SEC supports Crowdfunding... Investors go Crazy!

NORFOLK, Va. - Nov. 24, 2013 - PRLog -- Big changes may be on the way for real estate investment professionals all across the country. While affordability is always key to great investing, changes by major financial regulators could introduce new avenues for some.

At the moment, many people search for great deals by scanning listings of foreclosed houses or other distressed properties. Recently, the Securities and Exchange Commission proposed a new rule which could drastically alter the funding landscape for this industry.

SEC backs crowdfunding
According to Kerri Ann Panchuk in an article for HousingWire, the SEC has proposed a new rule which would allow some businesses to participate in equity-based crowdfunding. Essentially, this change would let unaccredited investors back real estate transactions that they couldn't have before.

The idea behind the changes would be to get more investors active in bigger deals, Panchuk explained. If the new rule happens, those involved could then invest $2,000 or 5 percent of their annual income, as long as that and their net worth are below $100,000. For those worth more than that, the numbers increase to 10 percent of their annual income.

Jilliene Helman, founder and CEO of crowdfunding platform Realty Mogul, told HousingWire that despite uncertainty about the changes, it could open up an entirely new market for real estate investors.

"The macro change is that for the first time in 80 years they are adopting new regulations to securities law that are going to enable more investors to get involved in offerings," Helman told the news source.

Regardless of how real estate investors fund their projects, they'll need the best information. Courthouse Retrieval System can provide that, with access to a comprehensive collection of mortgage records, property data and much more.

Important steps before investing
How does a real estate investor know it is time to move forward? This answer can vary depending on the person, but there are several key elements professionals should consider before investing in more properties.

For starters, everyone should have a plan, according to RealEstate.com. Without one, it could be easy to lose money and end up in a bad deal. Clear, concise directions will help everyone figure out where they need to go and how they can get there.

In addition, the type of property matters, the news source noted. There are a lot of different ways to make money, from buying foreclosed houses for a quick resale or becoming a landlord. Choosing a strategy depends on preferences and finances, and a person's lifestyle will often dictate the appropriate direction.

Expenses are perhaps the most important aspect of real estate investing. RealEstate.com explained that there are many other costs that come into play besides general maintenance. These could include water and sewer, garbage, legal fees, accounting, office supplies and capital improvements. In order to make a profit, investors should try to keep expenses equal to 50 percent of their monthly income.

Once a real estate investor determines how they want to finance their property, they can move forward with an acceptable plan. This profession opens up many avenues and unique opportunities, which means nearly everyone could try their hand within the industry.

Crowdfunding going BIG TIME

For years, filmmakers, artists and charities have used the power of the Internet to generate money for projects. But in the coming year, with the blessing of Congress, startups will be allowed to raise money this way by selling stock to small-time investors.

For those investors, it’s a chance to make a small profit and possibly get in early on the next Twitter or Facebook. But it’s also extremely risky, given that a majority of startups fail. And critics warn that investment crowdfunding is ripe for fraud.

The Securities and Exchange Commission on Wednesday took a step toward implementing the law by proposing how much people could invest and how much companies must divulge. The SEC voted, 5-0, to send the proposal out for public comment. Final rules could be approved next year.

Under the proposal, people with annual income and net worth of less than $100,000 could invest a maximum of 5 percent of their yearly income. Those with higher incomes could invest up to 10 percent. Companies also would be required to provide information to prospective investors about their business plan and financial condition, as well as a list of their officers, directors and those who own at least 20 percent of the company.

“There is a great deal of excitement in the marketplace” over crowdfunding, SEC Chairwoman Mary Jo White said before the vote. “We want this market to thrive, in a safe manner for investors.”

Crowdfunding is hardly new. Sites such as Kickstarter and Indiegogo have for years helped fund projects through donations raised online. Through those sites and others, supporters can pledge $10 – or tens of thousands of dollars – to help start a project, be it a business, a charity or the arts. In return, supporters can receive a gift, such as a T-shirt or a song named after them. Others simply feel satisfied knowing that they helped a good cause.

Or some get to join Spike Lee courtside at a New York Knicks basketball game. That’s how Lee rewarded donors who gave the maximum of $10,000 to his latest film project, which he funded through a Kickstarter campaign in July that raised $1.4 million.

And soon, businesses will be able to offer investors a piece of their company. The 2012 law, known as the JOBS Act, made it legal for small companies to sell stock over the Internet. They could raise a maximum of $1 million a year from individual investors without registering with the SEC.

The SEC was given some discretion to request company information and limits on investment, which they did with Wednesday’s proposed rule.

The goal of the law was to help startups raise money quickly when they couldn’t attract attention from venture capitalists or traditional investors. At the same time, the law eased the SEC’s regulatory reach by giving the startups an exemption from filing rules. The rationale was that new businesses in a hurry to raise money would be hampered by having to submit paperwork. That’s a change for Congress, which only two years earlier gave the SEC regulatory powers in response to the 2008 crisis.

Supporters say investment crowdfunding could be a boon to the economy. More businesses create more jobs and that boosts economic growth. And many of the companies that would benefit are in overlooked areas of the country, such as the Midwest or Southeast, according to Robert Hoskins, who does public relations and marketing for crowdfunding ventures.

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