Before we dive into this topic…
What Is Crowdfunding?
The simple answer is that Crowdfunding is a relatively new means for investors to raise capital to fund their real estate opportunities, raising capital through small individual contributions from a large number of investors. Title lll of the JOBS ACT of 2012 added a crowdfunding exemption to the Securities Act; thereby, adopting rules allowing smaller investors to pool their money together to invest like the Big Boys do. On May 16, 2016, Regulation Crowding became effective.
Crowdfunding for Real Estate Transactions
Why do I say maybe? In order to make this opportunity work, you must develop a game plan and be focused and 100% committed to making it work. If you are, this could likely become your primary source of funding for deals. I believe that Crowdfunding is here to stay, and that those that get on board will have a significant edge over their competition.
But, before getting started you should ask yourself these questions:
- What type(s) of property/notes will I buy?
- What dollar amount will I be comfortable raising?
- How am I going to handle management?
- Who will I do the bookkeeping?
- What type of entity will I use?
- Have I prepared a credibility package? (Your experience/credentials)
- Will I raise capital both intrastate and interstate?
- Do I have my team members identified and on board?
- What filing(s) with the State and Federal SECs are required to stay in compliance?
- What about disclosure requirements?
- How will I advertise?
- Will I have a website?
- Will I use seminars or a one-on-one format to identify potential investors?
- Am I totally committed to making this work and in it for the long haul?
These are just preliminary questions, but the point here is that you will need a game plan before jumping in. My suggestion is that, unless you have experience with crowdfunding start small and grow. Get good and comfortable with raising capital. For this reason, I would consider limiting the area of your initial investing, raising capital strictly within your State (Intrastate). This will make it much easier for you to familiarize yourself with your specific State’s filing and compliance requirements. Be advised that each State has its own Securities Division, that either have, or are in the process of implementing their own crowdfunding regulations. Contact your State SEC Division and tell them what you are interested in doing and ask what specific requirements you must adhere to. This is not hard, just necessary. There will very likely be a filing fee you must pay. Ask if they have online resources that you can access.
Goggling NC Crowdfunding Guidelines returned results for the NC PACES Act (Providing Access to Capital for Entrepreneurs and Small Business ACT)
The links you see to 18 NCAC 06A Section 2000 & 2100 offer 27 pages of regulations pertaining to NC only. Becoming familiar with your State’s compliance requirements will be the first step in determining if Crowdfunding is for you. My suggestion is to jump in and start opening doors that you could not have opened without this opportunity. Keep in mind that we are only addressing Intrastate fund raising.
My next article will cover Interstate Crowdfunding, covering multiple SEC jurisdictions, including the Federal SEC along with each state that you raise money in.
I don’t know about you, guys and gals, but it is not maybe for me, I am ALL IN. I would love to hear about your Crowdfunding endeavors in my next RECC. Be assured, I will be asking. Until then, good luck and good Crowdfunding.