Monday, November 16, 2015
Real Estate Crowdfunding
A relatively new federal law enacted in 2012 (H.R. 3606) opened the door to a different and radical method that entrepreneurs can use to attract private investors, a method that is now called crowdfunding.
Crowdfunding is basically an Internet-based means of finding funding that can enlarge your circle of potential private lenders immensely.
Nevertheless, you need to educate yourself about the method and the rules that apply to it before utilizing it.
There are basically two types of real estate investors who are active today:
Type 1 – Those who are unaware that they are issuing a security when they borrow money from private individuals
Type 2 – Those who are aware that borrowing money from private lenders involves issuing a security but are so confused about what the SEC is and does that they are scared of doing anything at all that requires dealing with the SEC.
The first set of people unwittingly set themselves up for some pretty expensive consequences because in thinking the rules don’t apply to them, they ignore them. And, as always, ignorance is not an acceptable excuse.
Those folks in the second group miss out on something that could provide them with a huge competitive edge.
On Oct. 30, 2015, the SEC finally released new crowdfunding regulations for real estate investors – including a federal crowdfunding exemption that allows real estate investing businesses to raise as much as $1 million annually by selling their securities to investors over the Internet.
And that’s not all! The new rules also change the guidelines you need to follow when advertising for investors and set new minimum net worth and income requirements for investors.
Let's look at the latest statistics, which show that the amount of funds raised via crowdfunding has increased from $1.5 billion in 2011 to an estimated $10 billion this year, and the global market is expected to reach $90 to $96 billion by 2025, which is almost double the size of today’s global venture capital market. Crowdfunding is here to stay!
Fundrise and Realty Mogul are two of the top real estate crowdfunding portals.
I'd love to hear stories from my blog readers on your experiences with crowdfunding - good and bad. Please post comments here.