Hello Savvy Investors!
Exciting news! We recently closed a 10-unit deal through a 506(B) syndication. Now, you might be wondering, "What in the world is a 506(B)?" Fear not, I'm here to provide clarity on this topic. First things first, let's grasp the concept of a security. There are a number of reasons to invest in a real estate syndication, passive, monthly distributions, tax advantages, diversification, and more!
Understanding Securities and Regulation D
The Securities and Exchange Commission (SEC) defines a security as a tradable financial instrument representing an investment in or ownership of an entity's assets. When we closed the deal on the 10-unit property, we essentially offered equity and returns, falling under the category of a security. This means we need to follow specific rules outlined by Regulation D under the Securities Act. The SEC determines a security by the Howey test. The test came from the case of SEC vs W.J. Howey Co.
The Howey Test:
The Supreme Court, in a unanimous decision in 1946, established what is now known as the Howey Test. The test has three main elements:
Background:
In 1946, the SEC brought a case against the W.J. Howey Company, a citrus farm in Florida, and its two owners, W.J. Howey and his wife. The Howey Company had sold tracts of land to investors with a contract that included both the sale of land and a service contract for cultivating and harvesting citrus crops on the land. The SEC alleged that these contracts constituted investment contracts and, therefore, were subject to federal securities regulations.
Legal Issue:
The central issue in the case was whether the transactions between the Howey Company and the investors constituted an "investment contract" under the Securities Act of 1933 and the Securities Exchange Act of 1934.
Court's Decision:
The Supreme Court held that the sale of the land, coupled with the service contract for cultivating and harvesting the crops, constituted an investment contract. The Court found that investors were pooling their funds, expecting profits from the efforts of the Howey Company, and were, therefore, purchasing a security.
Impact:
The Howey Test has been widely adopted and continues to be the primary legal standard for determining whether a transaction qualifies as an investment contract. This test is instrumental in identifying securities under U.S. law, providing clarity and guidance in a variety of contexts, including token offerings and other modern financial instruments.
Key Rules of a 506(B) Offering:
Overview of 506(B) Offerings:
In essence, a 506(B) offering allows family and friends, even if they're not accredited investors, to join an apartment deal. These offerings won't be advertised publicly, so the way to get involved is by having someone like me reach out to you personally about a deal under contract.
Remember, we're actively seeking more investment opportunities, and I invite you to join us on this impactful journey. If you're reading this and we haven't connected, that needs to change! Reach out via email, and let's set up a time to discuss your goals and how you can be part of our investments.
Disclaimer:
I'm not an attorney or accountant. This isn't legal advice. Always conduct your research and due diligence. Your understanding is crucial, so don't just take my word for it.
Looking forward to connecting and exploring investment opportunities together!
