From starting businesses to funding emergency medical care, crowd-funding has taken off and changed the way people see investing. It was only a matter of time before the same mentality was applied to the real estate market.
Prior to the crowd-funding rage, the Securities Act of 1933, which dictated how investments were marketed, limited real estate investing. In short, companies were prohibited from publicly marketing their securities. This made investing in the real estate securities market largely a who-you-know game, limiting entry. This also limited the audience with which real estate companies could rely on capital for new investments.
Now that the crowd-funding trend has reached the real estate market, this problem has been circumvented. The Jumpstart Our Business Startups Act of 2012 removed many of the restrictions imposed by the 1933 legislature. This allows for companies to publicly advertise their offerings so more investors can put up capital for new investments.
Crowd-funding allows more investors the opportunity to invest, and with as little as $1,000: a much lower entry benchmark than previous investors were able to begin with, as initial investment could enter the six-figure range. This applies primarily to commercial real estate, but regardless of sector, the crowd-funding effect has allowed more investors of varying wallet sizes the ability to invest more broadly, and more simply.
Even with these improvements, access was still restricted to investors with a verified annual income of $200,000 or net worth of over $1 million to utilize the crowd-funding real estate platform. But with the JOBS Act set to take effect in 2016, the access to crowd-funded real estate investments will open even more.
One of the benefits to crowd-funding real estate is the new transparency it brings. Previously, investors had only a little information on the properties they were considering investing in. Crowd-funding flips that, providing as much information as possibly such that investors can make the best choice for their funds. After the initial investment, holders can track the properties they have invested in online to see how they’re doing, and use that information to alter their investments in the future.
Real estate companies have also benefited from these changes by having access to greater capital and a wider variety of investors than ever before. They’re able to share more information with more people, resulting in more capital for their own investments. The ability to reach a wider audience with more simplicity is a great asset of crowd-funding.
Have you ever considered crowd-funding as an option for your business or investments? Do you think crowd-funding will have an impact on the real estate market?
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