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In recent years, crowdfunding has emerged as a popular alternative to traditional financing methods for real estate investments.
The JOBS Act of 2012 played a significant role in the growth of real estate crowdfunding. This blog will explore how the JOBS act changed real estate investing –
The JOBS Act, or Jumpstart Our Business Startups Act, was passed by the U.S. Congress in 2012 to encourage small business growth and job creation.
The act created a new category of securities offerings called “Regulation Crowdfunding” that allows companies to raise funds from the public through crowdfunding.
Before the JOBS Act, crowdfunding was limited to donation-based funding models and equity crowdfunding was restricted to accredited investors.
The JOBS Act enabled real estate crowdfunding platforms to offer securities to non-accredited investors, opening up new investment opportunities to the general public.
Real estate crowdfunding has become a popular way for individuals to invest in real estate without the traditional barriers to entry – such as large amounts of capital or industry connections. Investors can invest in commercial, residential, and mixed-use developments through real estate crowdfunding.
Real estate crowdfunding also benefits developers and sponsors – including access to a broader pool of investors and lower fundraising costs.
Crowdfunding platforms allow developers and sponsors to market their projects to a larger audience, and the platform’s due diligence process can provide additional credibility to the project.
There are two primary types of real estate crowdfunding – equity crowdfunding and debt crowdfunding. In contrast, debt crowdfunding involves investing in a project as a lender, receiving a fixed return on the investment.
Equity crowdfunding gives investors the potential for higher returns as they participate in the appreciation of the property over time. Debt crowdfunding, on the other hand, provides investors with more predictable returns, as they receive a fixed rate of interest on their investments.
Since the passage of the JOBS Act, the real estate crowdfunding industry has grown significantly. According to a report by CrowdStreet, the total amount raised through real estate crowdfunding platforms in 2020 was $1.1 billion, up from $900 million in 2019.
The report also found that the number of accredited investors participating in real estate crowdfunding declined in 2020 while the number of non-accredited investors increased, indicating that the JOBS Act democratized access to investment opportunities.
The real estate crowdfunding industry has also seen the emergence of new platforms and business models, such as “crowdfunding for real estate funds,” which allows investors to invest in a diversified portfolio of real estate properties, and “crowdfunding for individual properties,” which allows investors to invest in specific real estate projects.
In conclusion, the JOBS Act has significantly impacted the real estate crowdfunding industry – empowering investors to participate in real estate investments that were once only available to institutional investors.
The industry’s growth has provided benefits to investors and developers and we can expect to see continued growth and evolution.
However, the real estate crowdfunding industry provides a unique opportunity for individuals to diversify their portfolios and achieve their financial goals.