Small real estate firms as well other companies can now crowdfund from unaccredited investors to support their projects. This was amply provided for in the provisions of the recently approved JOBS Act.
Fundrise, a premier real estate firm, is poised to take advantage of the new laws that allow investors to participate in real estate deals and projects through crowdfunding.
In the past, many restrictions were imposed on developers in getting their projects funded by the public. The chances of small businesses to raise funds for their real estate projects are slim. In fact, only investors with high net worth and private firms dominate the real estate industry.
With the new set of regulations and provisions of the JOBS Act, crowdfunding for real estate is enabled; and will help many small businesses in the States to raise sufficient money for developing real estate properties.
Small businesses will no longer have to rely on traditional sources of funds for real estate investments. This will definitely enable business owners to have a stake in various real estate projects.
Fundrise is one example of a company that raises funds from the locals, and in return, provide the investors an equity stake on the real estate and a percentage of accumulated profits of a public offering. It is currently in 16 cities in the country, with over 50 developers. Started by Ben Miller and his brother Dan, Fundrise is into the development of varied real estate properties.
Various projects are already in place to test the efficiency of crowdfunding for real estate. One of Fundrise projects is the proposed property for D.C. Council. The council is engaging individuals to crowdfund for this project. Analysts have said that this is a risky investment. When you looked at it from the JOBS Act perspective, this will give individuals equal opportunities in raising more funds easily and affordably, as well as a stake in various real estate projects within the region.
Many investors have already shown interest in the proposed projects. This is already an indicator that people are willing and ready for real estate crowdfunding. Fundrise is creating a neutral investment and participation platform for all businesses and individuals. Projects are no longer left for big businesses, which have been reaping large profit margins for several years.
In a surprising move, the Securities and Exchange Commission has passed the rules of the sixth bill of the JOBS Act, which allows small businesses to raise up to $50 million through Regulation A plus, the Direct Public Offering.
According to Fundrise, thru crowdfunding, they will engage the community directly in the real estate projects. First, companies within the region will be allowed to tender equally for the projects, and raise funds through crowdfunding. This means that capital will no longer be an obstacle in tendering for property development projects. Second, the local community can provide the labor force, equipment, tools, and materials for the construction of the properties. This will boost every stakeholder’s business and life. Lastly, the community will benefit from these projects when completed.
Majority of these projects will be community-funded, thus the community as a whole will own and control the projects. Crowdfunding for real estate will enable the community to own most of these projects. This will give people a chance to support the projects and benefit fully from them once completed. Miller, co-founder of Fundrise, said that with crowdfunding for real estate, the public is an important partner and asset because it will assist you in building your real estate project. Most importantly, people will have the opportunity to propose projects they feel will help them greatly. For instance, if a library is proposed for construction, then community-funded and community-owned models will be adopted. Upon completion of the project, people can read, research and find any relevant information easily in the library. In essence, crowdfunding for real estate will bring more resources closer to the people, and give them a chance to benefit from it. Fundrise is an example of this platform.
Many old structures are expected to be renovated once the JOBS Act is fully adopted. Since funds will be easily available through crowdfunding, more businesses are expected to renovate older buildings, for them to look newer and appealing. This is expected to attract investors from different places to run various businesses, and thus create wealth. For example, if the proposed R.L. Christian Library is replaced by a residential building for mixed uses as planned by the D.C. Council, then more persons will be able to conduct businesses in these premises.
On one hand, professional advisers have argued that crowdfunding for real estate may encourage individuals with minimal or no experience to take up real estate projects, which will result to poor quality buildings. The government has to look into this, and establish protocols that will ensure only qualified individuals are given the chance to engage in this work. For instance, people in the industry should be encouraged to take courses that will equip them with relevant knowledge and expertise to perform their work diligently.
Crowdfunding for real estate is expected to explode very fast. It will give new developers equal opportunity to undertake real estate projects. Startup businesses can engage the public, and ask them to crowdfund for their projects. They can ask companies to crowdfund for them, like Fundrise. According to Miller, crowdfunding is not only going to be a new frontier, but also a new Wild West. The government, startup businesses and locals will benefit greatly from crowdfunding for real estate.
Michael Hull is an editor at Times Realty News, a media stream for the emerging real estate crowdfunding and capital formation industry. You can reach him directly at [email protected]