Historically commercial real estate investing was restricted to the affluent; however, the use of “crowdfunding” is bringing commercial real estate investments to investors for as little as $1,000, although some minimums may be higher. For example, in late 2015, a group of 12 investors pooled approximately $250,000 to join an investment group that bought a warehouse in Avon, Massachusetts for $14.3 million. Since Congress passed the 2012 JOBS or Jumpstart Our Business Startups Act, many real estate sponsors or lead investors have been actively expanding into the world of commercial real estate investing for small investors.
Why? Commercial real estate has a history of producing strong returns, often outperforming US stocks in the past few years.
Novices to the crowd funding real estate investment field should research and understand this investment vehicle. For example, some commercial real estate investment firms will only accept funds from accredited investors. The US Securities and Exchange Commission defines accredited investors as those having incomes above $200,000—or $300,000 for a married couple—or other assets worth than $1 million or more in addition to their principal residence. Some groups solicit money from nonaccredited investors. For these funds, as long as the investor can afford the minimum investment, she or he can invest. In the example of the aforementioned Avon warehouse, the sponsoring group only accepted accredited investors. Some groups permit an individual to invest using IRA funds.
Investments generate returns from rents and sale profits; however, a novice must beware of fees and risks. Careful review of the offering circular or other summary documents, as well as the “Due Diligence” materials provided by the sponsor is essential. Understand the risks, and know that the more lucrative the returns from an investment, the more likely it represents a greater risk. These partial interest investments may be difficult to resell, so know the anticipated “exit strategy” of the sponsor (for instance, a sale of the asset after several years) works for you.
To help navigate the world of crowdfunding commercial real estate investing, contact Attorney Dennis Crimmins P.C. Attorney Crimmins is a Massachusetts based commercial real estate lawyer who is happy to help you through this complex process. Please contact us today for more information.