The Investment Opportunity Traditionally, the real estate market has been the most reliable wealth generating vehicle for the affluent with large "buy and hold" investments. For the most part, these doors to opportunity were closed only to the wealthy and left the vast majority of American families behind. With the Jumpstart Our Business Startups (JOBS) Act signing in 2012, the possibility for entrepreneurs to crowdfund their real estate investments, allowing many people to all share a small slice of the same real estate pie. For as little as $1,000 to $5,000, the everyman can share the vision of real estate investments alongside other co-investors, which also helps to mitigate risk because no one has put too much on the table.
Legal Framework Real estate crowdfunding is regulated by the Securities and Exchange Commission, with four major laws applying to the industry:
Title II of the JOBS Act Regulation D Rule 506(c), which lifts an 80 year ban on general solicitation and allows private companies to promote their fundraising activities on the internet and social media;
Title IV of the JOBS Act Regulation A+, with three tiers depending on the amount of money being solicited and invested;
Title III of the JOBS Act, which was passed in October 2015 and allows companies to raise up to $1 million per 12 month period from an unlimited number of investors; and Intrastate Exemptions, which lets both in- and out-of-state investors to participate.
Real Estate Crowdfunding Portals Two years ago, there were only 10 website which offered access to commercial real estate deals through crowdfunding. Now, there are more than 100 of these portals to invest your money in real estate online. The big decision comes down to choosing between debt and equity deals when investing. Peer-to-peer marketplaces are usually less risky for investors and offer a monthly cash flow to boot. On the other than, the ROI is usually lower than equity deals, and debtors don't benefit from property appreciation. This is a great option for the fix-and-flip investors. Your other choice is equity crowdfunding, which is more complex but offers an annual return averaging between 8-12% and carries tax benefits. Then, you have to choose which model of investing to follow, whether it is direct, indirect, or software-as-a-service.
Real estate crowdfunding industry: what's next?
Real estate crowdfunding was a $1 billion industry in 2014, with an expected growth of $2.5 billion in 2015. Of course, there is room for growth, but real estate crowdfunding isn't anything new. Now, this year will be bringing even more significant changes to real estate investing, with securities laws allowing ordinary Americans to invest in private companies for the first time since 1933. This is the year to invest your money in a smart, consistently proven way: real estate crowdfunding