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How to Use Crowdfunding to Finance Your Commercial Real Estate

by Michael Blank on June 9, 2014 · 12 comments

  
Use Crowdfunding to Finance Your Commercial Real Estate

A few weeks back I attended the REI Expo at the National Harbor in Washington DC, an amazing venue. One thing that was unusual for me was the potential for using crowdfunding to fund larger, buy and hold commercial real estate deals.

If you’re looking for an overview of crowdfunding, its history, and most popular portals, please read Anki Duggal’s excellent article “Crowdfunding Real Estate: How to Raise Money through the Crowd“.

In its short history, crowdfunding was mostly used to fund short-term projects via debt (at fixed interest rate), which is perfect for residential fix and flip projects. In this way, a crowdfunding portal can act a bit like a hard money lender, but with better terms.

Related: Bitcoin: The New Face Of Banking

What appears to be happening, however, is that even “traditional” debt crowdfunding portals like Patch of Land (who spoke at the conference) are starting to set their sites at funding larger buy and hold commercial investments. Jason Fritton, Patch of Land’s CEO, said that the crowdfunding landscape is changing rapidly.

In fact, some sites like iFunding.co use crowdfunding to raise equity (not debt). In the past, they have done 50/50 partnerships with house flippers. And that is now also evolving, as iFunding is starting to raise money for buy and hold investments.

In the short video below, I talk about what terms iFunding is offering after my discussion with Ken Tse, Director of Business Development with iFunding.

OK, let’s watch the video!

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{ 12 comments… read them below or add one }

R Jenkins June 9, 2014 at 7:25 am

Very good article

Most people are taking the summer months off,
but I plan to spend at least 2 hours each week on locating best funding opportunities.

Reply

joseph ball June 9, 2014 at 8:44 am

Is this a form of syndication?
If so, must register with SEC.

Reply

Michael Blank June 25, 2014 at 8:11 am

Yup.

Reply

Alan Malicse June 9, 2014 at 9:14 am

Great article!

Question – can this work for newbie investors as well? Do SEC law require you to be a “seasoned” investor in order to participate in crowd funding?

Reply

Sharon Tzib June 9, 2014 at 9:24 am

Your videos are so clear and concise – thank you very much!

Reply

Michael Blank June 25, 2014 at 8:12 am

Thank you Sharon for the feedback … it’s kind of a new thing we’re testing with BiggerPockets, so glad you like ‘em …

Reply

Lisa Phillips June 9, 2014 at 11:34 am

Great video Michael! And thank for the clarification on crowdfunding.

Reply

Eleena June 9, 2014 at 11:18 pm

Maybe I missed it and you said it somewhere in the video, but a person has to be an accredited investor to join these crowdfunding sites.

Reply

Michael Blank June 25, 2014 at 8:14 am

Hi Eleena … I’m not sure about the answer on this one, but I think you might be correct. On the other hand, we will never know who the 100 investors are, as far as we (the syndicator) are concerned, an LLC is making an investment and we deal with the managing member (or whoever can sign for the LLC).

Reply

Charles Kannair June 12, 2014 at 8:23 pm

Crowdfunding RE Essentials:
1) Review the Jobs Act of 2012: SEC Oversite has been reduced or removed in some cases for the investment elements by statue.

http://www.rrdonnelley.com/_documents/industry-solutions/financial_services/1c_harrington_long_version_092012_phila_ht.pdf

http://en.wikipedia.org/wiki/Jumpstart_Our_Business_Startups_Act
http://gigaom.com/2014/02/19/crowdfunding-comes-up-short-why-the-final-part-of-the-jobs-act-will-never-work/

http://online.wsj.com/news/articles/SB10001424052702304163604579532251627028512

SEC response: https://www.sec.gov/rules/proposed/2013/33-9470.pdf

2) Risk: Elements of protections and loss risks are now at SCALE to a large group of people without the proper understanding of the element of risks, and you’ve added an intermediary (website).
3) You do NOT need to be an accredited investor, buyer beware, but the SEC IS looking at the providers of those crowd-funding investment websites to provide some sort of due diligence, between both parties as an intermediary. It’s still very new, so the rules are hazy, and frankly, the IRS is remiss to enter into any sorts of qualification for this new medium because of the current explosion and eventual implosion/consolidation of the market of RE crowd-sourcing websites/firms that are going to be syndicating using this mechanism.

It’s possible and coming, but not quite here yet. The first transactions have just occurred about 6 months ago.

Hope that helps.

Reply

Michael Blank June 25, 2014 at 8:15 am

A good word of caution, Charles, things are still new and evolving quickly.

Reply

Al Williamson June 12, 2014 at 10:35 pm

Thank you for the break down. Very interesting. I need to take a close link.

Reply

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