Private Real Estate Investing
How Do You Know What’s REAL in Real Estate Investing?
Read the disclosure and/or sale document in order to understand what you are Investing in. These documents provide critical information that will help you make an informed decision. Keep a copy to refer to later. Figure out if you will receive ongoing disclosure, such as financial statements, from the company and read that too.
Evaluate the risks. It’s important to understand the type and size of risk you are taking on when you choose to invest in real estate securities. Given the risks, is the product right for you?
Ask for clarification or additional information. Be vigilant during the process of making the investment. Do your own research and ask questions along the way before you commit to the investment.
Look for advice from someone independent of the investment, like a registered investment advisor, lawyer, or accountant.
Questions About Real Estate Investments
Questions About Real Estate Investments?
A real estate investment can be a direct investment in land or an investment in something that is indirectly related to land, such as a real estate or mortgage investment corporation.
Buying a rental property is a real estate investment that most people understand – a person buys a house or an apartment that they rent out to gain investment income over time.
When investors pool their money with others, the investment becomes more complex. In many cases, the structure of these investments classify them as securities. The British Columbia Securities Commission only has authority over transactions involving securities, not simple investments in land.
What are real estate-based securities?
Real estate-based securities represent an indirect investment in something related to land. They can be sold and traded publicly. For example, you can invest in units of a real estate investment trust (REIT) that trades on a stock exchange. However, this information is focused on private real estate investments. For example, you can buy shares of a private company that will purchase properties for investment. You can also buy shares of a mortgage investment company (MIC), which takes your money and invests it primarily in mortgages. The High-Risk Investments section of InvestRight details how these and other real estate investments are structured.
It is important to understand that investing through private placements of securities may pose additional risks. Private placements are generally sold without a prospectus (a formal document required by law when a company wants to sell shares to the public), and often without the advice of a registered dealer. Sometimes companies sell these securities under an offering memorandum (OM), a document that provides information about the company and the investment. It is important to remember that the British Columbia Securities Commission does not review OMs before the investment is offered to the public. Companies that issue securities without a prospectus, are not required to give investors the same ongoing disclosure (financial statements or press releases) as a publicly traded company. Check out the Private Placement Market Tools in the Investor Tools section of InvestRight to learn more.
How are real estate-based securities sold?
You can often purchase real estate investments directly from the company, through a registered investment advisor, or in some cases through an unregistered third party. Purchasing through a registered investment advisor will provide some mitigation of risk because a registered investment advisor will consider whether the investment is suitable for you. Remember, if you purchase the investment through a private placement, those securities do not trade on the stock exchange and it may be more difficult to sell them than the securities of a public company traded on a stock exchange. You can buy or sell exchange-traded real estate securities (like a real estate investment trust) in the same way you would trade the shares of other public companies.
What should you do before you invest in real estate?
Understand the risks associated with the investment. Be sure to conduct background checks on the developer and the person promoting the investment. Take the time to seek advice from someone independent of the investment, like a registered investment advisor, lawyer, or accountant.
Be sure to understand how the proposed investment fits your own needs. For example, you should understand whether the expected return from the proposed investment fits your timeline. Also, it’s important to understand whether you can redeem the investment easily, and without penalty, if you need to do so.
Who do you contact to ask questions about these types of investments?
The British Columbia Securities Commission (BCSC) regulates the trading of real estate-based securities. Other real estate investments, like the purchase of a pre-sale apartment from a developer or the purchase of a property, generally fall under other provincial regulatory bodies.
If you want to make a real estate investment, or if you don’t understand what you are invested in, give the BCSC a call. Our inquiries staff can point you in the right direction. You should also call us immediately if you think an investment is a scam.
You can reach us at 604-899-6854 or toll-free at 1-800-373-6393. You can also e-mail us at [email protected].
Risks of Investing in Real Estate-Based Securities
Like any other type of investment, there are risks associated with investing in real estate and real estate-based securities.KNOW THE RISKS
Know About Investing in Private Companies
When real estate-based securities are distributed using exemptions, the risks are similar to those related to private companies.LEARN MORE
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