From chatrooms, to Facebook, to online dating and Kickstarter, the internet is connecting the world in every way imaginable. The concept of crowdfunding has existed for hundreds of years, but today’s technology has spread the opportunity for people on one side of the globe to become a part of a project on the other side of the globe. While the recent popularization of crowdfunding has led to the funding of smart watches, movie productions and videogame consoles, one year ago today, an industry as old as crowdfunding itself was reborn: real estate.
On September 23, 2013, Title II of the JOBS Act passed legislation, which eliminated an SEC law dating back to the Great Depression prohibiting business from advertising their investment opportunities. Though the JOBS Act officially passed in April of 2012, ten years from now the enactment of Title II will be looked at as a truly monumental moment in which the investment industry was forever changed. Given the ability to advertise and create online investment platforms, real estate entrepreneurs have seized this amazing opportunity to change the way the game is played.
Currently, equity crowdfunding is only available to accredited investors, those with a net worth of $1 million or annual income of at least $200,000. The next milestone in this industry would be the enactment of Title III, which would truly democratize equity crowdfunding by opening the door to non-accredited investors as well. While it is uncertain as to when Title III will reach approval, it is vital that the proper regulations are put into place beforehand so that the average and possibly inexperienced investor is truly protected. Despite the accreditation requirements, Title II has opened the doors for many people to invest in real estate that had previously been locked out.
In the olden days, investing in real estate was often facilitated by connections and large sums of capital waiting at the ready. On the flip side, if you were a developer with a vision, navigating the maze of capital sources and costs was often challenging. Today, real estate crowdfunding platforms are smoothing the process for both sides, and creating a transparency in the process which benefits all parties.
American Homeowner Preservation’s platform provides an opportunity to invest in helping homeowners and our country rebuild from the housing collapse which began seven years ago. One of the defining moments was the disintegration of Lehman Brothers, the largest bankruptcy in U.S history. AHP’s second crowdfunding investment opportunity was a pool of distressed mortgages that were mostly originated by Lehman Brothers.
Following the Lehman Brothers crash, a wave of foreclosure consumed the nation, displacing families and decimating neighborhoods with vacant homes. Now, AHP is using crowdfunding to keep families in their homes through sustainable mortgage modifications while putting new families into the vacant homes which would otherwise drag down communities.
Looking back one year after Title II paved the way for real estate crowdfunding, more than 50 platforms make up this nascent marketplace and there’s no telling how far this industry could go. Crowdfunding in general is bringing the hopes and dreams of so many to fruition, but there is a certain tangibility and aestheticism to real estate that draws people in. People have the ability to invest in a fix and flip project right down the road in their own community, or a ground-up skyscraper project halfway across the world. Title II is the latest way the internet is connecting the world around us, and given the ease and excitement of it, one question remains: how will you connect?