As a real estate investor, are you staying current with the latest investing technology? Just like all modern industry, the real estate industry continues to evolve and how investments are made has a new technology that is on the cutting edge for real estate investors, welcome to real estate crowdfunding.
Whether you are a principle putting deals together and looking for investors or an investor looking for someone else’s deal to invest your money in, crowdfunding has arrived and is changing the marketplace. The American Jobs Act of 2011 was passed into law in April of 2012. Implementation and refinements have been occurring ever since. On May 16 of this year, crowdfunding went from policy vision to a full funding reality with the ability of unaccredited investors to invest in private offerings.
Crowdfunding is Moving Fast
Previously only the wealthiest investors (accredited) were able to participate in crowdfunding. There are federal regulations defining who can be accredited such as having a net worth exceeding a million dollars or an individual annual income exceeding $100,000. Beginning May 16, unaccredited investors became eligible to participate in crowdfunding. Crowdfunding isn’t only about the real estate business. Many other business opportunities will benefit from crowdfunding capital and investment pools of money that are now available. The inclusion of unaccredited investors is going to substantially grow the amount of money available for well-planned investment opportunities. Much of this will be in the real estate industry.
Although final numbers won’t be in until next month, in this brief period of time, according to Crowdsourcing.org, real estate crowdfunding is projected to reach $3.5 billion in 2016.
Benefits of Crowdfunding
You can be certain that all of the benefits of crowdfunding will take time for creative entrepreneurs to attain. However, many are already becoming apparent. The fact is that benefits fall into at least three different categories. People with money to invest will see many more investment opportunities and more competition (higher profits/interest rates and equity deals). Dealmakers will find more investors and investors will be easier to connect with. Both money investors and dealmakers will benefit from the additional transparency that typically comes with these arrangements.
Both dealmakers and lenders found a strong interest in private financing following the Great Recession. Dealmakers needed access to capital that the banks quit providing. Qualified investors and individuals with 401k funds to invest quickly became attractive. For money investors, more reliable and more secure investments (real estate) outside of the stock and bond markets also became attractive. Now, with crowdfunding, this match becomes even more powerful as more investors (beyond qualified investors) are able to participate in the market.
Additionally, through crowdfunding, lenders and dealmakers skip the hassle of managing multiple investor relationships, distributions, and tax reporting because online platforms do that for them. This makes choosing to crowdfund about convenience.
Crowdfund Intermediary Regulatory Advocates (CFRIA)
CFRIA is a nonprofit leader to advocate setting standards related to the new and developing crowdfunding industry. CFRIA (www.cfira.org) was established following the signing of the Jumpstart Our Business Startups (JOBS) Act. It was formed by the industry’s thought leaders who pioneered the first Crowdfunding Act to serve as advocates and lobbyist for the industry.
CFIRA works alongside the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and other governmental and quasi-governmental entities to help establish rules, industry standards, and best practices.
The membership of CFIRA is composed of intermediaries (crowdfunding platforms and broker/ dealers), investors, issuers, third party service providers (such as technology vendors, attorneys, accountants), and other crowdfunding related service providers.
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Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 10 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. With the Pacific Ocean a couple of miles in the opposite direction.