BankTech

Hot FinTech Opportunity: Real Estate Crowdfunding

AnthropologieDepartment Manager

Crowdfunding is becoming a widely favored alternative to raising capital rather than seeking loans from banks, particularly in the real estate sector. Historically, developers and operators were not permitted to solicit funding for projects due to restrictions by the Securities and Exchange Commission (SEC), and as a result real estate developers were limited to real estate investment trust (REITs) and private equity investors associated with the development company.

Borrowers are now able to market requests for funding and seek loans from multiple investors, due to the Jumpstart Our Business Startups Act (JOBS Act). When individual investors pool their funds, borrowers are able to bypass the middleman, in this case, banks, and broaden their accessibility to loans from issuers or sponsors.

JOBS Act, Cited by the US Securities and Exchange Commission

Cost-effective access to capital for companies of all sizes plays a critical role in our national economy, and companies seeking access to capital should not be hindered by unnecessary or overly burdensome regulations. We look forward to hearing the public's views as we write rules that both facilitate capital formation and promote investor protection.

Although the intention of the JOBS Act was to increase opportunities for US businesses to raise funds, alleviate stringent processes and ultimately rev up the economy, this new law did not come with a full list of the 10 crowdfunding commandments, so to speak. With seemingly amorphous structural rules, entrepreneurial startups need to “strike while the iron is hot,” and the real estate sector has been due for a spark.

TITLE III—CROWDFUNDING SEC. 301. SHORT TITLE. “CROWDFUND Act.”

Information Regarding the Use of the Crowdfunding Exemption in the JOBS Act

On April 5, 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law. The Act requires the Commission to adopt rules to implement a new exemption that will allow crowdfunding. Until then, we are reminding issuers that any offers or sales of securities purporting to rely on the crowdfunding exemption would be unlawful under the federal securities laws.

A frictionless experience is crucial for the borrowers listing their projects and for the potential sponsors looking to invest and build their portfolio. In just a few years, since the JOBS Act was signed into law over 100 crowdfunding sites have developed with a focus on just the real estate sector alone.

With so many real estate crowdfunding sites popping up everywhere, investors and borrowers must do their due diligence to choose the site that adheres to their financial goals and user experience. Even with the same crowdfunding concept and a real estate industry focus, these sites listed below can offer very different features that may be more or less important depending on the individual.

For those investors that have gone completely mobile, iFunding launched the first-ever real estate crowdfunding mobile app which is available in the App Store and Google Play.

If you prefer comparing apples to peaches, there are sites with a regional investment focus. The Prodigy Network gives accredited investors the opportunity to invest a bite out of the “big apple” with prime commercial real estate in major markets like Manhattan and if you feel peachy about Georgia, then CrowdVested might be the Georgia-based online platform for you.

And if you just want to pick a number, try 3, 4, or 5—the number of steps it takes to get set up with a crowdfunding real estate platforms—then take your pick from these sites:

RealCrowd: 3 simple steps → create your free account & browse → compare exclusive investments → select your investment

Loquidity: 4 fast steps → create account → browse investments → invest → watch it grow

InvestPeer: 5 easy steps → register online → browse properties → confirm your investment → reach funding goal → manage investments online

Referencing the popular board game Monopoly, owning, investing and trading property was how players really made a profit. And if you’ve ever played Monopoly, you can understand that it takes time and is somewhat of a commitment. Likewise, in a cloudbase crowdfunding ecosystem, similar commitments and a personal connection to a listing can apply when making an investment decision. Full transparency is important to maintain synergy with both parties, especially in the real estate sector.

Real estate crowdfunding has the potential to revolutionize the future of funding and investment diversification. This niche in the crowdfunding is not going unnoticed by investors, in fact, more financing is being raised at swift pace. On July  14, RealtyMogul.com, a leading online marketplace for real estate investing, raised a $35 million Series B financing round as per PE Hub, led by Sorenson Capital with additional funding from Canaan Partners, the lead investor in the company’s Series A financing. RealtyMogul.com intends to use this new financing to hire more technologists and data scientists, and strengthen its robust technology platform which uses big data to get smarter about risk profiling in real estate. To date, RealtyMogul.com has already helped fund 240 properties totaling more than $500 million in value.

LTP will certainly be on the watch as these investment trends emerge. It's an exciting time to experience this shift towards alternative web-based platforms that offer non-traded REITs, crowdfunding, public access to listings, and a unique opportunity for individual investors to engage in this next generation of real estate financing.

Ruth Pender

AnthropologieDepartment Manager

Ruth Pender is a former Community Manager at MEDICI (f.k.a Let’s Talk Payments).

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