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How Regulation A+ is Opening Up Opportunities for Real Estate Investors

By: Max Sharkansky, Managing Partner

How Regulation A+ Gives More People the Opportunity to Grow Their Wealth Through Real Estate Investment

In the last few years, the passing of laws loosening several regulations has resulted in a broader group of investors being able to participate in real estate investment. One of these is Regulation A+.

Many people, especially those who did not consider themselves ‘rich’ enough to invest in real estate previously, could benefit from taking note of this regulation and considering these new opportunities.

What is Regulation A+?

Title IV Regulation A+ (a.k.a. Reg A+) was launched in May 2015 as the next evolution of the Jumpstart Our Business Startup (JOBS) Act, which was meant to streamline the process of capital raising for smaller companies and startups, and paved the way for crowdfunding platforms.

Whereas previously, private investments were only available to accredited investors—that is, those with an earned income above $200,000 (or, combined with a spouse, $300,000) in each of the prior two years, and expects the same for the current year, or has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence)—Reg A+ provided an exemption that allows smaller U.S. and Canadian companies to sell their shares to the general public, essentially creating an environment for startups and crowdfunding platforms to flourish.

With Reg A+ in place, these private companies are now able not only to sell their offerings to more buyers, but also to publicly advertise their offerings. The goal of the regulation was to give smaller companies and startups a fighting chance at success and growth and to give a wider swath of people access to the many benefits of real estate investment.

Related: What is Good Cash on Return for Real Estate Investing?

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What Investment Restrictions Apply to Reg A+?

There are two tiers to Reg A+. Tier I raised the ceiling on total equity invested in an eligible company from $5 million to $20 million, with no limit on the size of each individual eligible investment. Tier II raises the total equity limit to $50 million, with non-accredited investors capped at 10% of their annual income or net worth, whichever is greater.

Annual financial reviews and reports are required for both tiers of the legislation.

While both tiers benefit buyers, Reg A+ exempts Tier II investors from Blue Sky laws, which require that the offering be registered in each state where qualified investors purchase shares of a company. Therefore, Tier II investment is more beneficial to smaller companies and startups, which may in turn be more beneficial for their investors as well.

How Does Reg A+ Help Real Estate Investors?

By opening up investment in private real estate to non-accredited investors, Reg A+ democratizes the process and provides more people with a pathway to the benefits of owning real estate.

Previously prevented from participating in private real estate investment platforms, non-accredited investors can now enter a playing field formerly reserved for more affluent investors. Reg A+ also allows people interested in real estate investment to expand beyond public REITs into the potentially more rewarding arena of private real estate ownership.

The checks and balances provided by Reg A+ help protect non-accredited investors from investing beyond their means while preventing offerings from being oversubscribed.

The post-Great Recession concern about buyers getting in over their heads has evolved into a less restrictive, yet safer way of allowing non-accredited investors to participate in private real estate investment. Legislation like Reg A+ is a creative solution to business-hampering regulations that also provides necessary safeguards against overinvestment.

The legislation has been a boon for startups and smaller companies while helping crowdfunding platforms to advance and offering increased wealth-building opportunities to more investors across the country.

Related: Should You Buy an Investment Property with an IRA or 401k?

Posted By Max Sharkansky, Managing Partner

Max is co-founder of Trion Properties and oversees all aspects of acquisition, disposition, and property analysis for the company. Since founding Trion he has led the acquisition, renovation and disposition of over $300,000,000 in mismanaged and distressed assets, primarily in multi family, yielding an average IRR in excess of 30%.

Max's driving objectives in investing are to deliver outsized returns without taking outsized risks and the words he lives by are that "real estate doesn't kill people, debt does."