Investor · SC · Member since 2021 · 2 posts · 0 votes
Hi guys, I've been researching partnerships options for non accredited investors and feel a little bit confused. Maybe some could help. Can I legally invest in a larger properties with multiple investors who are not accredited but want to invest more than 5-10% of their annual income? Can I do that as LLC created with investors with whom I do not have any previous relationships? Thanks in advance!
If the investors are ALL active, you are setting up a JV (joint venture) and most real estate attorneys should be able to set it up, usually as a LLC. Before setting up a JV you should have a preexisting relationship with these partners since you are starting a business together where everyone will have a role.
If some of the investors are passive, you are now venturing into securities law and syndications. If this is the route you are choosing; you want to read up on Rule 506 of Regulation D and speak to a securities attorney. This is where 506(B) and 506(C) come into play.
For the moment I was more thinking about passive investors.
From my understanding, according to the Rule 506, the non accredited investors can only invest 5-10% of their annual income. That would mean that I’d need 20-30 such investors for one project. That seams like a lot of paperwork and hefty attorney bill.
So if I’m thinking passive investors whom would invest more than 10% of their annual income the only option is accredited investors? Or, joint venture with 6-8 partners, which could be very challenging and only possible if I have a previous relationship with them.
Hi Zola, it is recommended that a non-accredited investor (that is sophisticated) that invests should not invest more than 10% of their net worth. You can have up to 35 sophisticated investors in your 506(b) offering.
Frankly, it is wise not to take more 10% of any individual's net worth into your deal - the risk is too high for them and the risk is too high for you if something goes wrong. Best of luck!