This post comes from Soren Godbersen and Charles Clinton of EQUITYMULTIPLE. Charles Clinton previously worked in real estate law, and was inspired to launch the company to make commercial real estate investing accessible to individual investors.
In the wake of the Great Recession of 2008, emerging companies were left with little or no access to the capital markets. To help fix this problem, the Jumpstart Our Business Startups Act (JOBS Act for short) was conceived by Congress to broaden the scope of who can invest in startups, thus fueling job and economic growth in the process.
What was the impact? Individual investors can now access private investment opportunities more easily than at any time since the Securities Act of 1933. Before long, innovative companies began using the changes brought on by the JOBS Act to open other investments to individual accredited investors.
Real estate has proven to be a natural fit for the new rules. In the past, large commercial real estate projects were funded almost exclusively by professional investors and the very well-connected. Real estate companies can now offer access to their projects to a much broader set of investors, in much smaller increments. Basically, the JOBS act made real estate investing an opportunity even the smaller players could get involved in. With potential returns that exceed average historical stock market and REIT (Real Estate Investment Trust) performance, this shift is a boon for forward-looking investors.
With this added flexibility in investing, we’ve seen new platforms emerge to capitalize on the opportunity, one of which being our platform, EQUITYMULTIPLE.
Inspired by the JOBS Act…
EQUITYMULTIPLE was founded in response to the opportunity afforded by the JOBS Act—we seek to provide an efficient, easy path to investing in high-quality commercial real estate projects, even for those investors with little prior experience in real estate.
Through our secure online platform, investors can browse pre-vetted commercial real estate deals and invest in opportunities that fit their portfolio strategy. Thanks to the “general solicitation” provisions of the JOBS Act, we’re able to market institutional-quality projects to thousands of engaged investors at a relatively low minimum investment (typically $5k), making it easier than ever to build a diversified portfolio of real estate holdings, managed by professional real estate companies.
And, thanks in large part to our integration with Dwolla, we’re able to offer an easy, closed-loop investing process right on our platform. On the other side of the equation, real estate companies looking to raise capital are able to fund their projects more quickly, efficiently, and at lower cost.
While the JOBS Act, and consequent online platforms, have made real estate investing more accessible and real estate finance more efficient, there’s still plenty of reason to move cautiously. Opponents of the JOBS Act justifiably worried that the new legislation would expose investors to fraud and undue risk from under-qualified marketers of real estate assets.
For the most part, the established platforms have done right by investors so far, but as this new industry grows, there’s a big need for transparency, accountability, and safeguards to protect investors. To these ends, EQUITYMULTIPLE operates with a fee structure that aligns our interests with investors (making our profit when investors do) and offers reporting throughout the lifetime of deals to ensure transparency.
Fortunately for investors, the advent of the JOBS Act comes as access to information is growing ever more abundant. Key details about investment platforms—their history and the people behind them—should be readily available to prospective investors. And any platform worth its salt should be surfacing key details of each investment opportunity, and be fully responsive to questions and concerns from investors.
We’re excited about the future of real estate investing and finance. The JOBS Act is a transformative event for the industry and, with the help of solution providers like Dwolla, we’re able to offer a better, more efficient product, enabling investors to truly realize the benefits of this new paradigm.