Joseph Villaescusa on Crowdfunding in Real Estate
After experiencing such difficulty over the last half decade, Joseph Villaescusa is finally starting to see a reemergence of the real estate market. It is certainly not the boom that was experienced a decade ago, but it is showing more signs of life and hopefully progress towards a full recovery.
Joseph Villaescusa, a successful real estate broker/owner for Southern California and currently the CEO of the top real estate firm in the United States, notes some promising trends that indicate some positive momentum for the embattled real estate market.
One of these promising trends is the new approval for crowdfunding. In the past, regulators placed heavy restrictions on real estate investors. They could not publicly advertise their real estate ventures to the general public. Instead, they had to go through private means, which of course meant a much smaller investment pool. The Jumpstart Our Business Startups Act, or JOBS act, was passed to lift this restriction.
Joseph Villaescusa thinks this act is appropriately named and believes that it could most certainly jump start new businesses, which includes those related to the real estate market. The act does not come completely free of restrictions, though. Developers can only market their ventures to accredited investors. An accredited investor is a person with at least $1 million in net worth and at least $200,000 in annual income.
There are even more advantages to the JOBS act than what’s on the surface. Having access to more funding means the ability for cost savings on larger scaled projects. It is just simple economics. Going from being able to develop a handful of properties to developing hundreds if not thousands of properties means more buying power and thus more cost savings. It is a win-win situation for everyone. The investors get more return on their investment, and the developers get more revenue from potential sales.
Joseph Villaescusa Says Crowdfunding is a Positive Thing
Crowdfunding is great for the real estate market because there is such a huge barrier to entry for the business. Such a large barrier to entry makes it incredibly difficult for new startups to gain any traction. With crowdfunding, startups can gain access to the critical capital needed to develop these large-scale projects. Before, an entrepreneur could have a fantastic idea, but no way to act on this idea due to funding. Now it is a lot easier.
Crowdfunding has a benefit on the investment side too notes Joseph Villaescusa. Before the JOBS act, most projects required investors to shoulder a good bit of risk in order to see the real estate project through. Having a smaller pool of investors means that each investor must put more money into the project. If the project falls through, then it can lead to a considerable amount of loss. Investing through crowdfunding means more investors can make a smaller initial investment into the real estate project. Now there is considerably less risk involved which can potentially encourage more investors to get on board.
There are a lot of real estate sectors that stand to benefit from the JOBS act. One of the biggest beneficiaries of this act could very well be the areas that were most hurt by the recent downturn in the real estate market. When the real estate market bubble burst, the areas that were overdeveloped were the ones that were obviously hit the hardest.
Joseph Villaescusa notes that when developers started running out of money they were forced to abandon their projects. Some had to declare bankruptcy, as they had no way of paying off all of their debts. Others had their properties foreclosed on or sold at a discounted price. The result was heavy losses on all sides. It was not something that anyone would want to happen, but it did.
Now these areas are finally starting to make a comeback, but the problem was the properties were half-developed and abandoned. They needed someone to come in and purchase the property and then finish the development of the property so that it could finally be sold to a prospective buyer. This part of the recovery was delayed in part because there just was not enough funding available. The passage of the JOBS act has now made it a lot easier for investors to come in and finish the abandoned projects and reclaim the city.
Investors should be cautious before jumping in though. Joseph Villaescusa warns of overall investment risks. A project could fall through simply because there is not enough funding to get the project off of the ground. There is also the possibility of scams. This makes it doubly important for a potential investor to do a lot of research, not only on a project’s viability, but also on the background of the individual behind the investment. This is generally enough to ensure you are at least headed in the right direction with your investment.
Investing in real estate is just like investing in anything else. It requires a lot of homework and due diligence. Never just take someone’s word for it; instead, always look for hard evidence. There is no guarantee of a certain return on investment or even a positive return on investment. Overall though, Joseph Villaescusa sees much more positive than negative from the JOBS act as it relates to real estate.