by Robert Freedman | January 12, 2016
The U.S. Securities and Exchange Commission is coming out with a rule in a few weeks that will make crowdfunding a more mainstream way to raise money. There are two reasons this development applies to you as a real estate professional.
First, it can fuel the growth of companies you do business with that want to expand but are having trouble getting capital to do it. Through crowdfunding, they can get the money they need to move into a bigger space or otherwise expand their real estate imprint.
Second, if you’re looking to grow your brokerage business, it might be a way for you to do that. Right now, when you think of crowdfunding, you might think of tech start-ups using the Internet to bypass Wall Street to reach hundreds or thousands of small investors. The SEC rule that comes out in late January will build on this framework by standardizing the rules of the road.
The idea is to increase the transparency of the offering and set limits on how much one individual can invest, among other things. That opens the door to companies that might otherwise balk at crowdfunding to give it a try.
Last year companies raised $16 billion in capital going directly to small investors; this year, the number is expected to get quite a bit bigger.
One company that is wasting little time in this new environment is Generation Income Properties in Tampa, Fla.
The real estate investment trust (REIT) is reaching out to small investors to generate $20 million in capital and go public. David Sobelman, the company’s founder and CEO, says it’s simpler and less expensive to go public this way than to go through Wall Street and reach out to institutional investors.
“It would cost us between $1.5 million and $2 million just for legal fees,” if they were to go the traditional route, he says.
Source: Two Ways Crowdfunding Can Boost Your Real Estate Business (realtormag.realtor.org)