How Do You Know What’s REAL: Read and Understand the Disclosure or Sale Documents
Housing prices in British Columbia, and particularly those in Metro Vancouver, have been on a steady rise, causing many people to look to real estate as an investment. However, like any other type of investment, there are risks associated with investing in real estate. With this in mind, we’ve created a blog post series to help you find out what’s REAL in real estate investing.
Real estate investment opportunities are offered by both public and private companies selling real estate securities in the exempt market. Private companies rely on prospectus and registration exemptions to sell securities to investors who meet certain criteria. Private companies are not required to give the same ongoing disclosure (such as financial statements, press releases, or material change reports) as public companies. If you are considering investing in these opportunities, it’s important to understand that in the exempt market, investors are largely without many of the investor protection provisions that are required when investing in a public company.
The exempt market generally applies to the sale of securities to investors without a prospectus and the advice of a registered dealer. Some securities are sold under the offering memorandum (OM) prospectus exemption. OMs provide certain information about the investment and, unlike prospectuses, they are not required to be reviewed or approved by the British Columbia Securities Commission (BCSC).
It’s important for investors to know that real estate investments sold in the exempt market are often risky, and high returns are not guaranteed. Sometimes the potential returns described in the disclosure and/or sale documents are based on past history and not current market conditions.
If you’re considering an investment in real estate under the OM exemption, read the ‘risk disclosure’ in the OM. Then, consult with a person who is not participating in the deal, such as a registered investment advisor, lawyer, or accountant before making the decision to participate in the investment.
To Protect Yourself, You Should:
- Make sure the investment is suitable for your risk tolerance and investment goals.
- Understand the terms and jargon used in the disclosure and/or sale documents to sell the investment. If you don’t understand something, get clarification in writing.
- Seek independent advice from a lawyer or registered investment advisor.
- Be aware that you may not have the same legal rights as you would with an investment issued under a prospectus.
For more information on the exempt market, visit the Private Placement Market page. We also launched a webpage to help you learn about Private Real Estate Investing, including answers to common questions around investing in real estate-based securities.
If you have any concerns about a person or company offering an investment opportunity, please contact BCSC Inquiries at 604-899-6854 or 1-800-373-6393 or through e-mail at [email protected]. You can also file a complaint or submit a tip anonymously using BCSC’s online complaint form.
InvestRight.org is the British Columbia Securities Commission’s investor education website.