How the Biggest Change to Crowdfunding in Years Affects Investors

How the Biggest Change to Crowdfunding in Years Affects Investors

2 min read
Matt Faircloth

Matt Faircloth, co-founder and president of the DeRosa Group, is a seasoned real estate investor. The DeRosa Group, based in historic Trenton, N.J., is a developer and owner of commercial and residential property with a mission to “transform lives through real estate.” DeRosa creates partnerships to finance select real estate investments and has a proven track record of providing safe, profitable investment opportunities to their clients.

Experience
Matt, along with his wife Liz, started investing in real estate in 2004 with the purchase of a duplex outside of Philadelphia with a $30,000 private loan. They founded DeRosa Group in 2005 and have since grown the company to hundreds of units in residential and commercial assets throughout the East Coast. Under Matt’s leadership, DeRosa has completed tens of millions in real estate transactions involving private capital, including fix and flips, single family home rentals, mixed-use buildings, apartment buildings, and office buildings.

Matt is an active contributor to the BiggerPockets Blog and has been featured on the BiggerPockets Podcast three times (show #88, #203, and #289). He also regularly contributes to BiggerPockets’ Facebook Live sessions and teaches free educational webinars for the BiggerPockets Community.

Matt authored the Amazon Best Seller Raising Private Capital: Building Your Real Estate Empire Using Other People’s Money. The book is a comprehensive roadmap for investors looking to inject more private capital into their real estate investing business and is a must-read for anyone looking to grow their business by using private lenders and equity investors. Kirkus, the No. 1 trade review publication for books, had this to say about Raising Private Capital: “In this impressively accessible introduction to a complex subject, Faircloth covers every aspect of private funding, presuming little knowledge on the part of the reader.”

Matt and his wife Liz live in New Hope, Penn., with their two children.

Education
Matt earned a B.S. in Industrial and Systems Engineering with a minor in Business from Virginia Tech. (Go, Hokies!)

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Hey there, BP! As you probably have noticed, crowdfunding has become a buzzword in our industry. More and more projects are being funded — at least in part — with the aid of crowdfunding. I just read that crowdfunding initiatives raised $34.4 BILLION in equity in 2015. WOW! For those who don’t know, the regulations around crowdfunding changed last month, and I am very excited about it.

How Crowdfunding Works

The way crowdfunding works is that a deal sponsor submits a project to a third party platform called a funding portal. That funding portal reviews projects and offers up those that they feel would be a good fit for their investor base. The projects that were selected were typically enormous projects needing ten of millions of dollars of investments. This could include shopping malls, big development deals, and large rental acquisitions. You rarely see smaller projects requiring less than $2 million in equity on these sites.

Related: 7 Elements to Look for in a Real Estate Crowdfunding Portal

Until recently, the only investors who could participate in these projects were “accredited” investors. An accredited investor has a net worth of at least $1 million, excluding the value of their primary residence. Or they could have income of at least $200,000 yearly for the prior two years (or $300,000 combined income if married), with the expectation to make the same amount each year. These investors were allowed to invest large portions of their available cash into these deals. It was assumed that to attain their financial stature, they had to have had some semblance of financial knowledge.

How Changes to Crowdfunding Affect Real Estate

In my humble opinion, what we do as real estate investors provides great value to those who invest their hard earned money with us. Until recently, the only place an investor could go to put their money to work was Wall Street. Although there are plenty of good options there, there are not enough to provide real diversification. Crowdfunding and the recent changes to it allow for access to our investments by more people. We grow our businesses and they get more options to build their wealth. It’s a real win for both.

Related: 4 Crowdfunding Benefits All Real Estate Investors Should Consider

In today’s video, I sit with Jeremy Browner, a licensed attorney in the State of North Carolina. He is well versed on crowdfunding and the recent changes to the regulations. We discuss what has changed and how it affects our industry! Enjoy!

Investors: What do you think about the changes to regulations surrounding crowdfunding? Will you participate in this growing trend?

Let’s talk in the comments section below!

Crowdfunding is facilitating a growing number of projects -- and now the trend just became MUCH more accessible to investors. Learn the ins and outs here!