Recently, it could have been difficult for a middle-class Texan to crowdfund for an apartment in Richardson. The law then required investors to have a minimum net worth of US$1 million (excluding primary residence), or income of at least US$200,000 per year before they could invest in such ventures.
However, just a few days ago, Mass Venture was approved as Texas first equity crowdfunding portal for real estate investing. It coupled with the relaxation of crowd funding regulations in Texas, signified a shift in the regulatory mindset concerning real estate crowd funding. Under the new rules, entrepreneurs based in Texas are allowed to raise up to US$1 million each year, and non-accredited investors can contribute up to US$5,000 each time.
According to Attorney Nathan Roach, Mass Venture Co-Founder, and Chief Executive Officer, He expressed confidence that equity crowdfunding will catalyze greater development, entrepreneurship and job growth in Texas.
While the new regulations would allow the entry and participation of smaller investors in crowd funding for real estate, it is unlikely that the smaller investors would enter the market in a big way in the near future. Wealthier investors would continue to possess the majority of the market share in terms of quantum invested, as small investors would take some time to assimilate to the market. However, in the mid to long term, we could expect more activity and investment from the small investors.
Previously, the crowdfunding industry had developed rapidly seemingly doubled in size every year. For real estate crowd funding, the Wall Street Journal predicts that emerging crowd funding firms had raised US$135 million in debt and equity by June 2014. Some however estimated the worth of the crowdfunding market for real estate to reach up to US$11 trillion. The exact value of this market is not unclear. Regardless, it would be useful for investors to be mindful of the considerable risks, in particular, the small investors, as real estate developers would be more likely to default on crowdfunding ventures as compared to projects supported by traditional models of financing options.
Darren Powderly, the co-founder of Crowd Street, cautioned investors to exercise discretion when embarking on crowdfunding ventures for Richardson TX apartments. He advised that investors should research the platforms on which they are searching for investment opportunities,” as he also mentioned that investors should work towards gaining a thorough understanding of the management and founders of the crowd funding companies they are working with, to ensure that these firms are sufficiently experienced in the field and, therefore, reliable.
While crowdfunding, as an idea, is a good way of allowing small investors to gain access to a market that was traditionally limited to the wealthy elites, the reality is far more complicated. The market is crowded with crowd funding companies with varying resources, experience, and credibility. A discerning investor would do well to research thoroughly on the businesses and their potential investments before jumping on this bandwagon that had gained considerable interest and momentum.