Real Estate and the Crowdfunding Equation

If you’re of a certain age, you may remember the saying, “It’s not what you know, it’s who you know”. That used to be the modus operandi for the real estate investment industry: one-to-one personal connections and networks were pretty much the only means of finding and attracting potential investors in real estate properties and development projects. That’s because public promotion wasn’t permissible under the Securities Act of 1933.

Hello Crowdfunding
Unless you’ve been living under a rock, you’ll be familiar with the popularity and growth of the crowdfunding industry: one-to-many, or one-to-millions, as opposed to one-to-one. Its success lies in the democratization of fundraising: if the “crowd” likes the offering, the “crowd” will open its wallet. Indeed, the crowdfunding kick grabbed the attention of lawmakers, and the Jumpstart Our Business Startups (JOBS) Act of 2012 initiated changes that permit real estate investment offerings to grab a few pieces of the one-to-many fundraising pie.

Average Joe Access
Title II of the JOBS Act lifted the previous prohibition on general solicitation. So, for the first time in 80 years, advertising private share offerings in a public way was possible for big, small, and startup companies in most industries. Accredited investors could find and access deals that were previously only available to private investor groups. The JOBS Act, through Titles III and IV also enabled non-accredited investors to invest through other forms of crowdfunding campaigns.

Good for Real Estate
These new rules are bringing many disrupted benefits to the real estate industry. Increased transparency means investors know more about property investment deals before they commit, and investors can track their investment offering campaigns and monitor results in real time. Increased accessibility means a wider pool of potential investors have greater opportunities to a whole new asset class.

Risk Versus Reward
All this great news is tempered with an acknowledgement of the risk inherent in any investment deal. Non-accredited investors with fewer resources at their disposal may stand to suffer more significantly if their investments don’t perform as expected. Meantime, new real estate crowdfunding platforms continue to enter the market, aiming to capitalize on the anticipated demand created by an influx of non-accredited investors interested in real estate investment.

Verification of accredited investor status is a requirement under most of the post-JOBS Act capital raises. Contact today to discuss our safe, secure and confidential accredited investor verification services.

1 person likes this post.