Crowdfunding Real Estate: How to Raise Money through the Crowd
The Statute of Liberty was not funded by the US government! Shocking isn’t it? The Statute of Liberty is the beacon of crowdfunding success as the statute was erected through contributions from the citizens of France and the United States.
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Crowd Funding is an old concept that dates backs to 3,000 B.C. The raising of capital from a crowd via an online portal started a few years back with Kiva.com and a revolution of crowd funding started taking hold which is full swing within the startup world today. I started thinking of how this could apply to the hurdle of raising money from private capital investors that seems to hold back most investors from advanced strategies of commercial, multifamily and buy & hold investing.
What is Crowd Funding
Crowd funding is taking the power of the crowd to raise capital (debt and equity) in exchange for equity ownership. Mohammed Yunis, the father of microfinance, laid the foundation for crowdfunded investments. Microfinance focuses on small loans, typically in the $ 300 to $ 500 range, to entrepreneurs (mainly women) in the developing world. The core tenets of microfinance and crowdfund investing are similar: Both systems are about getting capital in the hands of people who have trouble raising it via traditional means, so those people can start and grow their businesses. Out of microfinance and Kiva sprouted donation- and perks-based crowdfunding websites.
How is this Legal
Title III of the JOBS Act, creates the opportunity for crowdfund investing by using the term emerging growth companies (EGCs) to refer to entities that are most likely to utilize this form of financing. ECG helps make crowd funding investing a real possibility. Prior to the passage of the JOBS Act, accredited investors (people with high net worths and/ or incomes greater than $250,000) often were the only ones who could invest in private debt or equity transactions. One of the biggest changes the JOBS Act created was lifting the restriction on soliciting unaccredited investors to purchase stock. This means that companies that use crowdfund investing to raise capital are legally able to solicit people of all net worths and income levels to purchase their shares.
Who Are You Allowed to Solicit
The JOBS Act allows you the following maxims when it comes to soliciting for investments online:
- The maximum dollars a business or entrepreneur can seek via crowdfund investing, which is $ 1 million per year
- The maximum amount an individual can invest via crowd funded ventures in a year, which may be a flat $ 2,000, or 10 percent of the individual’s annual income or net worth.
The intent of JOBS Act is that if you want to raise money to start or grow a business, you can do so by soliciting funds from people who know you via an online portal. The act’s maxims are still being codified into regulations by the SEC so be careful to not jump the gun in terms of approaching these investors as these maxims may change once the regulation comes into reality by SEC.
Real Estate Crowdfunding Portals
Crowdfunding portals have evolved for all business segments and purposes. The most popular online portals are Kickstarter.com, Indiego.com, and GoFundMe.com but online portals for real estate were slow to come out. Over the past 24 months, online portals for real estate funding have started to make it into the limelight. I have been researching on these portals and found two portals that I believe are worth your consideration:
- Realty Mogul: Realty Mogul is a marketplace for accredited investors to pool money online and buy shares of pre-vetted investment properties. Realty Mogul is crowdfunding for real estate. Realty Mogul vision is to make real estate investing simple. Forget the hassles of tenants, toilets and trash (Just a side note: they believe in my form of investing No Toilet, Tenant and Headaches“) and provide more investors with insider access to passive real estate investments they would historically not know about. Learn about Realty Mogul
- Fundrise: Fundrise is the leading investment platform for commercial real estate. Operating in the top major metropolitan markets, Fundrise gives individuals the ability to invest directly in local properties without the unnecessary fees and middlemen of conventional real estate equity finance. With Fundrise, people now have the power to earn financial returns while building the city they want to live in. Learn more about Fundrise.
Crowdfunding portals can be a great way to raise capital for your deals as real estate investors or if you are a capital investor you can find new investment deals to place your capital.
Photo: Phil Guest