It's in the Crowd: Ditching the Banks!
Raising money for real estate investments is the ultimate goal for most investors but just like everybody who starts from scratch, you dont have the right people in your network to ask, you zero credibility, and not the slightest idea of how to get a complete starnger to fund your grandois projects. The truth is youre not alone and this is a problem that everybody who gets into the real estate game runs into.
The typical route is to go to a bank and get a mortgage. whether its a conventional loan, FHA/203K, or VA loan, most people have it in there head to get the cash from a bank. The problem with banks and why most developers dont use them to fund entire projects anymore is that they arent giving out the money like they used to. So many regulations have been introduced with the intensions of preventing another market crash but in so doing have also thwarted many lucrative deals. In other words the money isnt being thrown at you anymore. I remember in 2005 when I was 20 years old and first began researching real estate, I had no idea that there were ‘NINJ’ loans being given left and right. NINJ meaning ‘No Income No Job’. I couldve walked right into a bank and gotten a loan to buy an investment property without any job or income whatsoever. Now the enviornment was rife with people taking advantage of the system hence why it led to a crash, but I keep thinking that if I had known I wouldnt have abused it. I wouldve been the guy that bought up every multi family property I could get my hands on; and pay the mortgages with the rental income.
Nevertheless this status quo didnt last and the crash happened. In 2008 it all came falling down and we saw the end of the world. As the economy went through the recession and desperstely tried to revive itself, many regulations were put in place which made it harder for anybody to get bank money. So where di the guys who didnt have W2 or 1099 income go to get money for their real estate deals? Well they went to people who had the cash themselves. Sometimes they had to get a litlle here and a little there and before you know it they had what they needed. This was the crowd before the crowd was called the crowd and believe you me there is power in the crowd. These micro amounts raised from several different sources add up like raindrops in an ocean and allow someone to do major things.
The crowd however has evolved into more of an industry in 2017. You can find several dofferent real estate groups engaging the crowd in several ways and of course the givernemnt always like to stick its nose anywhere where people are making alot of money and not giving them some. So here came more regulation, but not enough to kill the crowd. In 2012 President Barack Obama signed into law the JOBS act (Jumpstarting our Businesses act: https://www.youtube.com/watch?v=BQT1UQ8keCo), which allows organizations to use the crowd on a large scale in ways never before seen. Now you can publicly market and target specific demographics of people to be apart of your crowd in exchange for percentages in the projects or financial gain. Regulation A & Regulation B are two of the most used entities for soliciting the crowd because it allows engagement of complete and total strangers. Up to $50,000,000 can be raised through Regulation A entities in a given calendar year which is significantly enough to launch several projects.
These entities are highly monitored by the SEC and must include a third party fund administartor to prevent fraud and thats how it self governs itself all without needing a loan from the Devils known as Bank of America and Chase. There are several lawyers that can help with establishing Regulation funds and they can be found by a simple google search. As this becomes more of an accepted way to raise cash, soon the financial banking industry will be disrupted by the crowd.
IG: @Tosin_Oduwole