Once upon a time, private equity firms and wealthy individuals were the only investors who could afford to capitalize on real estate projects. The investment landscape is changing with the advents of web platforms like Fundrise and Realty Mogul, which give members of the public a voice in what gets built in their neighborhoods, by voting with their investment dollars on local real estate projects.
The CROWDFUND Act
Title III of the JOBS Act, known as the CROWDFUND Act, sanctions “crowdfunding” where entrepreneurs using web-based platforms provide individuals an opportunity to make small investments in their projects. The Act awaits the promulgation of Securities and Exchange Commission (“SEC”) rules and regulations that will provide guidance and control for the crowdfund securities market.
The SEC is currently inviting public comment. It remains to be seen whether the regulatory scheme that emerges will support or undermine the key goals of this Act, which has two main purposes:
- Afford startup companies an opportunity to raise a maximum of $1 million of capital yearly from the public, without incurring large expenses in the process
- Provide modestly-endowed investors with the opportunity to make speculative investments that were formerly the province of wealthy “accredited” investors.
These purposes are advanced by exempting crowdfund securities from costly and complex registration and offering requirements. An Atlanta based law firm can help you understand this innovative investment strategy.
Risks and returns
There are some concerns with the crowdfund investment concept, namely the potential for the fraudulent promotion of fake investments by opportunistic internet con-men and the potential for expanded risks and losses, because of the highly speculative nature of some of these entrepreneurial ventures. Congress has addressed these concerns by:
- Giving investors a private right of action for fraud under the CROWDFUND Act
- Giving federal and state regulators the authority to bring enforcement actions
- Limiting annual investments to five percent of the investor’s yearly income and capping them at $5,000 per year for most investors
What’s next in a crowdfunding world?
Entrepreneurs can spend more time developing ideas and less time working on stock prospectuses. Returns for neighborhood investors can be realized both in dollars and in satisfaction when “their” projects go up. Big ideas will no longer require big purses to actualize them. Residents will meaningfully participate in building neighborhoods instead of simply occupying them.
The attorneys at Hartman Simons and Wood LLP have comprehensive knowledge of virtually all financial transactions, and they act as your business partner in innovative transactions.