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What is Real Estate Crowdfunding?
Learn how to build wealth and earn passive income in real estate while someone else does all the work.
215 Adam Hooper, Founder & CEO RealCrowd
The 19th Hole
Need for Capital
In 2008, Adam started his own firm with a partner and focused on single tenant deals nationwide, getting into some of the equity placement transactions, helping developers raise capital for their deals. Realizing that there was a need for helping people capitalize their projects, in late 2011, he moved down to join a firm in the Sacramento area as a partner where he got a lot more experience sourcing joint venture equity. The deals he was working on were sub-institutional size i.e. in the $15 to $20 million range, with $5 million to $7 million of equity.
In one particular deal, he was raising capital for a prolific syndicator with a great track record, great background, and very deep capital relationships. A sister building came up nearby with very similar project metrics, and of a similar acquisition size. It made sense for the sponsor to capture some economies of scale and this other building also. The problem was that the sponsor was tapped out of immediate capital sources and reluctant to dedicate time away from his business and his family to go on a roadshow for a month or so, to syndicate another $6 million of equity.
Leaders of The Crowd
Conversations with Crowdfunding Visionaries and How Real Estate Stole the Show
Discover how laws that gave us crowdfunding were solely meant to finance small companies and yet inadvertently opened the doors to allow you to invest in real estate like never before.
Read the book and listen to the actual conversations.
Impact of the JOBS Act
What they realized was the single most important impact that the JOBS Act had was that it lifted the ban on advertising private securities and it allows sponsors to openly advertise their deals online. While real estate was ever the intended recipient of the legislation, this fact alone has made it one of the biggest beneficiaries of it.
How to Fund Your Deals
7 Steps to Raising Equity Online
Fundamental Shift
The way it works is like this. Ever since the Securities Act of 1933, if a sponsor did not have a pre-existing business relationship with someone, he was prohibited from soliciting an investment from that individual. You could only offer the opportunity to invest in your deal to people that you already knew. You could not go to a new group of investors that you did not previously know but the JOBS Act lifted that ban completely.
It was a fundamental shift in how the capital markets can function and access on both sides of the sponsor, investor equation.  To be able to use the internet in place of what has always been a one on one conversation, or a meeting over lunch or dinner or playing golf, is a radical shift for real estate syndication.
Relationships Still Paramount
In a real estate transaction of any kind, there is always going to be, always should be, a connection between all the stakeholders; the investors and the manager, the manager and the tenants, the tenants and their customer that they are serving.  When Adam and his partners were thinking about how to set up their platform, they were really trying to think of how they can amplify both sides of any real estate relationship.
In practical terms, on RealCrowd, it is a direct relationship. As an investor, when you come in, you communicate directly with the real estate manager.  When you choose to invest, you are executing the subscription documents directly from that real estate manager. RealCrowd does not block that connection, they do not aggregate people into our LLC, and they do not try to obfuscate that relationship between the investor and the real estate manager – a process that you see on some other platforms.
Fees
RealCrowd functions solely as a marketplace – and one that is completely free for investors. They charge real estate companies a flat fee for using the platform and the technology to distribute their deals. One of the exemptions under the JOBS Act for operating a marketplace such as RealCrowd is that a broker-dealer license is not required provided no performance based commission is charged.
While crowdfunding real estate deals might be seen as a kind of fringe experiment by some, it is, in fact, becoming a meaningful source of capital. In the early days RealCrowd would consider deals that raised $500,000 to $750,000 as a pretty good result. This increased to projects raising upwards of $5 million on a regular basis, and the trend is only upward – including a debt fund that has already raised about $25 million through the platform.
Education Critical
Accessibility
The Future
Tapping into the retail investor base has always been seen as the holy grail of capital raising. If you can efficiently access this phenomenal amount of wealth that is not playing an institutional capital market, and if you have an efficient way to access that, that is a game changer. RealCrowd, and the broader industry, is getting to the point where they are already seen as a viable source of capital and it is only going to grow. The game has not even started yet, to coin a baseball metaphor. In fact, Adam thinks we are still just setting the foundations for what does the industry will look like in 5, 10, 20 years from now.  RealCrowd is setting the foundations today so that when the consumer becomes better educated, they can capitalize on capital flows in the hundreds of millions or billions of dollars through the platform.
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