With crowdfunding expected to raise over $6 billion in 2014, many savvy investors are trying to learn the ins and outs of online crowd investing of commercial real estate. As Executive Chairman of Realty Mogul, the United States’ largest online marketplace for real estate investing, here are the seven secrets to successfully crowdfunding real estate.
Access to Deal Flow
Probably the greatest potential for crowdfunding is the promise of giving the individual investor access to real estate deal flow that was previously only available to the big boys. Hedge funds, Private Equity groups, and other financial institutions have teams of high-paid executives looking for properties to invest in. Many of these companies provide funds that consumers can participate in, but there is a catch. Most have hidden in their paperwork multiple fees that all come out before the investor sees a return. Realty Mogul’s mission is to reduce load and pass that upside onto our investors. Today, we charge less for assets under management than virtually all of the major REITs and Mutual Funds while providing quality deal flow. The power of crowdfunding is that it attracts real estate sponsors looking for new sources of capital to “one-stop shop” so that they can spend more time running their businesses instead of fund raising. We also handle all of the distributions and tax reporting back to our investors thereby reducing their overhead costs. Crowdfunding is rapidly growing because it removes cost and friction from the investment process.
Regulations are Important
Crowdfunding real estate is not really new. It is just a digital version of people pooling their funds together to purchase property. Real estate has been purchased this way for centuries. What is new is the speed and ease that crowdfunding sites provide. With consumers being able to invest thousands or millions of dollars with just a few clicks of a mouse, it’s important to make sure that the site being utilized is a good one. Make sure the site you are investing with is well financed and follows all of the Security and Exchange Commission’s rules and regulations. Until the final regulations of the JOBS Act are finalized, only accredited investors should be investing in crowdfunded real estate unless the securities have been registered. The regulations regarding broker dealer laws, disclosures and how funds are handled are there to protect the consumer, but it is up to the consumer to do the diligence and make sure the site you are dealing with is compliant. At Realty Mogul, for example, we had our Chief Technology Officer and General Counsel both get their securities’ licenses just to make sure that the entire company understood all the regulations.
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