who can invest and no limits on the size of the offering. Furthermore, the company will be required to file quarterly, annual, and current reports with the SEC on an ongoing basis.
The method that is right for your company will depend on the nature of your investors (accredited or not), how you plan on finding investors, and whether you will be purchasing just one piece of real estate or forming a real estate fund [ Link to real estate fund article ].
If you are ready to start raising capital to purchase real estate, then contact Whitley LLP Attorneys at Law today. We can work with you to find the method that is right for your offering, prepare all necessary documents, and get you ready to raise the capital you need to make your real estate acquisition a success.