The burning question is: will the JOBS act will truly create any new avenues for real estate investors?
This week the The SEC finally released its proposed ruling on crowdfunding. While an interesting innovation, it seems the fix and flip investor is perhaps the real winner in the real estate game under this new avenue.
I’ll explain why in a moment, but first – a quick recap on the latest crowdfunding news.
What is Crowfunding?
Crowdfunding has several meanings. Generally it is the collective effort of individuals who network and pool their money, usually via the internet to support efforts initiated by other people or organizations (See Wikipedia).
The JOBS act created an interesting new mechanism to incorporate the concept. Until the new rule becomes effective, securities law prohibits advertising (general solicitation) unless you comply with the private placement rules. In other words, it violates securities law to publicly advertise for an equity stake in you business generally.
You may advertise for equity investors but the process can range from a very expensive $250k for a full-on listed offering to expensive $25k to $50k for a private placement. Therefore, the JOBS act may create a lower cost alternative. Several existing sites have been crowdfunding this way and limiting their investors to high net worth individuals.
Crowdfunding Under the JOBS Act?
The challenge the SEC faced was a daunting balancing act between protecting the general public (which are less financially savvy) and creating a low burden method for raising capital to spur economic growth.
The US remains the birthplace of innovation and to extend our economic competitive advantage the JOBS act was created. However, the SEC struggled with this new provision. For a variety of reasons – including leadership changes at the SEC – the rules are tardy to the party.
The regulations start with these rules:
- the amount raised …read more