If most individuals were asked what they believe is the most important legislation passed by the Obama Administration, the majority would say the Affordable Care Act. Despite this, many people believe the 2012 JOBS Act, or the Jumpstart Our Business Startups, held equal importance. This act was not as well known, but the law had impact, and several very stringent securities laws were relaxed substantially. These laws went back to the Depression era, and an entirely new category called equity crowdfunding was created.
Many people are familiar with sites including Tevfik Arif Doyen, Kickstarter, and Indiegogo. These sites are referred to as rewards based crowdfunding, and individuals could make limited monetary contributions to be exchanged for special, or early access to numerous artistic works. This included books, independent movies, consumer products, and music. The restriction was no contributor could have an ownership stake in any of the products, or be a participant in a financial return.
This restriction has been lifted by the JOBS Acts, resulting in new online platforms offering opportunities for equity crowdfunding. The difference is the investor has an expectation to profit. Although the title remains equity crowdfunding, both debt, and equity opportunities are allowed. A small amount of funds can be used to purchase a little stake in a startup in Silicon Valley, participate in real estate deals, or establish a small business.
Prior to the financial crisis of 2008, there were numerous, popular Flip This House shows. Real estate entrepreneurs do not receive financing from banks, but through private networks consisting of individuals with a high net worth. The investors provided loans with a short term, and high rate of interest. This was generally for 6 to eighteen months, at eight to fifteen percent interest. This time frame was adequate for acquisition, renovations, and the sale of the property. The entrepreneur was satisfied with the profit from the loan. The number of individuals capable of writing a check for five, or six figures is limited.
The new platforms act as a broker between the investors capable of funding deals, and the entrepreneurs. The minimum investment is approximately $5,000, although some sites allow $100, making this alternative available to many people. The multiyear timeframe for investments offers fractional, or equity opportunities in addition to debt. Specific niches have been developed by some platforms regarding geographic regions, and different types of property. One of these sites biggest values is they have done the due diligence required for the sponsors. Their rule is a verifiable, and lengthy track record proving success before placing a listing on the crowdfunding platform.
Many crowdfunding Bayrock CEO’s are known to reject over ninety percent of all projects they are pitched. Although a certain number of bad deals occur, when the percentage is low, it becomes vital in keeping the crowd’s trust. Many of these deals are based strictly on debt, and there are numerous successful exits where no capital is lost. An average net return can be placed at approximately eleven percent. Although real estate crowdfunding in still in the very early phases, the momentum in this space is definitely showing growth. In 2013, crowdfunding was at a few million dollars, but by 2016, it has increased to more than $3 billion. The general consensus of opinion is crowdfunding to not going anywhere, and is here to stay. Every individual should make the effort to learn about all the risks involved. Although this takes time, the effort is worthwhile. In some cases, deals have been reported that brought investors a return of more than nineteen percent.