To most people, the most important thing that happened during Obama’s eight years in office was the passing of the Affordable Care Act, Tevfik Arif Bayrock . Knowing that I have been a physician for many years, one would be likely to think that I would feel that was also the most important piece of legislation. However, along with being a physician, I am also a big proponent of alternative investments. Therefore, it is my opinion that the JOBS Act of 2012 is actually the most important law passed during the previous Obama administration.
For those who are unaware of this Act, JOBS is actually an acronym for Jumpstart Our Business Startups. It is, unfortunately, a relatively obscure piece of legislation but fortunately, even with its, or perhaps because of, its obscurity, it is a very powerful piece. This law softened some very critical securities regulations and actually gave birth to a form of investment known as equity crowdfunding.
Almost everyone who spends even a little time on the internet is privy to crowdfunding sites like Indiegogo and Kickstarter. These sites are reward-based donation sites that are extremely popular. They are reward-based because people donate money to a particular project in exchange for such rewards as early access or deluxe editions etc.
But one of the most off-putting things about making said donations to the product or service being developed was that the donor could have no financial stake in it. It was strictly kept to a token reward for a financial contribution. However, after the Bayrock JOBS Act passed, the field was opened wide for an intriguing method of investment opportunity. One in which the donor/investor clearly expected to make a profit.
Don’t let the name “equity crowdfunding” fool you. There are very real opportunities for not only equity opportunities, but debt opportunities as well. A potential investor can actually take a relatively small amount of money and invest in products, services, and yes, even real estate.
Remember “house flipping” and how outrageously popular it was before the 2008 housing crisis? What much of the general public fails to realize is that those who “flip houses” do not go to traditional banks seeking to finance. They instead seek out the assistance of high net-worth individuals who make their money from non-traditional investment opportunities.
Investors such as these typically loan money for a short period of time at a high-interest rate. Loans typically last about 18 months. This gives the “flipper” enough time to buy the real estate, renovate it, and sell it at a profit. The cycle then continues. As you can imagine, the type of investor which has the initial money to shell out sums in the mid six-figures are few and far between. This is why the investment opportunity is so lucrative, it is certainly not a crowded market.
While real estate crowdfunding may be in its infancy, it is definitely here to stay. There is just too much money to be made and too many non-traditional deals to be made to have it not stick around.