In six months, the home's renovator will pay back those individuals with 8% interest on each loan. The private investors' money funded the project instead of a bank.
While some start-ups await the Securities and Exchange Commission's promised rules for allowing non-accredited investors to participate in crowd-funding, Raleigh, N.C.-based Groundfloor is working within existing state laws to get a head start.
Today, it announces the expansion of its Georgia pilot to Illinois, Pennsylvania, Arizona, Massachusetts and Virginia, where regulators have authorized the company to solicit residents to participate in its deals around the nation. Georgia approved intrastate crowd-funding in 2011.
Founder Brian Dally says his platform will now be available to 47 million Americans. It's the first major milestone in a plan to expand real estate crowd-lending nationally.
Dally believes the timing is perfect. Real estate crowd-funding leader Realty Mogul raised $9 million from investors in March to expand its platform for accredited real estate investing. The Washington, D.C., site Fundrise has successfully crowd-funded commercial real estate in Virginia. At least 20 platforms are operating in the real estate business today.
But Dally says Groundfloor is unusual in that its mission opens real estate investing to the general population. The minimum investment is $100, and the maximum is $2,000. Terms are six months to several years, the investment is secured by the real property, and there's an aggressive pre-screening process for developers. The site targets small residential-development projects.
"We think this is a revolutionary concept for personal finance," Dally says. "This is a steady, tangible way for ordinary people to make good returns on their money, a new class of product th! at didn't exist yesterday."
Developers in Georgia have embraced the opportunity. They see it as a viable way to quickly raise cash for a project — the historic renovation deal closed in five days — and to fund projects that banks either don't fund or review for months before making a loan.
"They're tapping into a submarket I couldn't touch — the people who have $500 to $1,000," says John Mangham, who renovated the home in Atlanta and has 30 years of experience in the industry. "They are multiplying my reach."
And as Kickstarter and Indiegogo do for consumer products, electronics, films and other start-up projects, Groundfloor helps build awareness for the real estate that developers hope to eventually sell, lease or rent to individuals and businesses.
That's a draw for Rick Tuley, another Atlanta developer who made an angel investment when he learned of Groundfloor. He believes he's an early supporter of a $1 billion-a-yearcompany in the making.
"There are literally trillions of dollars in certificates of deposit in a bank, that might be earning 1% for six or 12 months," he says. "It doesn't take a very large percentage of those investors to make this a really attractive company."
Dally expects momentum to grow quickly in coming weeks. Groundfloor will soon list deals in such cities as Pittsburgh, Cincinnati, Raleigh, Fort Myers, Fla., Huntsville, Ala., and Orlando. It will use online marketing strategies to find people in the six approved states to invest in the deals — that's worked in Georgia, so far.
Mangham, meanwhile, just closed his latest Groundfloor deal. He raised $60,000 from 53 investors, who've agreed to a 12% interest rate and a six-month term. Construction is already underway on the renovation project, and he's got his eyes on more.
"I drove by two properties with new signs up," he says. "All my funds are committed right now, but if I thought I could get funding in a week, I could be making offers. I'm excited to be at the early sta! ges of th! is process."
Laura Baverman is a Raleigh, N.C.-based business journalist covering start-ups and entrepreneurship for regional and national publications. Baverman can be reached via e-mail at lbaverman@gmail.comor Twitter @laurabaverman.
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