Heather subsidizes her hefty rent by offering her younger cousin a pretty place to live, while she builds up a savings nest egg and can afford her own place.  Her roommate Brenda works for the treasury department of a major retailer, acting as the coordinator of the relationships directly with and between various professionals like lawyers, accountants, and brokerage firms.

Their meticulously manicured residential rental complex is both pretty and profitable, according to the documents acquired from the on-site property manager’s office.   

I Should Own This Place

Heather spends neither a minute nor a dollar of her own dealing with her apartment. Instead, only her job and her very needy new puppy Chumley deserve and get her attention.  

Heather’s apartment complex opportunity arose, as a result of her own inquisitive nature and extraordinary timing.  She has been there for years, loves the maintenance staff, knows that she pays a mild premium to live there but has been satisfied with the housing product.  

Heather thinks to herself, “I should own this place myself!  Next time I write my rent check, I should ask what Company owns my rental complex.  I want to buy some of their stock.”

As it turns out, her complex is privately owned by a local private equity firm. That firm’s principal is Heather’s tennis buddy. Sue owns the complex through her private equity firm, Judgement Proof, LLC (“JPL”).  JPL launched an offering of securities to accredited investors pursuant to an exemption from registration a year ago. Its stock is not listed on an exchange nor expects ever to be so.  

JPL intends to raise equity capital from new investors, in order to grow the apartment complex and its pool of tenants.  JPL does not need to advertise its Reg 506(b) offering, because Sue’s team has assessed that the complex’s existing investor base and friends like Heather are very likely to be sufficient sources of additional growth capital. 

As a first-time private placement investor, Heather realizes from Sue’s Private Placement Memorandum (“PPM”) that private equity investments are easier to enter than exit.  Heather’s cash would be tied up in JPL’s restricted stock 

Comfortable with those liquidity risks, Heather can now be her own theoretical landlord. (well … kind of but not really) to whatever percent of the stock Heather makes sense for her portfolio.  Depending upon the financial disclosures and inherent risk factors outlined in the rental complex’s PPM, Heather must now determine how much of her personal investment capital to put to work, buying some stock in her apartment complex.  

Whatever percentage of the real estate syndication fund’s stock she decides to buy, she will become that “X” percent owner in her own residence.

Accredited Investors

She qualifies as an accredited investor a few times over:

  • Heather makes over $200k gross each year in salary, with no sign of that reversing course. [If Heather had a spouse, they would need a combined gross income exceeding $300k].  
  • She has a net worth of over $1million with several million in stocks, bonds and cash, and no debt to her name.
  • As a registered representative of a small FINRA-registered broker/dealer, Heather qualifies as an accredited investor, because she holds a Series 7 license.


Sophisticated Investors

Heather’s neighbor Brenda also plays tennis with Sue and Heather. Although Brenda does not meet the requirements of an accredited investor, she could still qualify as a sophisticated investor. Brenda’s work experience as a mid-level executive at a publicly traded corporation mires her in the financial familiarity necessary to assess the risks inherent in a private securities offering.  Brenda will have to fill out the suitability questionnaire provided by the PPM warranting that: 

(1) she has the knowledge and experience in financial and business matters allowing her to evaluate the merits and risks of the investment, 

(2) she has the financial ability to bear the economic risk of the investment and has an adequate means of providing for current needs and personal contingencies, plus

(3) she is investing for her own accounts and is subject to the statutory holding period. 


Heather asks for the PPM and offering documents from Sue, before catching her flight.  Although investing in her building sounds like a great idea, Jessica has other priorities at the moment. Her puppy needs a walk. 


Rule 506(b) conditions generally: 

  • There is no general solicitation nor advertising.
  • An unlimited number of accredited, institutional or Qualified Institutional Buyers (“QIB”) may invest.
  • Up to 35 sophisticated investors may participate, if their professional roles or experience arm them with the skills to assess the risks, realistic potential return and objective suitability of the investment. Each must decide, based upon their own personal circumstances and tolerance for loss.
  • Disclosures must be thorough regarding company-specific risks, along with the positive and negative industry risks or pending competitive pressures.
  • Anti-fraud provisions of federal law prohibit materially misleading statements or omissions. 
  • If there is a sale to non-accredited (sophisticated) investors, in an offering that is raising less than $20 million, the issuer must provide to the buyer a GAAP or IFRS complaint unaudited financial statement. 
  • For offerings to non-accredited (sophisticated) investors over $20 million, those financial statements that are compliant with GAAP or IFRS must be audited