Last week the Securities Exchange Commission unanimously approved proposed rules on Title III crowdfunding that will permit businesses and intermediaries (funding portals) to finally participate in equity-based crowdfunding.
Experts say real estate crowdfunding pools together money from multiple investors to buy shares of real property such as apartment and office buildings and retail centers. Rather than buying the entire property and dealing with the hassles of tenants, individuals investing through crowdfunding do not deal with any of the day-to-day management of the property.
Unaccredited investors have been banned from participating in crowd funding investments for more than 80 years, according to Jilliene Helman, founder and CEO of California-based Realty Mogul, a crowdfunding platform and marketplace for real estate investors.
Helman called the SEC approval “historic news.”
The new rules will remove the income and network requirement that are currently in place, says Helman who expects the change to have a “small impact on the market at first” until investors really understand what this means for their portfolios.
The SEC regulation states the new crowdfunding rules will allow investors to invest $2,000 or five percent of their annual income or net worth, whichever is greater, if both annual income/net worth are less than $100,000.
Investors can also allot 10 percent of their annual income or net worth, whichever is greater, if either their annual income or net worth is equal to or more than $100,000. The rules would limit investments to $100,000 in crowdfunded securities annually, according to the proposal.
Helman said one part of the proposed rules is troubling: The SEC regulation is proposing that campaigns over $500,000 require independently audited financial statements. Helman says “audited financials are just too costly,” running several thousand dollars for each investment.
Brian Young, Senior Vice President for Cushman Wakefield Thalimer, a Greenville commercial real estate company, says that the “law itself will be interesting and it appears to treat these types of investment vehicles more like securities, which they seem like, and less like real estate. Hopefully it will allow buyers more ability to get out of the property with minimal downside risk.”
The proposed rules now go out for public comment for 90 days. It could be at least another six months before the agency issues final rules.
