Can You Use Crowfunding To Fund Your Real Estate Investing Business Under The JOBS Act?

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The burning question is: will the JOBS act will truly create any new avenues for real estate investors?

This week the The SEC finally released its proposed ruling on crowdfunding.  While an interesting innovation, it seems the fix and flip investor is perhaps the real winner in the real estate game under this new avenue.

I’ll explain why in a moment, but first – a quick recap on the latest crowdfunding news.

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What is Crowfunding?

Crowdfunding has several meanings. Generally it is the collective effort of individuals who network and pool their money, usually via the internet to support efforts initiated by other people or organizations (See Wikipedia).

The JOBS act created an interesting new mechanism to incorporate the concept. Until the new rule becomes effective, securities law prohibits advertising (general solicitation) unless you comply with the private placement rules. In other words, it violates securities law to publicly advertise for an equity stake in you business generally.

You may advertise for equity investors but the process can range from a very expensive $250k for a full-on listed offering to expensive $25k to $50k for a private placement. Therefore, the JOBS act may create a lower cost alternative. Several existing sites have been crowdfunding this way and limiting their investors to high net worth individuals.

Crowdfunding Under the JOBS Act?

The challenge the SEC faced was a daunting balancing act between protecting the general public (which are less financially savvy) and creating a low burden method for raising capital to spur economic growth.

The US remains the birthplace of innovation and to extend our economic competitive advantage the JOBS act was created. However, the SEC struggled with this new provision. For a variety of reasons – including leadership changes at the SEC – the rules are tardy to the party.

The regulations start with these rules:

  • the amount raised must not exceed $1 million in a 12-month period (this amount is to be adjusted for inflation at least every five years);
  • individual investments in a 12-month period are limited to the greater of $2,000 or 5 percent of annual income or net worth, if annual income or net worth of the investor is less than $100,000; and
  • 10 percent of annual income or net worth (not to exceed an amount sold of$100,000), if annual income or net worth of the investor is $100,000 or more (these amounts are to be adjusted for inflation at least every five years); and
  • transactions must be conducted through an intermediary that either is registered as abroker or is registered as a new type of entity called a “funding portal.”

NOTE: Due to the Federal regulation process, this law change will not be effective for three to six months.

Is  Crowdfunding Under the JOBS Act Usable For You?

Generally, the long standing private money prerequisite is that the investor must know, like, and trust you before you will be successful in obtaining equity partners.  The traditional private money formula is a networking method with the intent of growing you business. Will the new JOBS act be viable in light of that fact?

Websites including and LendingClub provide an interesting additional source of funding for fix and flip activity, but the limits are quickly reach due to low amounts available. Crowdfunding may provide the savy fix and flip investor a great new source of capital.

Buy and hold investors seemingly could use the money raised this way as well, but it seems to me the $1,000,000 limitation would be hit fairly quickly. However, with fix and flipping-  you have capital velocity occurring, which means the money is constantly being recycled.

The Great Unknown: Some Interesting Questions that Remain.

It seems this model is an interesting opportunity for the fix and flip investor. The question as to whether it will actually amount to any significant changes in the private money arena remains to be answered. It seems a fix and flip investor could generate a nice war chest to work with under the model. But what about:

  • Just because you may use this method… will it be practical?
  • Will the requirement of expensive financial audits for amounts over $500,000 raised may serve to be somewhat of a buzz kill?
  • Will the financial intermediary’s be too large a pain in the backside to get an offer to the streets?
  • Will the fact of an intermediary doing due diligence on your business be enough to satisfy investors?
  • Will the public be motivated to invest this way?

What are your thoughts? Does the crowdfunding model appeal to you?

Read the SEC proposed rule here:

Photo Credit: Thomas Hawk

About Author

Douglas Dowell

Douglas Dowell J.D. is a commercial and multifamily investor. His blog will focus on legally raising private money, risk mitigation with due diligence and management science. He is also an avid student of success principles with a focus on modeling success factors.


  1. Justin Pierce


    Great topic. I’ve been following this for a while now. I’ve been in close contact with the founder of and following the likes of kickstarter and others. It seems like an opportunity but did the SEC really remove that many hurdles to raising money. You still can’t advertise that you’ll pay 10% on money. Just seems like there’s a lot of bugs to work out.

    How do you think a small investor could set up and start raising money without getting in hot water? What do you think it would cost to get a fund up and running? They still better get a lawyer and a good accountant, correct? Is the risks of getting in trouble with the SEC while trying to navigate the new rules worth the potential reward?

    • Douglas Dowell

      Hello Justin,

      I think this may be a legit change in the game because the diligence function provided by the funding portal. Many questions remain but if so motivated to jump through the hoops of the new law it seems a true opportunity has opened up.

      It seems the $25k number is about right for establishing a Reg D funding. Its not quite clear to me yet what a crowdfunding entity setup will cost.

      The tried and true way to pool private money is still available to small investor.
      It is based on three things: network, network and network some more after that.

      The final question is whether you want the hassle of a being a fund manager in addition to a real estate investor? A highly personal inventory of what price you want to pay in terms of headaches of being responsible for part of someones nest egg to obtain your overall goals is necessary in my opinion.

  2. I love the idea of a Kickstarter for Real Estate…..particularly for the little company doing flips. And as a small timer, I doubt I would be pushing the new SEC rules envelope. So do I have this right – in a few months a person can solicit and collect investments in the 2k – 5k range from any number of individuals up to 1 mil a year? That’s nice! But If under the new rules you can’t advertise that you would pay a 10% return (for example), what’s in it for the investor? What can be offered up in return for their investment? I’m trying to wrap my head around this…..

    • Douglas Dowell

      Hello Jeff,

      The return on investment offered is not the key issue. Its how you arrive at the negotiating table mechanically. The ability to raise small amounts from other investors is already available however its a process where you have to to decide what role you want to take.

      In my opinion early on in investing career the best way is to have a jointly managed LLC where everyone has a say in all significant matters. It is best not to advertise for fellow members in this model in my opinion because if someone wants to claim it was a security.
      The terms of the agreement will just be based on whats negotiated between the parties.
      This model is NOT a security generally.

      From there the next choice is do you want to be a fund manager that also invest in real estate? If so, you can chose the regulation d private placement window where you pitch to only high net worth individuals or 401k holders.

      The small investor option under the new rules will also be an interesting option as well. If you get listed through a funding portal perhaps a new source of capital in addition to network, network, network.

      As always I have to advise obtaining legal counsel before you act.

  3. Thank you for this article. I stumbled upon crowdfunding for real estate several months ago, and am happy to see the government may finally let us not yet rich people invest and potentially make money with this. Good news!

  4. Ok, so it can get complicated real fast. I definitely don’t want to be a fund manager that invests in real estate. Here’s what I’m getting at……..under the new upcoming less stringent SEC rules that take effect in a few months, could a person, for example, advertise on craigslist soliciting people to invest a max of $2000 into a small real estate project in exchange for a return of 10% within 12 months?

    • Douglas Dowell on

      You bet its a minefield Jeff.

      The new rules do not change that scenario. Absent a state law exception, I think that’s a general solicitation and will expose the advertiser to sanctions for doing so.

      The best way still is network network network for the small investor.

  5. Hey Douglas — “If so, you can chose the regulation d private placement window where you pitch to only high net worth individuals or 401k holders.”

    Should one infer from that statement it’s ok to take on investors who’re not ‘Accredited Investors’ if they’re only using 401k funds? Thanks, and good stuff, Douglas.

    • Douglas Dowell on

      Thank you for that Jeff!

      If you want to stick to the current and still predominate model Reg D 506 (b) allows up to 35 “sophisticated” investors (401k holders) in addition to unlimited accredited investors. Pretty wide open market of folks too. 5 Trillion market.

      Now there is some potential in my mind for hair splitting over whether someone who is “sophisticated” or not. Some may suggest that a 401k investor alone may not meet the test. The trouble is their is no bright line for who meets the test.

      My overall philosophy is if they invest with Jeff Brown they ARE sophisticated per se :))

      Overall, only take inventors into cant miss deals is the key to me….then such esoteric aspects of who is an is not sophisticated will remain an issues for scholars and theologians.

      • That’s interesting. What about the existing, traditional SEC rules? Do they include 401k/IRAs in with qualified individual, accredited investors?

        Thanks for the kind words, Douglas. Roughly 70-80% of my clientele are what I lovingly refer to as ‘regular folk’, which is how I describe myself. Most wouldn’t be accredited investors, but do, in many cases have 401k/IRAs with relatively substantial balances.

        • Douglas Dowell on

          You bet Jeff,

          I think they are in great hands. Without a doubt those are great partners for your deals. The mechanical question I am alluding too is are they going in as members in a member managed LLC or are are you offering a security?

          If a security then are we intrastate? Meaning if the property, the 401k investor, and sponsor are all in the same state then SEC regs are not relevant then we are looking too only the state securities law.

          Otherwise we are talking private placements under Regulation D. 506 is used 95% or more. Under Reg D 506 you can have an unlimited number of accredited investors ($200,000 in annual or $300,00 joint income) or $1 Million in networth or 35 sophisticated investors (IRA/401K) holders.

          Again a world of choices how to skin it.

    • Douglas Dowell on

      Hello Curt thanks for the discussion,

      I think one of the reasons is that the traditional method of raising private money is perceived as fairly strait forward and well established. The cost both money and “brain damage” of mastering a new method just to raise $500,000 is maybe not justified.

      I remain open to the possibility in that you don’t forgo anything by adding this source of capital. How about you?

  6. Cori Handsaker on

    Loved your post Douglas but I have been thinking on a unique opportunity when it came to crowd funding. Something that would work for a few dollars a month if I could get the momentum.

    I am not sure if the jobs program would stop it or hinder the process and I am still looking into where if any crowd funding site that would support it.

    I wanted to create a small company that runs rentals but uses crowd funding to pay off the rental. Drop the rent and start using 10% of the rent as a return to help grow the buying power of the business. So in essence with 100k people donating as low as 1$ a month you could start buying and working to pay off one set of rentals at a time.

    I want to start a nonprofit in this way and work to help lower housing costs throughout my state. I just don’t know if this will work.

    Any help or guidance is appreciated.


  7. Douglas Dowell

    Hello Cori,

    I would suggest based on my limited interaction with crowd funding that it is more suited to forced appreciation plays versus buy and holds.

    Affordable housing is a hugely underserved need in many markets and I think it’s worth pursuing. Consider contacting your local housing authority and try to meet with the development or real estate director. They will have some insight into how to point you in the right direction. I will say crowdfunding so far as I have seen is not a venue for funding of affordable housing.

    Happy investing and don’t stop.

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