Here at Vicinity, we truly believe that Reg CF has revolutionized investing. Why? Because Reg CF means that private investment opportunities are no longer reserved for high-net-worth individuals and institutions. In other words, investing is now democratized.
One of our top priorities since founding Vicinity has been to help investors build and diversify their investment portfolios, especially locally.
Reg CF makes it possible to connect investors to private projects that not only offer the potential for above-market returns as an alternative asset, but that positively impact local communities. In addition, Ref CF also provides convenience, accessibility, and transparency—three factors that are especially important for those new to Reg CF and millennial investors.
Sounds great, right? Sure does.
But before you can make your first Reg CF investment on the Vicinity platform, you need to understand what rules apply. That’s exactly what we are going to cover in today’s article.
To avoid getting bogged down in the legalese of the statute, we have structured today’s post to highlight some top investor FAQs related to Reg CF rules. What follows below are real questions that we receive from individuals interested in investing through the Vicinity platform. If you have a question that we don’t cover, you can always reach out for more information.
Let’s dive in.
Reg CF Starts With Title III of the JOBS Act
I know, I know… I said we wouldn’t get bogged down in legalese. And yet, when it comes to Reg CF rules, it’s important to at least be familiar with where the law comes from.
While the Jumpstart Our Business Startups (JOBS) Act was officially signed in 2012, it wasn’t until 2016 that Title III of the statute came into effect. It is here, in Title III, that Reg CF (also known as Regulation Crowdfunding) was born. Prior to the enactment of this law, only accredited investors (historically under 10% of the American population) could invest in private businesses and projects.
The JOBS Act itself lays the foundation for the “what” of Reg CF: private companies can sell securities to practically anyone.
Vicinity is the “how” of Reg CF: through funding portals that are registered with the Securities and Exchange Commission (SEC) and overseen by FINRA.
The law was proposed and approved in Congress in a bi-partisan effort—a clear sign of how much Americans favored a more open and fair path to financial freedom. Although the JOBS Act was conceived as a way to finance startups (hence the name), in practice, it has shown to be a powerful tool for everyday investors to diversify their portfolios, especially by investing in mid-market local real estate.
If you are interested in taking a more detailed look at the JOBS Act and the history of Reg CF, check out this comprehensive SEC report.
FAQ #1: Who Can Make a Reg CF Investment?
Quick answer: anyone.
Having said that, the SEC sets out a number of investor categories that may impact how much you can invest and the timeframe for doing so. The SEC divides investors into accredited and non-accredited investors.
Accredited investors are those who:
- Have a license that accredits their status.
- Earn $200,000 annually for two years straight.
- Have a net worth of $1 million.
Only around 10% of Americans are accredited investors. All the rest of us are—you guessed it—non-accredited investors.
And while accredited investors certainly can invest through Reg CF (in fact, they are vital to the successful funding of most deals), the point to remember is that Reg CF opens the doors to the other 90% of Americans. A truly democratizing win in the investment world.
FAQ #2: Are There Net Worth and Annual Income Requirements?
Knowing your net worth is always a good idea, regardless of your investing activity.
Technically, anyone can invest in a Reg CF deal. However, if you are a non-accredited investor, how much you can invest will depend on your annual income and net worth. We will cover this in the section below.
But, before you make your first investment, make sure that you have a steady annual income, and calculate your net worth.
As per the Reg CF requirements, you do this by adding your assets (except your primary residence) and subtracting your liabilities. Confused? The SEC has a great guide that explains step-by-step how to do this calculation. See the section titled “How do I calculate my net worth?”
The final result will determine how much you can invest with Reg CF. Once you know these two numbers, the Vicinity platform will actually help you calculate how much you can invest each year through Reg CF.
FAQ #3: What About Investment Limitations?
Accredited investors have no investment limits.
For non-accredited investors, on the other hand, the SEC limits how much you can invest, based on your net worth—hence the importance of FAQ #3.
Within a 12-month period:
- If your annual income or net worth is less than $124,000, your investments can’t exceed $2,500 or 5% of your annual income or net worth, whichever is greater.
- If your annual income and net worth are equal to or more than $124,000, your investments can’t exceed $124,000 or 10% of your annual income or net worth.
Again, this SEC guide has a few examples:
Keep in mind that these limitations are in the best interest of everyday investors—the SEC makes sure that no one invests more than they can afford. After all, investing has its risks, including the loss of your invested capital.
FAQ #4: Do Investors Need Professional Certifications?
To be an accredited investor, you do not need an official certification, although it doesn’t hurt. Typically, if you don’t meet the income/net worth requirements, you are considered a non-accredited investor, and your investment will be limited based on the regulations we reviewed above.
However, there’s a third category of investors where professional licenses could be weighed when determining investor status: sophisticated investors.
Although still a bit of a gray area, this category fits right into what Reg CF is all about. Instead of focusing on net worth, to be a sophisticated investor, you simply need to demonstrate advanced investing knowledge and experience.
FAQ #5: How Can Investors Get Started?
Reg CF deals can only be offered via SEC-registered broker-dealers or platforms such as Vicinity.
This is one of the many rules that govern how issuers can present their investment opportunities. These rules exist to provide investors with the peace of mind that the deals they find on Vicinity and other Reg CF platforms are reviewed, legitimate deals.
To get started, you should register as an investor on the Vicinity platform. Once registered, we recommend that you review some of the deals we offer before deciding if you’re ready to make your first investment. To help get you started, here are some resources that you may find useful:
- How to create an account on Vicinity.
- Our complete guide on investing for millennials.
- This (or any other) net worth calculator.
- This brief SEC guide on Reg CF investing.
On a side note, you should know that we can’t offer any investment advice—we only bring local investments to you.
Reg CF Investments With Vicinity
Reg CF has been a game changer for retail (read “everyday”) investors.
Not only has it evened the playing field, but it offers a real opportunity for investors to support their local economies. Yes, we are all looking for financial freedom. And yet, investing through Reg CF with Vicinity means your money is helping ensure the economic future of your community.
Interested in learning more? Contact us today! We can answer any questions you have as you look to get started on your Reg CF journey.