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.
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!