At the beginning of August, CrowdStreet CEO Tore Steen stepped down amid fire after more than $50 million went missing, as reported in Bisnow. The funds had been raised for deals in Atlanta and Miami by New York real estate firm Nightingale Properties, and they never closed. Both the Atlanta and Miami entities filed for Chapter 11 bankruptcy, per Bisnow.
The recent events raise questions over whether sponsors should consider raising money through crowdsourcing platforms such as CrowdStreet. When evaluating the options, it’s important to note that there are different structures, and some cater to accredited investors while others accept non-accredited investors. The way funds are raised on platforms can vary too. While certain crowdfunding sites enable sponsors to have direct contact with investors, others keep the relationship anonymous.
Looking at the bigger picture, crowdfunding has been on the rise in recent years. Leading platforms have raised significant amounts. CrowdStreet, for instance, has funded more than 750 deals with over $4 billion invested.
Given the recent events, however, it’s important to note that clearly, there will be some challenges ahead as investors grow concerned over the legitimacy of these tools. Sponsors may want to make sure that the funding of their deal is not fully reliant on a crowdfunding raise. It's also more crucial than ever to carry out due diligence before making an investment.
A starting point could be to check if the platform is open to accredited investors or non-accredited investors. In this article, we’ll look at the difference between these categories, and consider how crowdfunding has opened avenues for non-accredited investors. In the following article, we’ll cover crowdsourcing options for accredited investors.
Accredited and Non-Accredited Investors
Historically, real estate investments have often been limited to accredited investors. To qualify as an accredited investor, certain criteria must be met. This consists of having a net worth of more than $1 million excluding the primary residence, or an income of more than $200,000 individually or $300,000 as a couple during each of the past two years with an expectation to continue with the same salary in the current year, according to the SEC.
In recent years, crowdfunding has changed this concept, with some platforms opening the gates to larger pools of investors who are non-accredited. These individuals will have a net worth of less than $1 million excluding their home and earn an income of less than $200,000 as an individual or $300,000 as a couple during the previous two years.
The SEC has certain investing guidelines for non-accredited investors. If their annual income or net worth is less than $107,000, the investment limit is either $2,200 or 5% of their annual income or net worth, whichever is greater. If both the annual income and net worth are $107,000 or more, the limit is the greater of 10% of their annual income or net worth, up to $107,000.
Crowdfunding for Non-Accredited Investors
Some of the well-known platforms for non-accredited investors include RealtyMogul, Yieldstreet, and DiversyFund, and Fundrise, as mentioned in Nerd Wallet. Other options are GROUNDFLOOR, Roofstock, and Small Change. These sites are always changing, so you’ll want to check the latest updates and reviews before moving forward with an investment.
Ultimately, those who want to use crowdfunding to raise funds could find opportunities, though investor demand may drop given the recent fallout. In addition, there are many legal complexities to follow, and you’ll need an attorney to help you sort through them. New investors may be well suited to begin with a partner who has access to other sources of funding while building a track record.
Forbes link here.