When you have worked with real estate investors on joint ventures for 16 years, you learn a great deal about people and their personalities. During these endeavors, I have realized there are three distinct personality types: Mr. Warbucks, Mr. Bee, and Mr. Unmotivated.
Mr. Warbucks is the person who brings the money to the table, while Mr. Bee is the person who actually does the work. The person who is content to feast on the pie you created, but isn’t interested in making the pie any bigger, is Mr. Unmotivated.
When it comes to joint ventures it is rare to find a person with effectively wears more than one personality. Face it, if you could be Mr. Warbucks and find a motivated Mr. Bee to put deals together (lest I forget to mention he must be a trust worthy Bee) than life would be splendid and the honey could be shared by all. Unfortunately, life is not a Bee Movie and very often Mr. Warbucks is not around when you need the cash. You can always find a Mr. Unmotivated who must always be told what to do but is long on talk, deficient on execution, and generally speaking will never be value added. Did I mention that deals with Mr. Unmotivated never work out? I just did!
So, if you’re fortunate enough to find Mr. Warbucks then opportunities can be plentiful. However, for the rest of us Bees, we must work with hard moneylenders or attempt to raise money on our own through costly private placements. These are heavily regulated and pose substantial risk if not structured properly. Thankfully this is all about to change in 2013 with the Presidents passage of the JOBS Act (JOBS stands for Jumpstart Our Business Startups), allowing what’s known as equity-based crowdfunding.
What is Crowdfunding?
Crowdfunding allows business owners to establish profile pages through online portals and offer ownership in their company in exchange for cash from investors. For the active real estate investor looking to move from single-family investments to apartment buildings, mobile home parks, or small commercial projects, crowdfunding may be the solution. Mr. Bee will no longer be tied to existing credit markets or to Mr. Warbucks. You will be able to actively solicit investors without SEC registration through various web portals that highlight your company. The possibilities are staggering because the Act permits nearly everyone to invest in your business. Here is an overview of the Act:
Anyone making less than $100,000 will be allowed to invest up to $2,000 or 10 percent of their annual income or net worth (generally excluding the value of your primary residence), whichever is more. People with income or net worth exceeding $100,000 will be able to invest up to 10 percent of that amount, but no more than $100,000. Entrepreneurs will be able to raise up to $1 million annually or $2 million with audited financial statements.
The legislation is not scheduled to take effect until 2013 and Congress has empowered the SEC to create rules for entrepreneurs seeking to crowdfund. However, planning should start now. If you see the opportunity this Act presents and want to begin crowdfunding immediately in 2013, then steps should be taken now to create your crowdfunding company, develop a business plan, work on a pro-forma P&L and finish or plan all other business related tasks.
We are currently in the process of creating a portal for our clients who are interested in this opportunity. If you would like to discuss this new Act or other aspects of asset protection for real estate investors, you may schedule an appointment by following this link to my calendar: https://tungle.me/clintcoons
Our team is also working on a series of webinars to discuss crowdfunding and its impact on your business. If you haven’t done so already, visit our website (www.alglaw.com) to sign up for our email newsletter so you can receive notifications with information regarding these upcoming webinars.