Equity Crowdfunding is a financial tool that allows the contributors to own a stake in the company that is raising money. In the past, these tools have been limited to accredited investors, or those who have a net worth of more than $1 mil. The JOBS Act, or Jumpstart Our Business Startups Act, recently passed legislation, will allow crowdfunding for real estate investment when it is implemented. The crowdfunding exemption of the JOBS act will open up real estate investing for those who are not accredited investors.
Crowdfunding For Real Estate Investment
Crowdfunding has been a popular method to raise money for inventions, for music, and for new products for several years. Companies like Indiegogo and KickStarter are well-known tools that have been used by bands, movie-makers and other creatives, as well as inventors and product makers. Companies like CrowdFunder, Crowd Supply and RealtyMogul are working on new platforms for investors to pool their resources to buy real estate. Another successful crowdfunding group, gogetfunding.com, has been recognized by Forbes as one of the top global crowdfunding websites.
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Challenges in Crowdfunding for Real Estate Investment
Because of the new-ness of the idea, the SEC is still trying to draft rules for the implementation of the Act. Critics worry about the uninitiated investor who may not be familiar with real estate investing. There are challenges to educating people who are unfamiliar with real estate. Companies like Crowd Supply are taking management rolls, working with investment groups to plan and mitigate risks before they initiate the projects.
Proponents of the idea believe that this type of investing will help to lessen the risk and expand the ability for more people to participate, and accelerate the process of investing in real estate. [Photo: Payton Chung on Flickr]
One of the promising things about this type of investing is the ability of people to invest in their own neighborhoods and cities when the right investors get linked with the right neighborhoods. It could be the opportunity to have an affect on property values that mean something to the investors’ own local interests. With companies like Fundrise, RealtyShares and the previously mentioned companies, many experts are predicting a quick rise in this type of investing. Many states are working on their own versions of the JOBS Act, as well as other countries. Italy just passed their own version of the JOBS Act.
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