A lot of activity has happened since I last wrote about the real estate crowdfunding landscape. Since that post, we still don’t have federal crowdfunding rules from the SEC. The SEC needs to set the rules that congress asked them to set in 2012 when they passed the Jumpstart our Business Startups (JOBS) Act. Last year we had 13 states give up on waiting for the federal rules and pass their own versions of crowdfunding rules that would allow investors who are not accredited investors to invest. There are also another 14 states in the process. Depending on the state, you can raise up to $2 million (Washington state limits the amount at $1m).
This is great progress and allows us in Washington to raise capital from both accredited and unaccredited investors. So far the mechanisms for raising capital haven’t been put into place. For example there are no web portals available.
While changes to the limitations of who you can raise capital from are slowly being worked out, the ease of raising from accredited investors has become much easier. There are investing platforms for accredited investors popping up all over the place. From investing in lawsuits, to movies, to loans, to startups, to Real Estate. Real Estate is still dominated by companies like RealtyMogul and RealtyShares as it was a year ago. Some of the others I discussed like Fquare, Collaperty, and Globerex aren’t around any longer. For those of you who don’t have the old article sitting next to this one like I do, that’s 30% of the real estate crowdfunding companies I mentioned in the last article that have closed their doors. Despite the failures, the number of crowdfunding sites for real estate are multiplying like bunnies.
If you’re investing in real estate through a portal
There are a few key things that you need to keep in mind:
- What is the structure of the investment? Is the operator liable or is the investment firm liable?
- How long does it take to fund any one deal? Too long and they may have future problems, too fast and they may be offering deals that are too risky.
- How does the investment firm get paid? Are you paying a monthly fee, a percentage of each investment, and are there extra fees for K-1s?
- How much experience and skin in the game does the operator have? Regardless of the investment firm you’re using you have to do your own due diligence on the operators. Are they putting their capital into the deal, how many deals have they done successfully, and how many have they funded through this investment firm?
If you’re raising capital as an operator
There are a few things you should think about before you raise:
- How many investors are on the platform? If it is just a small number of investors, are the minimums sufficiently high to fund projects?
- How many of those investors are repeat investors? Repeat investments is what makes crowdfunding work, even if it isn’t 100% repeat investments, repeated investing is required to be sustainable.
- How does the investment firm get paid? Are you paying a monthly fee, a percentage of each investment, and are there extra fees for K-1s?
- How long does it take on average for your type of deal to get funded? The length of time to funding is a serious risk to your projects and is a sign of health of the platform.
- What is the percentage of investments that never get funded? This is a problem that indicates the projects aren’t being matched properly with investors. Understanding how well the marketplace does at matching these two things is important.
There aren’t really any other barriers to raising capital for your flip, multi-family, or other commercial project. Spending some time on the website and applying to raise capital on their platform. The individual requirements of each investment firm vary, some have fairly loose standards and others are fairly stringent. So you have to start exploring if you want to find a firm that suits your needs. I’ve compiled a new list for 2015 to get you started. A little less explanation than the last time because there are so many.
RealtyMogul.com and RealtyShares.com are leading the market and here’s the list of people trying to catch them. If you are interested in raising or investing through an online platform or want to build one of your own, feel free to reach out.
Real Estate Crowdfunding sites January 2015:
- ahpinvest.com (distressed notes)
- AssetAvenue.com (real estate loans)
- blackhawkcorp.com (real estate loans)
- crowdalliance.co (commercial & residential equity & loans)
- CrowdMason.com (also mentioned last time)
- carltonaccreditedcrowdfunding.com (Commercial equity, international)
- crowdrealty.co (coming soon)
- crowdstreet.com (Portland based, commercial equity & loans)
- crowdtranche.com (commercial equity & loans)
- CrowdVested.com (commercial & residential equity & loans)
- crwd.com (commercial & residential equity & loans)
- deitscho.com (Commercial equity, international)
- EquityHunt.com (Commercial, residential, land)
- fundamerica.com (white label platform)
- fundinghamptons.com (The Hamptons)
- fundedcity.com (UK based)
- fundrise.com (commercial & residential equity & loans)
- groundfloor.us (loans)
- groundbreaker.co (commercial & residential equity & loans)
- homeunion.com (invest in rentals that they find/run)
- ifunding.co (commercial & residential equity & loans)
- InvestPeer.com (commercial & residential equity & loans)
- loquidity.com (coming soon)
- mayfairandmorgan.com
- money360.com (Commercial loans)
- nexregen.com (Commercial loans, equity, REITS)
- thennncrowd.com (triple nets)
- opensourcecap.com (notes, loans)
- passiveflow.com (white label your own campaign)
- patchofland.com (commercial & residential equity & loans)
- peerrealty.com
- peerstreet.com (coming soon)
- primarq.com (mentioned last time)
- prodigynetwork.com (mentioned last time)
- prohatch.com (real estate, companies, nonprofits)
- propfunds.com (coming soon)
- propellr.com (coming soon)
- propertypeers.com (coming soon)
- RealCircle.com (coming soon)
- realconnex.com (commercial & residential equity & loans)
- realliquidity.com (coming soon)
- realcrowd.com (commercial equity, loans, & funds)
- realquidity.com (coming soon)
- realtycrowdfunding.com (The Hamptons)
- realtywealth.com (triple nets)
- rich-uncles.com (commercial & residential equity & loans)
- sequorum.com (residential)
- sharestates.com (commercial & residential equity & loans)
- sprovy.com (coming soon)
- stake.com (hedge funds, loans, commercial & residential equity)
- terrafunda.com (development and commercial)
- tycoonre.com (commercial & residential equity & loans)
- vestor.co (coming soon)
- wealthmigrate.com (Atlanta residential development)
- wearecrowdfunding.com (private & public funds)
Ongoing Updates…
- PropertyPartner (UK based rental income)
- CityVest (Commercial real estate)
- Land Baron Club (Land Development)