Historically, investors needed a financial advisor in order to access markets, products and opportunities. People were limited in the ways they could invest, especially in alternatives like real estate. An investor who wanted to get involved in real estate needed to have significant wealth and an advisor with access to opportunities that fit their needs and interests.
All that started to change 10 years ago, when the Jumpstart Our Business Startups (JOBS) Act of 2012 was enacted and completely revamped the investing landscape. The JOBS Act allows for more digital opportunities, giving individual investors direct access to alternative markets. This change benefited many sectors, including real estate crowdfunding.
Impact of JOBS Act
Prior to the JOBS Act, the “Know Your Client” rule dictated that sponsors needed to have a preexisting relationship with an investor before selling them a financial product. This meant that product syndicates, or companies making financial products, could only distribute their products through broker-dealer channels. They had to establish a selling group that would conduct due diligence, accept the product and then authorize their advisors to sell it to clients. This made it extremely hard for sponsors to raise equity and often proved costly, since establishing a selling group involved buying a list of contact information for advisors and cold-calling them in the hope they would accept your product.
When the JOBS Act went into effect, sponsors no longer needed to have a preexisting relationship with a client as long as they could prove that person was an accredited investor. This meant sponsors could advertise their products on websites, billboards, TV commercials, etc. They didn’t need to rely on the financial services industry to raise equity and establish a selling group. This development ended an 80-year law and opened many opportunities for syndicates, as investors could now come to them.
New Opportunities in Crowdfunding
In the real estate space, investors enjoyed a newfound ability to access crowdfunding websites and find properties on their own, rather than going through their advisors and being limited to whatever products those advisors offered.
There are two main types of crowdfunding sites that investors can utilize – those that act as a true marketplace and those that are FINRA regulated.
The former category includes sites that don’t offer advice and receive no commission, so FINRA licensure isn’t necessary. These sites essentially introduce investment opportunities to prospective investors, who must then conduct any due diligence themselves. Accordingly, these sites tend to be a better fit for investors who want to conduct their own due diligence or for investors that are just getting started with a couple hundred dollars. Prior to the JOBS Act, this amount of money couldn’t get investors any share in institutional-quality real estate.
FINRA-regulated crowdfunding sites, meanwhile, aren’t true marketplaces because they feature FINRA-licensed advisors who provide investment advice based on a prospective investor’s age, risk tolerance, goals, etc. Advisors on a FINRA-regulated site are required to act in the investor’s best interest and can offer a wide range of services, rather than a one-size-fits-all solution. These advisors will get to know your needs and goals, make suggestions and generally help guide you through the process.
Finding the Right Real Estate Crowdfunding Website
Right after the JOBS Act went into effect, there were thousands of sites listing investment properties. Many people in the real estate industry thought the JOBS Act meant they could just list properties on a site, but they weren’t adhering to securities regulations. This resulted in widespread fraud and investors losing a lot of money, so the Department of Justice hired hundreds of regulators to take down illegitimate sites.
To protect themselves and their investments, investors should find an established site with a good reputation. It’s a good idea to check Google Reviews and see whether a given site also displays third-party reviews. If the site is FINRA regulated, investors can also look up information about licensed individuals via FINRA BrokerCheck.
The JOBS Act of 2012 completely changed real estate investing. Product sponsors can now raise equity quicker, while investors are able to access a much wider range of opportunities and learn about products beyond those offered by their advisors. Investors thus enjoy increased
control over their portfolios and investments, having been empowered to identify opportunities and conduct due diligence on their own. With crowdfunding sites that are FINRA regulated, investors get the best of both worlds — access to a wide range of investments and expert guidance based on their unique needs.
Edward Fernandez
Edward Fernandez founded 1031 Crowdfunding in 2014 and has more than 20 years of experience in sales, real estate and investments. He has spent his career researching and compiling data to become an expert in the purchase and acquisition of real estate holdings. Leveraging his professional background and knowledge of sales, Fernandez has raised $675 million of equity from individual and institutional investors through private and public real estate offerings. Prior to founding 1031 Crowdfunding, he served as the senior vice president of Healthcare Real Estate Group.
Edward Fernandez
Edward Fernandez founded 1031 Crowdfunding in 2014 and has more than 20 years of experience in sales, real estate and investments. He has spent his career researching and compiling data to become an expert in the purchase and acquisition of real estate holdings. Leveraging his professional background and knowledge of sales, Fernandez has raised $675 million of equity from individual and institutional investors through private and public real estate offerings. Prior to founding 1031 Crowdfunding, he served as the senior vice president of Healthcare Real Estate Group.
