Small investors and real estate crowdfunding in Georgia

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Thanks to recent Georgia law changes, small investors can now “play” with the big boys.

For as little as $500, investors can participate in real estate deals that, until recently, were only available to accredited investors.

Accredited investors are considered those with more than $200,000 in annual income or $1 million in net worth.

Now, there are no income or net worth requirements if a small investor wants to dive in.

This is being accomplished via crowdfunding.

Crowdfunding, although not by the same name, has been around a long time.

In 1875, the Statue of Liberty was funded from donations around the world.

In about five years, school children, small businesses and private citizens gave enough small and large donations to fund the project.

Crowdfunding has even been used to raise money for movie and music projects.

Even Mozart sold future manuscripts by using the method.

He used investors to raise money for his living expenses, while he worked on a new manuscript.

Upon completion, he then provided a signed copy to each investor.

The term crowdfunding was first used around 2006. Its growth has been phenomenal.

In 2013, it reached $5.1 billion worldwide.

In a recent study, it was determined in March 2014 that more than $60,000 was raised on an hourly basis and that 442 crowdfunding campaigns were launched per hour.

Grady Thrasher, of www.Crowdvested.com, is one of those guys raising funds.

And his niche is raising funds to purchase and develop real estate in Georgia. His company, which he helped form within the last year, specializes in real estate for small investors. With Grady’s company, you can get started with just $500.

In speaking about one of his active projects, East Atlanta Village, Thrasher said, “This crowdfunding model helps you get involved in your community by investing in it. And, this is a great redevelopment project that investors can be proud to own.”

The process

Most deals have a three-part process.

A sponsor starts the process by controlling the real estate and pledging some funds to get the deal going. The fundraiser seeks funding from the third part of deal, the crowdfunding investor. Most small investors are familiar with REITs (real estate investment trusts). These are real estate companies that purchase real estate and issue stock like a mutual fund.

The advantage of crowdfunding is that an investor can pick and choose their investment. If you like in-town retail deals, then you can choose that one.

If you like apartment deals, then you can choose one of those.

This new platform lets the investor control the asset allocation, in a very hands-on way.

Paradigm shift

So, what does this new funding method mean for real estate? As most investors know, bank financing continues to be a difficult part of raising money for real estate ventures. This new platform has the potential for creating a paradigm shift.

One look at the stock market in the last 15-20 years is a window into where real estate funding may be in the same time period in the future. Technology has brought accessibility to the average stock market investor. Where years ago, only the “big boys” invested in commercial real estate, technology has opened up stock market investing to everyone with a computer. Just as the internet pushed middle class investors into stocks and mutual funds via their 401Ks, the internet and crowdfunding will open doors to these same investors to increase returns via investment real estate projects, some in their own back yards.

Asset control is now the key with crowdfunding. The small to mid-level investor has more control over their money.

You can now decide what type of real estate investment, what area of the world and exactly how much to invest in that particular project. On top of that, you can do that sitting at your kitchen table.

The idea is just now starting to pique the interest of angel investors, venture capitalists and high net-worth individuals.

These groups see this as an inexpensive way to raise much needed capital in an ever growing restricted marketplace.

Its ability to tap into middle income American investors creates huge potential for future projects. And if the past success of the method is an accurate barometer, real estate investing will now benefit directly from marketing to every level of investor.

Brian Patton CCIM is an author and investment and commercial real estate development advisor. He can be reached at 770-634-4848 or www.brianpattonccim.com.

RN-9-17


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