Byron Nelson Ranch

Developers Turn To Crowdfunding To Seed Real Estate Deals

By Nancy Dahlberg
The Miami Herald.

MIAMI

You can support entrepreneurs’ apps, gadgets, clothing creations, restaurants, you name it, through the exploding phenomenon of “crowdfunding.”

But what can you show for your investment? A drawer full of T-shirts, tote bags and other tokens of appreciation.

Not the kind of rewards most serious investors are looking for.

For wealthy funders, so-called “accredited investors”, some crowdfunding platforms offer an ownership piece of the startup venture they are funding.

If the concept becomes the next big thing rather than the next big flop, they could reap a giant return.

Increasingly, those wealthy crowdfunders are turning to a tried-and-true investment class they can see, feel and understand: real estate.

Until crowdfunding platforms came along, only a small fraction of the nine million U.S. accredited investors, those with a net worth of at least $1 million or $200,000 in annual income, had participated in private-investment opportunities, said Joanna Schwartz, chief executive of EarlyShares, a Miami crowdfunding platform aimed at those very investors.

Typically, she said, “they didn’t have access to them unless they knew someone (in the deal), and this is especially true in real estate. This really is about giving direct access to investors in ways they never had before.”

Crowdfunding started with popular donation-based websites such as Kickstarter, where supporters can fund enterprises as disparate as a company that makes mermaid outfits and a film about Churchill’s Pub in Little Haiti.

In the past few years, crowdfunding has become increasingly popular for nonprofit causes and microlending.

Equity-based crowdfunding is more complex, and more controversial.

Though the 2012 federal JOBS Act legalized crowdfunding as a means to raise funds for startups and other ventures, the rules governing such transactions have been released in waves.

In September 2013, the U.S. Securities and Exchange Commission modified securities rules to allow advertising of such deals, which opened the door to crowdfunding platforms being used by more sophisticated, accredited investors.

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