Intro to the JOBS act and general solicitation:
The JOBS act passed in Congress on April 5, 2012 and it changed a number of things in the law. In addition to mandating that the Securities and Exchange Commission (SEC) write final rules around allowing non-accredited investors to invest in private transactions for the first time, there is another part of the law around general solicitation. Historically, investors had restricted access to private investments through their immediate network. Our own government did not want private investments marketed publicly and the best investments were reserved for the most elite and well-connected investors. For the first time ever, the JOBS act allows all investors access to these investments through general solicitation, or marketing. However, some of these investments will still be reserved for accredited investors (those making over $200,000 per year or those with over $1 million in net worth, excluding their primary home). So how does it impact real estate?
Many real estate transactions are financed through private transactions. Many use an exemption known as a Reg D 506 exemption to raise money, typically with accredited investors. Before the JOBS act, raising capital for a Reg D 506 transaction in real estate went something like this:
- Send mass emails to friends and family asking for money
- Attend networking events and follow up with individuals 2-3 months after first meeting them to build a relationship so a pre-existing relationship existed
- Send more mass emails to friends and family
How will raising money look after the JOBS act?
- Market your transaction any way you want – post advertisements online and in the newspaper and allow anybody who may be interested in your investment to find out about it.
How does this impact RealtyMogul.com?
When the changes to the law are passed, every real estate company will be able to market their own properties and their own projects for new investors. But finding those new investors is difficult and many private real estate companies do less than 20 deals per year so building a huge staff to find investors likely will not be a good strategy for these companies.
RealtyMogul.com is building a well-connected network of investors and giving those investors insider access to pre-vetted investment properties. Rather than searching for new companies to do business with or new properties that look promising, RealtyMogul.com will deliver them all in one place to investors and help them track and measure their returns across the entire real estate portfolio. We can’t wait.