The JOBS Act: Unlocking New Funding Opportunities for Real Estate Investors
Robert Kiyosaki, the well-known author, investor, and businessman, famously said, “The most important job of an entrepreneur is to raise money.”
As real estate investors, we quickly discover that our personal financial resources are finite. Once our funds are depleted, we’re forced to put our investment plans on hold. It’s easy to feel like we’ve reached a dead end, but as Winston Churchill wisely noted, “A bend in the road is not the end of the road … unless you fail to make the turn.”
For real estate syndicators, the challenge isn’t finding money—it’s understanding how to legally and effectively attract it. Knowledge is your most powerful tool, and a great deal will always draw interest.
So, how can you raise “other people’s money” (OPM) while staying compliant with securities regulations? Fortunately, the Jumpstart Our Business Startups Act (JOBS Act) has introduced reforms that simplify the process for real estate investors.
What Is the JOBS Act?
Signed into law on April 5, 2012, the JOBS Act was designed to make it easier for small businesses and entrepreneurs to access funding. As a real estate investor, you’re likely dealing with securities any time you accept outside capital for a project and promise a return on investment. Securities aren’t limited to stocks and bonds—they also include arrangements like tenant-in-common (TIC) acquisitions and other contractual agreements.
The JOBS Act addresses several key areas, but two of the most impactful for real estate investors are the relaxation of general solicitation restrictions and the introduction of crowdfunding exemptions.
General Solicitation
Historically, Rule 506 of Regulation D under SEC guidelines prohibited general solicitation and advertising when raising capital. Investors were required to have a pre-existing relationship with those they approached, which severely restricted the pool of potential investors.
The JOBS Act changes this. Once the SEC implements the new rules, issuers can advertise and solicit funds from the general public, provided all investors meet the criteria for accreditation. Accredited investors must have a net worth of at least $1 million (excluding their primary residence) or an annual income of $200,000 or more.
This change opens up incredible opportunities for real estate syndicators. Imagine being able to advertise your deals in newspapers, magazines, or on television—or hosting seminars without worrying about regulatory backlash. While these rules are not yet in effect, they are a promising development for the industry.
Crowdfunding
Crowdfunding is another exciting aspect of the JOBS Act. Popular platforms like Kickstarter and Crowdtilt have demonstrated how effective crowdfunding can be for creative projects, but until now, backers didn’t receive equity in the ventures they supported. Instead, they were incentivized with perks like merchandise or discounts.
The JOBS Act introduces a framework allowing investors to receive a financial stake in the projects they back. For real estate investors, this means creating presentations for deals (such as a single-family home or a 60-unit apartment complex), posting them on approved crowdfunding platforms, and accessing a broad network of potential investors.
Crowdfunding Parameters
While the SEC still needs to finalize specific rules, here are the general guidelines outlined in the JOBS Act:
Crowdfunding is exempt from SEC registration and preempts state laws.
Total funding is capped at $1 million within a 12-month period.
Individual investment limits depend on the investor’s income or net worth:
If less than $100,000: the greater of $2,000 or 5% of their net worth or annual income.
If more than $100,000: 10% of their net worth or annual income.
Crowdfunding platforms must be SEC-approved and adhere to disclosure requirements.
Financial disclosures required from issuers will vary based on the level of capital raised.
These parameters provide a structure for leveraging crowdfunding in real estate while protecting both investors and issuers.
What’s Next?
The JOBS Act represents a significant shift in how real estate investors can raise funds. General solicitation and crowdfunding open up new avenues for finding capital, but understanding and complying with the SEC’s rules will be critical as these changes are rolled out.
Stay informed as regulations evolve and consider how these opportunities could revolutionize your approach to raising capital. With the right knowledge and preparation, you can leverage the JOBS Act to grow your real estate portfolio and take your investment business to new heights.
