The Crowd Fund Real Estate Investor

The Secret to Raising Money ONLINE That Your Competitors Are Already Using!

By Dr. Adam Gower

 

Before I get into explaining how you can tap into an untold depth of opportunity to finance your deals, let me address any skepticism you may have, head on.

 

If anyone tells you that you don’t need to know about Crowd Fund Real Estate,

 

they are dead wrong.

 

Why?

 

Because all your investors, those ladies and gentlemen of the past with whom you have so assiduously developed relationships for the last umpteen decades are all being courted by your competitors.

 

And that’s possible because Crowd Funding has opened up the floodgates to advertising and ‘public solicitation’.

 

In short, Crowd Funding is not something limited to little startups, nor is it a peripheral corner of the web inhabited only by computer geeks.

 

It is fast becoming the mainstream way in which deals get funded.

 

In fact, by 2025 it is projected that over $300 billion will be invested in crowd fund deals overall.

 

It is a brand-new way for you to raise equity capital for your deals and one that…

 

‘…is a phenomenal supplement to a sponsor’s investor base and anyone would be crazy not to do it. It is a win, win, win, for all involved’,

 

to quote one of my podcast guests, sponsor Max Sharkansky of Trion properties.

 

Transformational change in real estate finance

 

Crowd funding was created by the JOBS Act of 2012.  I’ll get into that in more detail in a minute.

 

To explain what exactly it means to you I’m going to have to get technical for a moment.

 

Go grab one of your current PPMs or Operating Agreements and check to see if there’s a section in there that reads something like this:

 

"12.2  No Advertising.  He or she [Investor] has not seen, received, been presented with, or been solicited by any leaflet, public promotional meeting, newspaper or magazine article or advertisement, radio or television advertisement, or any other form of advertising or general solicitation with respect to the sale of the Membership Interest."

 

Or maybe like this:

 

"a.  The Undersigned has a pre-existing relationship with either the officers, directors, employees, or agents of the Manager."

 

If you still have either of those clauses in your contracts, you might want to check with your lawyer why they are still in and if you actually still need them.

 

If the answer is ‘no’, as it may well be, it’s because the JOBS Act was passed.

 

The Act was geared to allowing small companies to raise money from the general public by advertising directly without having to go through an IPO.

 

Biggest beneficiary of the JOBS Act is real estate…

 

Because...

 

You can advertise online to raise equity!

 

You really can.

 

You can now reach beyond your usual investor base.

 

And so can everyone else.

 

You can advertise online to everybody in the country and expand your network of investors to power your development program.

 

In a fraction of the time.

 

No more years long courtship of investors.

 

Now you can and have to do it at internet speed.  Same know, like, and trust relationship with investors, built in minutes and hours, not months and years.

 

You can raise millions of dollars in weeks with no wining and dining; no more dog and pony shows doing presentations and pitching your deals.

 

Now you can just do it online which makes it is much quicker and more effective than anything you have done before.
All thanks to JOBS Act.

 

3 Tools You Can Use to Raise Money

 

Tool #1 – Unlimited capital

 

You are probably familiar with Regulation D, 506 (B).  It’s the one you’ve probably been using for years. 

 

Well, the upgrade is 506 (C).

 

506 (C) restricts you to raising capital only from accredited investors, but you can raise an unlimited amount…

 

… and you can advertise on the internet  (did I mention that yet?)

 

And keep this in mind.

 

Accreditation standards have not changed since 1982. 

 

Pretty much the same standards of income and wealth today as were laid down in 1982 define the accredited investor.

 

This is important to you.

 

It means that while there were only 550,000 in the US in 1982, there are 11 million accredited investors today.

 

A large proportion of them with at least $1,000,000 of net worth.

 

And guess what.  Only 3% of those have ever invested in their capacity as an accredited investor.

 

That’s nearly 11,000,000 people worth $1,000,000 each, all qualified to invest in your deal.

 

I’m not sure what that is.  Is that $11 trillion?

 

Whatever it is, it is a lot of people holding a lot of assets looking for a deal to invest in.

 

And you can contact them all, now, through the internet.  Which means via their computers, and their laptops, and their phones.

 

All you need to do is the paperwork, throw up a website and you could be up and running in a week.

 

Of course, it will take a bit more in terms of marketing, but in principle that's all it takes.

 

Or you can go to one of 120+ marketplaces that will put your deal on their site, and then market it to their online investors. More on that later.

 

Tool #2 – raising up to $50 million per year

 

If you want to raise equity from everybody, not just accredited investors, you might consider a Reg A+ offering.

 

[n.b. not to be confused with ‘reggae’…]

 

Some people call Regulation A+ a mini-IPO because it has almost the same power as a full-blown IPO, but with a fraction of the cost and time involved.

 

You can raise up to $50 million a year with a Reg A+, and you can approach accredited and non-accredited investors alike.

 

It’s a lot more involved than a Reg CF, but heck, you can raise up to $50 million so entirely different scale.

 

Other things have changed too.

 

In some cases, you might find that crowd investors want payments every month or every quarter after placing their investment.

 

To accommodate this, developers structure deals differently.

 

Instead of paying a pref that would accrue until you sold your deal, or the project had cash flow to start paying investors, now you might raise more money at the outset to keep investors current on at least part of the pref.

 

It is not uncommon to see two-tiered prefs, where you might pay 12 percent; 6 percent paid current, the rest accrued.

 

Tool #3 - $500 minimum investment

 

For smaller deals, how about $1 million to get your deal financed.  Debt and/or equity.

 

Then maybe consider using the new Title III of the JOBS Act, called Regulation CF which stands for Regulation Crowd Funding.

 

You can raise up to $1,000,000 in any 12-month period with Reg CF AND you can raise it from anybody above the age of 18, accredited and non-accredited.

 

You have to go through a Portal. You can't just throw up a Web site for Reg CF.  

 

Reg CF is inexpensive and there are some disclosures you have to handle, but the Portal will help you with those. 

 

If you have your ducks in order though, a Reg CF can be very quick to get to market to raise your capital.

 

Check this out. 

 

Reg CF just came into effect in May 2016.

 

It's a brand-new concept.

 

Perfect for smaller, localized deals.

 

You cannot directly advertise the terms of a Reg CF deal on the Internet.

 

What you can do though, is you can say, ‘I have got a great deal of the corner of walk and cross-walk', and then you can point everyone to a Portal where all the details of your deal are available to investors.

 

The Portal does the rest for you.

 

There's no limit on the number of investors and you set your minimum super low to attract everyone.  Some deals have minimums as low as $500.

 

Disclosures in a Reg CF are not insignificant, and the cost are mostly time expense getting everything ready.  You also pay the Portal a fee, but they are regulated and modest.

 

What's a portal?

 

A portal is a Web site that is a quasi-government agency.  They are highly regulated.

 

They are basically marketplaces for securities because they authorized to offer and sell securities so you can raise money.

 

And they provide protections for investors.

 

Portals make their money by charging flat fees. They can charge a percentage of the fees based on what they raise, and they can make money by selling data and advertising space if they want to.

Here’s a link to every portal in America.

 

And check out the podcast trifecta that I did with Eve Picker, Founder and CEO of SmallChange, one of the site's sponsors, Jonathan Tate (only raised $90,000), and the first ever Regulation CF investor in the country, Bill Bedell!

 

If raising money online for your deals sounds of interest, then you’ll want to know how to…

Start raising money today!

 

If you have a deal on the table but not enough capital to finance it, then this is what you can do.

 

Start familiarizing yourself with some of the websites that can get your deal out there.  They are often in the news, and things are changing all the time.

 

Remarkably, some have already failed, so you want to be sure you know what's going on.

 

These sites are sometimes called ‘Marketplaces’ because they provide access to investors to find deals so that you can raise money.  Some people call them ‘Platforms’.

 

You send them info on your deal and if it meets their criteria they put it up on their site for their investors to take a look at.

 

I have interviewed several of the founders and CEOs of these sites for my podcast series at the National Real Estate Forum. 

 

It's worth listening in on those too... 

 

Listening to them speak you can start figuring out which sites are best for your deal.

 

And I am working on a comprehensive list of ALL the marketplace sites that are currently around and I’ll send that to you too as soon as I finish putting it together.

 

In the meantime, click here to start getting our exclusive CFRE Bulletin with news about what's going on - and I'll get you that full list of sites as soon as it's ready.