Is Real Estate Crowdfunding Legal?

 Posted on December 00, 0000 in Naperville Real Estate Attorney

It is tough to do anything in the real estate industry and not stumble across some reference to real estate crowdfunding. The idea of investment crowdfunding, in general, and real estate crowdfunding, in particular, has been on the horizon since the passage of the Jumpstart Our Business Startups Act (JOBS Act) in 2012. The SEC voted to authorize several regulations on October 31, 2015, which will allow the full investment crowdfunding regulations to take effect 90 days after the vote.

Defining Crowdfunding

Investment crowdfunding is fundamentally different from consumer crowdfunding that is found on sites like Kickstarter. Investment crowdfunding gives investors a chance to pool their money and own an equity stake in a project. The investors are risking their money by investing it. They also stand to profit if the investment pays off.

What is Legal Under Existing Regulations?

Real estate crowdfunding can involve either accredited or non-accredited investors. Changes to Regulation D, Rule 506(c), and Regulation A+ by the SEC in the years since the passage of the  have made it possible for mostly accredited investors to participate in real estate crowdfunding, by basically moving old fashioned real estate syndication online and providing certain safeguards.

Now, non-accredited investors will be able to participate in real estate crowdfunding as well after the 90-day publication and commenting requirement for the SEC regulations ends. Non-accredited investors will be put into two different categories. Those making less than $100,000 a year can invest $2,000 a year or 5% of their annual income into investment crowdfunding ventures. Non-accredited investors with income over $100,000 can invest up to 10% of their annual income.

There are also caps on how money businesses, including real estate holding companies, can raise a year from non-accredited investors.

Due Diligence is More Important Than Ever

While real estate crowdfunding opens up many exciting opportunities for all classes of investors, the loosening of regulations means that it is more important than ever that investors conduct thorough due diligence before investing in any project. Unlike before when the project managers were likely to be known personally by at least some of the investors, most crowdfunded projects will now be funded by people who are strangers to each other. Before you invest your money, you should have a real estate lawyer review the terms of the deal.

If you have questions about real estate crowdfunding, you need the help of a knowledgeable and seasoned Naperville real estate attorney. Call Lindell & Tessitore, P.C. at 630-778-3818 today to schedule an appointment. Don’t let an oversight make you the target of a regulatory investigation.

Source:

https://www.sec.gov/spotlight/jobs-act.shtml