Crowdfunding has enabled me to get into real investment opportunities that I wouldn’t otherwise have been able to do.
I have participated in crowd-funded investments, including some investment in debt related to first-lien mortgages.
Also, I have invested in secured loan funds and directly into an industrial property in the Midwest managed by a very prominent company.
Those have been pretty varied opportunities and that’s part of the point with crowdfunding.
Author Lawrence Fassler’s industrial property investment in the Midwest managed by a prominent company.
Too, I have seen many other deals that my company has worked on so I know something about how they work first hand.
I have noticed in reading a lot of the questions posed by readers that many want to invest in real estate, but either don’t yet have enough ready capital to commit to bigger, more interesting projects, or else are a bit daunted by all of the work that goes into managing a real estate investment property.
Crowdfunding for real estate is just another way of pooling money together from a group of investors in order to make an investment.
The distinction now is that the ease of communications made possible by the internet has increased the potential reach of such pools so that they can extend out to investors across the country.
It also allows for such investors to participate in larger commercial real estate projects – opportunities that were previously limited to financial institutions or a few very wealthy individuals – at lower minimum investment amounts than were ever before possible.
Accredited investors only, right now
Before I go on much further, though, here are some disclosures about myself. I work for one of the more prominent real estate crowdfunding sites, Realty Mogul – so I have a dog in this fight.
Second, crowdfunding under current Securities and Exchange Commission rules, is still largely limited to accredited investors – meaning persons with a net worth exceeding $1 million (excluding the value of their primary residence) and/or an annual income exceeding $200,000 annually (or $300,000, jointly with a spouse) – so if you do not meet those standards, it may still be hard for you to participate.
My industrial property investment – hope it works out!
The JOBS Act started the buzz – but that’s not what’s really driving things
The excitement about crowdfunding comes from two places. One was the JOBS Act passed two years ago – which hasn’t exactly lived up to all its promise. The other phenomenon is the very real success of peer-to-peer (P2P) lenders in the consumer credit lending business – and that success has many observers convinced that real estate crowdfunding will be here to stay.
The JOBS Act was intended to encourage the funding of U.S. small businesses by easing various securities regulations.
The “crowdfunding” provisions, which would allow companies to sell securities through open platforms, were often likened to the Kickstarter “donations-based” model for funding artists and designers. The bill hasn’t lived up to expectations, however – partly because the Securities and Exchange Commission worries that the loosening of investment protections would expose small and inexperienced investors to fraud.
Investment crowdfunding took off with credit card consolidations
The real origins of investment crowdfunding came during the economic depths of 2008-2009, when a few select start-up businesses began letting individuals lend to other consumers in order to fill the void left by banks and traditional financial institutions that had really pulled back on offering credit after the Great Recession. Plenty of ordinary Americans with decent credit ratings still could not seem to get small loans to fix up their garages or make the kids’ last college tuition payment.
Now, people tired of paying interest of 25% or more on their credit cards can turn to other individuals — through firms like LendingClub, Prosper, and others – who are willing to lend money at lesser rates.
Peer-to-peer lending has grown rapidly since Prosper and Lending Club opened their doors. Lending Club, the more prominent, just passed the $5 billion mark in loans closed. Both of these companies provide a similar offering – the ability to invest in unsecured debt, most often for credit card consolidation.
Real estate crowdfunding – the next step
The crowdfunding model has now extended to more traditional investment arenas – including real estate. Companies enabling real estate crowdfunding have begun to re-invent the financing of larger commercial properties such as shopping centers, office buildings, and apartment buildings.
Players in this market have brought opportunities in commercial real estate to individual accredited investors who wouldn’t normally get to play in an arena dominated by large institutions.
In my next blog, I’ll discuss in a little more detail why commercial real estate can be a great part of real estate for you to get involved with – and how, through crowdfunding, it can be done in a passive way, without undue time commitments on your part.
Lawrence Fassler is the General Counsel of Realty Mogul, and a registered representative of WealthForge, LLC, member FINRA / SIPC, through which Realty Mogul offers equity securities. The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. The experience of the author may not be representative of the experience of all clients, and is not a guarantee of future performance or success. Hyperlinks to sites outside of this domain do not constitute an approval or endorsement of content on the visited site.
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