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Tag: CrowdStreet

  • What Do Accredited Investors Need To Know About Crowdfunding Today?

    What Do Accredited Investors Need To Know About Crowdfunding Today?

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    In the past years, crowdfunding has gained traction for certain real estate investments. While some platforms are available to all investors, others require individuals to meet certain criteria to participate. The SEC divides investors into two categories: non-accredited and accredited. In my previous article, I discussed the differences between these two, along with some considerations for platforms that accept non-accredited investor funding.

    In this piece, we’ll look at crowdfunding for accredited investors. One of the well-known players in this space is CrowdStreet, which has funded more than 750 deals with over $4 billion invested. CrowdStreet requires a minimum investment of $25,000 for most deals.

    CrowdStreet recently hit headlines when investor funds went missing. On August 11, Bisnow reported investigations by the DOJ into Nightingale Properties, which allegedly diverted nearly $40 million of equity raised on CrowdStreet into accounts controlled by its CEO. In light of the missing funds, CrowdStreet co-founder Tore Steen left his role as CEO of the company. In a statement published by Crowdfund Insider, CrowdStreet stated that the investments on its platform “are illiquid, with significant risks. These risks are clearly disclosed to investors both when they sign up on the CrowdStreet platform, when they complete a new account agreement, and when they make an offer and fund a specific investment.” The platform has also announced new enhancements, including escrow account funding, individual accreditation verification, and operational improvements aimed to increase investor protections.

    Despite recent events, crowdfunding platforms continue to have a presence in the investment world. Another platform open to accredited investors is EquityMultiple, which requires a starting investment of at least $5,000. It focuses on commercial real estate, with opportunities including equity, preferred equity, and senior debt investments. PeerStreet allows accredited investors to start with minimums of $1,000 for debt investments.

    Before we go further, I want to point out that it’s essential to consult an attorney before delving into crowdfunding. There are complex regulations in this space, and you’ll want to make sure that everything from the disclosures you provide to the way you file is in line with the SEC requirements. In addition, clearly there are risks involved, and carrying out research and due diligence will be increasingly important amid today’s rising interest rates and higher costs of debt.

    Who Qualifies as an Accredited Investor

    Individuals who have a net worth of more than $1 million (not including their primary residence) can qualify as accredited investors. Those who have earned $200,000 as a single filer or $300,000 as a couple during the previous two years, with an expectation to continue to make the same going forward, are also included in this category. Households that meet the criteria to be accredited investors are able to invest in certain products and vehicles, including real estate.

    As I’ve mentioned previously, when raising capital for an acquisition, you’ll often be reaching out to individuals who could contribute $25,000 or more. In recent years, crowdfunding rules have changed—specifically the JOBS Act of 2012 created avenues for non-accredited investors to participate in fundraising. While some crowdfunding platforms do cater to all investors and accept contributions starting at low figures such as $50, it’s also true that platforms for accredited investors often are looking to fund larger projects.

    Factors to Consider before Trying Out Crowdfunding

    Crowdfunding platforms are as unique as individual investors—you’ll find that the minimum investment, fees, and listings differ from one site to another. The way that investors are managed through crowdfunding can vary too. Some platforms allow you to own the communication with investors after you raise the money, while others have limitations. You’ll want to find out who is overseeing the investor relationship and how that fits into your business plan.

    Like other types of real estate investments, track records and reputation matter. It can be valuable to compare and evaluate different platforms to see how they have performed in the past. The number of years they have operated and the amount of funding they have raised can be a determining factor. Following several platforms over time and paying attention to their social media presence may be helpful as well. Look for the total number of investors and the historical annual returns, along with opportunities to reinvest. Read through reviews and see what others are saying about the sites through online channels. Check how much information is available on the platform: Are there educational resources available? How are opportunities vetted? What can investors expect? Are there ways to communicate and interact personally?

    If you’re attempting to raise money for a real estate investment for the first time, relying on crowdfunding might get complicated. In some cases, it could serve to supplement the capital you’re already bringing to the table. However, you’ll want to keep in mind that with so many rules involved, you’ll need to work with professionals including an attorney to make sure you’re proceeding correctly.

    Ultimately, you may opt to work with a partner who has experience on these platforms when starting out. Or you might find that your deal team prefers to connect directly with investors, reaching out personally and raising funds on an individual basis. After you’ve carried out several successful deals and are looking for ways to diversify, you might revisit crowdfunding options. Overall, the best opportunities tend to come to those who have an insider’s edge, and that typically requires building relationships and developing a team over time.

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    James Nelson, Contributor

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  • Is Crowdfunding Still Viable In Today’s Market?

    Is Crowdfunding Still Viable In Today’s Market?

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    At the beginning of August, CrowdStreet CEO Tore Steen stepped down amid fire after more than $50 million went missing, as reported in Bisnow. The funds had been raised for deals in Atlanta and Miami by New York real estate firm Nightingale Properties, and they never closed. Both the Atlanta and Miami entities filed for Chapter 11 bankruptcy, per Bisnow.

    The recent events raise questions over whether sponsors should consider raising money through crowdsourcing platforms such as CrowdStreet. When evaluating the options, it’s important to note that there are different structures, and some cater to accredited investors while others accept non-accredited investors. The way funds are raised on platforms can vary too. While certain crowdfunding sites enable sponsors to have direct contact with investors, others keep the relationship anonymous.

    Looking at the bigger picture, crowdfunding has been on the rise in recent years. Leading platforms have raised significant amounts. CrowdStreet, for instance, has funded more than 750 deals with over $4 billion invested.

    Given the recent events, however, it’s important to note that clearly, there will be some challenges ahead as investors grow concerned over the legitimacy of these tools. Sponsors may want to make sure that the funding of their deal is not fully reliant on a crowdfunding raise. It’s also more crucial than ever to carry out due diligence before making an investment.

    A starting point could be to check if the platform is open to accredited investors or non-accredited investors. In this article, we’ll look at the difference between these categories, and consider how crowdfunding has opened avenues for non-accredited investors. In the following article, we’ll cover crowdsourcing options for accredited investors.

    Accredited and Non-Accredited Investors

    Historically, real estate investments have often been limited to accredited investors. To qualify as an accredited investor, certain criteria must be met. This consists of having a net worth of more than $1 million excluding the primary residence, or an income of more than $200,000 individually or $300,000 as a couple during each of the past two years with an expectation to continue with the same salary in the current year, according to the SEC.

    In recent years, crowdfunding has changed this concept, with some platforms opening the gates to larger pools of investors who are non-accredited. These individuals will have a net worth of less than $1 million excluding their home and earn an income of less than $200,000 as an individual or $300,000 as a couple during the previous two years.

    The SEC has certain investing guidelines for non-accredited investors. If their annual income or net worth is less than $107,000, the investment limit is either $2,200 or 5% of their annual income or net worth, whichever is greater. If both the annual income and net worth are $107,000 or more, the limit is the greater of 10% of their annual income or net worth, up to $107,000.

    Crowdfunding for Non-Accredited Investors

    Some of the well-known platforms for non-accredited investors include RealtyMogul, Yieldstreet, and DiversyFund, and Fundrise, as mentioned in Nerd Wallet. Other options are GROUNDFLOOR, Roofstock, and Small Change. These sites are always changing, so you’ll want to check the latest updates and reviews before moving forward with an investment.

    When I interviewed Jamison Manwaring on my podcast, “The Insider’s Edge to Real Estate Investing,” he shared his passion to give opportunities to a broader audience. Jamison is the co-founder and CEO of Neighborhood Ventures, a crowdfunding platform which is open to non-accredited investors with starting amounts as low as $1,000 for multifamily.

    In addition to navigating the ample regulation in crowdfunding, Jamison noted the importance of educating investors and developing trust. “It doesn’t matter if the check is $1,000 or $1 million—people look at it the same,” he said. When breaking into crowdfunding, he and his partner agreed to try raising $500,000 that they needed for a deal via online, rather than tapping friends. Through the process, they learned that investors were looking for consistent returns and structured the plan accordingly. “In four weeks we funded the whole project,” he explained.

    The Intricacies of a Crowdfunding App

    Janine Yorio, the CEO of Everyrealm who served as the head of real estate at Republic, joined my podcast to discuss her experience and background in the crowdfunding space. Republic enables non-accredited investors to participate with venture capitalists for as little as $50. Prior to her time there, Janine spent years building and running a fintech app called Compound which was acquired by Republic in 2020.

    On the show, Janine discussed the significant upfront investment needed to build the app and get approval for it. During this time, she and her partner carried out marketing efforts to inform investors of their options. Once the app was in place, individuals jumped at the chance to contribute as little as $100. More than 4,000 participated in the first investment, and $450,000 was raised through the app. “We never talked to people on the phone,” Janine shared on my podcast. “It was all through the app and fully automated.”

    Janine’s crowdfunding app was used for projects in places like Miami, Nashville and Austin, with an eye for locations that were booming. “We wanted to make it so you could invest passively in a downtown urban core,” she shared. “Real estate is the world’s largest asset class…the more we can increase the ownership and improve what that looks like, the more people can invest and play alongside the big players.”

    Ultimately, those who want to use crowdfunding to raise funds could find opportunities, though investor demand may drop given the recent fallout. In addition, there are many legal complexities to follow, and you’ll need an attorney to help you sort through them. New investors may be well suited to begin with a partner who has access to other sources of funding while building a track record.

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    James Nelson, Contributor

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