The Jumpstart Our Business Startups Act (JOBS Act) implemented by the Securities and Exchange Commission (SEC) opened the door for the start of a brand-new industry – real estate crowdfunding. In this crowdfunding model, money is raised by means of solicitation from a large number of individuals who each provide relatively small contributions.
More Opportunities for Start-Ups Seeking Capital
Before the JOBS Act was passed, government regulations limited the public marketing of private investments. Business startups had to solicit capital in a private manner through the building of relationships and networking with interested investors. Under this old system, real estate developers generally raised funds for projects by pursuing a small number of private investment sources that each provided large financial investments.
Once the Jumpstart Our Business Startups Act became law, real estate companies were permitted to advertise their projects and properties to new investors. Real estate entrepreneurs and specialists in the technology sector created crowdfunding platforms. These platforms became the perfect vehicle developers could use to market their deals and obtain funding by a large number of online real estate investors investing relatively small dollar amounts.
More Opportunities and Benefits for the Individual Investor
Before the advertising and marketing restrictions were removed by passage of the JOBS Act, only the most well-connected and wealthiest investors were able to access the best investments in terms of short-term earning potential. Often you had to know someone in order to gain access to one of these privileged opportunities. Prior to investing, you also had the responsibility to thoroughly investigate the opportunity on your own without having access to readily available documentation.
Real estate crowdfunding companies offer real-time marketplace platforms on which everyday investors can access real estate deals. These platforms provide easy-to-access, detailed information about the deal, forum conversations, and educational information about real estate investing. Oftentimes, crowdfunding companies vet the deals and the sponsors of these deals and provide a large number of due diligence documents investors may review at their convenience.
Greater Investment Diversification Possible
Before the passage of the JOBS Act, diversifying a real estate portfolio of deals was a difficult prospect. The success of private deals hinged on each investor participant supplying a sizable investment. Crowdfunding has changed the landscape and given real estate investors the ability to invest small minimums and diversify with a wide range of investments.
Before jumping into any crowdfunding investment, it is important to evaluate the opportunity carefully.