Real estate crowdfunding in Virginia is a powerful way to raise capital from local investors, but it requires careful navigation of both state and federal securities laws.
Since you are looking to allow individual residents to make their own investments, you typically have two primary paths: the Virginia Intrastate Exemption (local) or Regulation Crowdfunding (national).
Option 1: The Virginia Intrastate Exemption (Rule 147A)
This is designed for “shop local” investment. It allows you to raise money specifically from Virginia residents with fewer federal hurdles.
- Fundraising Limit: You can raise up to $2 million in a 12-month period.
- Investor Limits:
- Accredited Investors: No limit on how much they can invest.
- Non-Accredited (Everyday) Investors: Limited to $10,000 per person for a single project.
- Residency Requirement: 100% of the investors must be Virginia residents. The company must also be “doing business” in Virginia (at least 80% of assets/revenue/proceeds must stay in-state).
- Key Requirements:
- Escrow: You must use a bank or depository to hold funds until your “minimum target” is reached.
- Disclosures: You must provide a disclosure document (offering circular) that details the risks, the property, and your background.
- Filing: You must file a notice with the Virginia State Corporation Commission (SCC) at least 20 days before you start offering the investment.
Option 2: Regulation Crowdfunding (Reg CF)
If you want to reach investors outside of Virginia or raise more than $2M, you would use the federal Reg CF.
- Fundraising Limit: You can raise up to $5 million per year.
- Investor Limits: There are no “flat” dollar limits like the $10,000 Virginia rule. Instead, the limit is based on a percentage of the investor’s annual income or net worth (usually 5% to 10%).
- The “Portal” Requirement: Unlike the Virginia exemption, you cannot raise this money on your own website. You must use an SEC-registered “Funding Portal” (like Republic, Wefunder, or a real estate-specific platform).
- Financial Reviews: * Raising up to $124k: Financials certified by the CEO.
- $124k – $618k: Financials reviewed by an independent CPA.
- $618k – $5M: Financials audited by a CPA (though first-time issuers have some leeway).
Which one is right for you?
| Feature | Virginia Intrastate (Rule 147A) | Federal Reg CF |
|---|---|---|
| Max Raise | $2 Million | $5 Million |
| Target Audience | Virginia Residents Only | Anyone in the U.S. |
| Platform | Your own website (with care) | Registered Funding Portal |
| Cost | Lower (State Filing + Legal) | Higher (Portal Fees + CPA Review) |
| Best For | Local community projects (e.g., a Main St. building) | Larger developments or tech-heavy real estate |
Common Requirements for Both
- Form of Entity: You must have a formal legal entity (like the Virginia C-Corp we discussed earlier, or more commonly for real estate, a Virginia LLC).
- Bad Actor Check: You and your partners must pass a background check. Anyone with a recent securities-related felony is disqualified.
- No “Guaranteed” Returns: You can project returns based on the real estate’s performance, but you cannot “guarantee” a specific interest rate like a bank.
Would you like me to find a template for the “Disclosure Statement” required by Virginia, or would you like to see a list of SEC-registered portals that specialize in real estate?
To allow individuals in Virginia to invest directly in your real estate project, you generally use the Virginia Intrastate Crowdfunding Exemption (under Virginia Code § 13.1-514). This is specifically designed for local “Main Street” style investing.
1. The Core Requirements
To qualify for this exemption in Virginia, your offering must meet these specific criteria:
- The 80% Rule: Your company must be a Virginia entity (e.g., your Virginia C-Corp), and at least 80% of your assets, gross revenues, and the proceeds from the raise must remain/be used in Virginia.
- The $2 Million Cap: You can raise a maximum of $2,000,000 in a 12-month period.
- Investor Limits: * Accredited Investors: No limit on how much they can invest.
- Non-Accredited Investors: Restricted to $10,000 per individual per project.
- Residency: You can only accept money from legal residents of Virginia.
2. Filing the “Form ICE”
Before you can take a single dollar, you must file Form ICE (Intrastate Crowdfunding Exemption) with the Virginia State Corporation Commission (SCC).
- The 20-Day Rule: You must file this at least 20 days before you start offering the investment to the public.
- Filing Fee: There is a non-refundable filing fee (typically around $100, though you should verify the current electronic filing fee in the CIS portal).
3. The Disclosure Statement (Offering Circular)
Virginia law requires you to provide every investor with a Disclosure Statement. This is a document that protects you legally by explaining the risks. It must include:
- Company Info: History of the entity, officers, and anyone owning 20% or more.
- The Project: Detailed description of the real estate, the business plan, and the “Use of Proceeds” (exactly how the money will be spent).
- Risk Factors: A clear section stating “You may lose your entire investment” and specific risks (e.g., “The property may not lease up as quickly as expected”).
- Financials: For a new project, you typically provide a balance sheet and a statement of income/expenses (certified by the CEO if raising under $100k; reviewed/audited if higher).
4. Managing the Money (Escrow)
You cannot just deposit the investors’ money into your business checking account immediately.
- Target Minimum: You must set a “Minimum Offering Amount.”
- Escrow Account: All funds must go into an escrow account at a bank or depository.
- The “All-or-Nothing” Clause: If you do not reach your minimum target by your deadline, the bank must return all money to the investors. If you hit the target, the funds are released to you to start the project.
5. Where to List Your Project
In Virginia, you have two choices for how to actually “show” the investment to people:
- Directly: You can host the info on your own company website, provided you use “gatekeeping” (a pop-up that asks for a Virginia zip code before showing the deal).
- State-Level Portal: You can use a Virginia-specific crowdfunding portal if one is active.
Important Note: If you want to use a national platform like Wefunder or Republic, you would likely switch to Federal Reg CF instead of the Virginia Intrastate rule. This allows you to raise up to $5M and take investors from all 50 states, but the filing and CPA review costs are higher.
Would you like me to help you outline the “Use of Proceeds” table for your disclosure document based on your current project costs?
Creating a “Use of Proceeds” table is a critical step for your Virginia Intrastate Crowdfunding disclosure. This table tells potential investors exactly where their money is going and proves that you are following the 80% Rule (at least 80% of the money must stay in Virginia).
Below is a template specifically tailored for a real estate project (like your C-Corp or a subsidiary LLC) using the Virginia ICE (Intrastate Crowdfunding Exemption).
Sample Use of Proceeds Table
Assumes a Target Goal of $500,000 and a Maximum Goal of $2,000,000.
| Expense Category | Percentage | Amount (at Target) | Amount (at Max) |
|---|---|---|---|
| Property Acquisition | 65% | $325,000 | $1,300,000 |
| Hard Construction/Renovations | 15% | $75,000 | $300,000 |
| Soft Costs (Permits, Architectural) | 5% | $25,000 | $100,000 |
| Working Capital / Cash Reserves | 8% | $40,000 | $160,000 |
| Legal, Accounting & Filing Fees | 4% | $20,000 | $80,000 |
| Offering Marketing & Platform Fees | 3% | $15,000 | $60,000 |
| TOTAL | 100% | $500,000 | $2,000,000 |
Virginia-Specific Disclosure Requirements
Under 21VAC5-40-190, your disclosure document must explicitly mention several things alongside this table:
- The “Minimum Target” Warning: You must state that if the “Target Amount” ($500,000 in this example) is not reached by your deadline, all funds will be returned to investors from the escrow account.
- The 80% Requirement: You should include a statement below the table confirming: “At least 80% of the proceeds of this offering will be used in connection with the operation of the Issuer’s business within the Commonwealth of Virginia.”
- Officer Compensation: If any of the money is going toward paying you or other officers a salary or “development fee,” this must be disclosed as a separate line item. Virginia regulators look closely at “insider” payments.
Next Steps for your Filing
- Select Your Escrow Agent: Before you file the Form ICE, you need to have an agreement with a bank or trust company to hold these funds.
- Draft the Risk Factors: Beyond the table, you’ll need 5–10 specific risks (e.g., “The local Virginia real estate market may decline,” or “Renovation costs may exceed estimates”).
- Finalize the Form ICE: This form requires you to attach your “Use of Proceeds” and “Offering Circular.”
Would you like me to draft a list of specific “Risk Factors” tailored for a Virginia-based real estate project?
To conduct crowdfunding in Virginia, you must provide a “Disclosure Statement” to every potential investor. This document acts as your legal shield by ensuring investors cannot later claim they weren’t warned about the dangers of the project.
Under 21VAC5-40-190, Virginia requires these risks to be prominent and specific. Below are the essential risk factors you should include, tailored for a Virginia real estate project.
1. General Investment Risks
- Total Loss of Investment: “Investment in this offering is speculative. You should not invest unless you can afford the loss of your entire investment.”
- Lack of Liquidity: “There is no public market for these securities. You may be unable to sell or transfer your shares for at least one year, and potentially indefinitely.”
- No Guaranteed Returns: “Past performance of the Issuer or its officers is not a guarantee of future results. No specific rate of return is promised or guaranteed.”
2. Real Estate Specific Risks
- Market Volatility: “Real estate values in the Commonwealth of Virginia and specifically [Your City/Region] are subject to local economic cycles, which may decrease property value or rental income.”
- Construction & Renovation Costs: “Projected costs for [Property Name] are estimates. Delays in permitting, labor shortages in Virginia, or rising material costs could lead to budget overruns.”
- Tenant & Occupancy Risk: “Our ability to pay dividends depends on maintaining high occupancy. If major tenants vacate or fail to pay rent, the project may not generate sufficient cash flow.”
- Environmental Hazards: “While due diligence has been performed, undiscovered environmental issues (e.g., soil contamination or mold) could result in significant cleanup costs or legal liability.”
3. Virginia-Specific Compliance Risks
- The 80% Rule: “The Issuer must use at least 80% of the proceeds in Virginia. If the project cannot utilize these funds in-state as planned, the Issuer may be in violation of its exemption status.”
- Escrow & Minimum Target: “If the Minimum Target of $[Your Amount] is not reached by [Date], all funds will be returned without interest. The Issuer will be unable to proceed with the project in this scenario.”
- Ongoing Reporting: “The Issuer is required to provide annual reports for three years. Failure to maintain these filings could impact the corporation’s good standing in Virginia.”
4. Management & Control Risks
- Reliance on Management: “Investors will have no right to participate in the management of the corporation. All decisions regarding the property are made by the Board of Directors.”
- Conflicts of Interest: “Our officers may be involved in other real estate projects in Virginia, which could lead to a conflict of interest regarding time and resources.”
How to Present These Risks
- Use Bold Headers: Each risk should have a clear, bold title so it is easily scannable.
- Order Matters: Put the most significant risks (like the “Total Loss” and “Liquidity” warnings) at the very top.
- Specifics Over Generalities: Instead of just saying “Construction is risky,” say “The renovation of [Specific Property Address] may be delayed by city zoning approval processes.”
Next Steps for Your Crowdfunding Launch
- Finalize the Offering Circular: This is the full document that includes your “Use of Proceeds” table and these Risk Factors.
- File Form ICE: Remember, you must submit this to the Virginia SCC 20 days before you talk to the public.
- Open Escrow: You’ll need an executed agreement with a Virginia bank to handle the investor funds.
Would you like me to help you draft the introductory “Company Overview” section that goes at the beginning of this disclosure document?