Crowdfunding verses Hard-money Lenders – the latest business targeted by the Internet
Crowdfunding – Financing Made Simple for Older Apartment Purchase and Renovation
The idea of a real estate project financed by crowdfunding seemed very strange to me, an unreal concept, and seemed likely the invention of scam artists if such a project existed.
Well, such projects do exist, are entirely “real”, and not part of a scam. More surprising, Arizona crowdfunding laws have been evolving over a few years. As of August 2019, this financing source is quite feasible for rather sizable real estate projects. That Arizona is near the forefront of such evolution is most surprising of all.
What is crowdfunding? Crowdfunding uses social media and crowdfunding websites, i.e. the Internet, to raise small amounts of capital from a large number of individuals to finance a new business. Since many such investors have little knowledge or experience with investments of any kind, there are requirements and restrictions. In Arizona
- $10,000 is the maximum an individual can invest per 12 month period
- the investor is somewhat restricted in terms of resale
- $5 million is the maximum that can be raised for any one project
- the project must be in Arizona
- the funds must be deposited in an Arizona financial institution
- plus a relatively few other requirements and restrictions.
You can see the details for Arizona crowdfunding laws here … CROWDFUNDING, CAPITAL RAISING AND SECURITIES
The Arizona Republic newspaper has published several articles on crowdfunding for real estate. The latest was May 13 … JOINING THE CROWD
Neighborhood Ventures LLC is a company launched in 2017. This Phoenix-based business uses the crowdfunding method to finance real estate projects. Their venture has funded four properties, all small apartment complexes in the metro-Phoenix area. They’re fueled by more than 400 investors, each contributing the minimum investment of $1,000, or more. The average investment is $5,000. All investors are Arizona residents.
The projects are older apartment buildings that are in need of some renovation and a touch of contemporary TLC. Some residents remain living in the complex while the project is being done. The properties are in neighborhoods that are walkable with grocery stores, parks or other amenities nearby.
The first project, Venture on Wilson, is located in downtown Tempe, near the shops and restaurants on Mill Avenue, Arizona State University, the light rail line and a new Whole Foods Market. It is the only completed project of the four. Its one and two-bedroom apartments have rents of $1,150 and $1,250.
Investors receive a preferred return of 12% on their investment, meaning they are the first to get paid. Only after that do Neighborhood Ventures LLC owners get their checks.
I haven’t researched Neighborhood Ventures LLC beyond what I’ve read in the enclosed references. It’s impressive to me so far, and definitely tempting.