The Latest On Crowdfunding Real Estate D...

crowdfunding Editor’s Note: Hal Cranmer has had a wild past. Born in India, he’s lived all over the world and started his working life as an Air Force Special Operations and Commercial airline pilot. After 9/11 brought him down from the clouds, he entered the corporate world and rose to the level of running a $36M machining plant. Yet from 2006 on, he caught the passion for real estate investing. He flipped a bunch of houses in Minneapolis and still owns several multifamily rentals there. Lately, he is into assisted living, and owns 5 assisted living homes in the Phoenix area. He loves to follow real estate trends, both locally and nationally.

As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Cranmer provides us with his own unique, lively and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out our other super-helpful Market News Updates. For now, enjoy...

From Hal Cranmer...

We’ve touched on crowdfunding in some market updates here and here, but we haven’t deep dived into it too much. Since it seems to just keep growing, we thought it might be good to devote a whole market update to it.

For those of you investing in rocks to live under, crowdfunding is pretty much what it sounds like... investors can pool their money for a real estate project. For the longest time, you had to be an ‘accredited investor’ in order to invest in projects outside publicly traded securities.

That sure seemed crazy to me. Stocks seem a lot more risky than real estate. You just don’t have much control over them.

To be an accredited investor, you had to show either:

A net worth in excess of $1 million

A net income of $200,000 ($300,000 if married) for each of the last two years

So Slash from the rock group Guns & Roses could be an accredited investor, but chances are your CPA could not.

Makes a whole lot of sense, don’t it?

magic In 2012, President Obama signed the ‘Jumpstart Our Business Start-Ups’ or JOBS Act. The JOBS Act removed some restrictions on certain types of investments and who could contribute capital. Some of the freed-up investments included certain real estate investments.

Part of the JOBS Act also allowed states to set their own rules on what was a kosher investment for non-accredited investors.

Thanks to this act, crowdfunding sites started to appear for real estate investors...

Now the world of real estate investing is opening up to more and more people, although most of the crowdfunding sites require you to be an accredited investor. Make sure you check with your attorney and/or CPA to see what kind of projects allow you to invest.

But I Wanna Be an ACTIVE Investor!

What’s in it for you?

Especially if you’re the type who likes to get their hands dirty demoing a new flip, managing properties or tracking down wholesale deals for better returns.

Well there are 2 good reasons to pay attention to crowdfunding no matter how hands-on you are:

Crowdfunding can provide money for your deals.
Ever wonder what to do with all that money you make on your deals?

With crowdfunding, you don’t need to sit with individual investors over and over again, saying the same pitch. You just throw it out on the crowdfunding site and voila… if the investment’s sound, the money will come.

Then, once you’ve cleaned up on your deal and your bank account is fat, you will want that money working for you making more money. While it’s true you can stick it into the next deal, maybe it’s worth trying a little leverage?

Send your funds to a crowdfunding endeavor that looks appealing and offers a decent return.
Find another source of funds to run your project.
Increase your overall return significantly.

Important Facts about Crowdfunding

The barrier to entry for crowdfunding is pretty low.

Many projects allow people to invest for as little as $5,000. Something to watch out for is the fee for investing, which can be as high as 3%. That might be pretty steep if you’re used to mutual funds that want about 0.5%.

The good news is they take these fees out of the return on the investment, before they send the profits or interest to you. It won’t generally come out of your principal.

potato Crowdfunding can either be a debt or equity investment, just like regular investors in a project. If someone is just providing funds as a loan, they will expect regular payments of principal and interest, regardless of the success of the project.

Equity plays may be riskier, but may also result in bigger payouts.

Crowdsourcing Websites

Here are a few crowdfunding websites to poke around and see if this type of investing is good for you:

Peer Street – One of the best places to find loans for real estate. You can invest with as little as $1,000.
Realty Shares – Allows residential, commercial and mixed-use investments. Returns can start as soon as two to three weeks after funding and range from 8%-20%.
Realty Mogul (no relation to our site) – Investments can last 6-12 months, and you should see returns in a few weeks from investing.
Fundrise - Receives a huge volume of potential new deals (up to 250/week), but only a few meet their rigorous investment criteria. Minimum investment is $5,000. All deals are pre-funded, so returns can start immediately.
iFunding – Minimum investment $5,000. One unique aspect is that they regularly host webinars for investors that help educate them on the best deal for their investment criteria and risk tolerances.

There are many other crowdfunding sites that might be interesting for investors. In fact you can see over 100 of them listed here. That article also has links to sites for non-accredited investors.