Monthly Archives: July 2014
Equity Based Crowd Funding in the wake of the Mortgage Meltdown
I dabbled in real estate as a mortgage banker for one hot minute (2002-2008). I learned what an accredited investor was by accident. As mortgage deals were drying up and deal flow came to a screeching halt, I pursued other avenues of revenue. I sold retirement land in the Coastal Carolinas, while coaching real estate investors on obtaining good deals, and doing short sales. The land sales were more fun because it was positive, while the mortgage industry was turning negative. Talking about fun in the sun waterfront property is better than discussing foreclosures and short sales. Unfortunately, there was plenty negative to go around. Naturally, I phased into land sales and coaching. I would do presentations in various venues stacked with professional and non-professional investors. Some were buying land on spec, others wanted to retire there. All in all, everybody had their own dream of success.
The presentations were so successful that I had an epiphany, what if I get a bunch of investors together and we all pitch in and buy a property? Right. I told my manager about my awesome idea, and he chuckled, “Not if you want to go to jail! That’s an SEC violation, you have to be an accredited investor.” I said, “What’s an Accredited Investor?”
Accredited investor is a term defined by various countries’ securities laws that delineates investors permitted to invest in certain types of higher risk investments including seed money, limited partnerships, hedge funds, private placements, and angel investor networks. The term generally includes wealthy individuals and organizations such as banks, insurance companies, significant charities, some corporations, endowments, and retirement plans.
In the United States, for an individual to be considered an accredited investor, they must have a net worth of at least one million US dollars, not including the value of their primary residence or have income at least $200,000 each year for the last two years (or $300,000 together with their spouse if married) and have the expectation to make the same amount this year.
In layman’s terms, you have to be rich to have access to the good deals. Being a poor investor is like going to Las Vegas and being able to only play the slot machines, while the others get to play at the big money poker tables. That was back in 2002-2008, cut to 2012 enter the JOBS Act. My dream of putting a bunch of investors in a room can quickly become a reality. The only difference is that I can put my idea online and let others around the world participate. All legal, of course thanks to Crowdfunding. Now all we need is for the SEC to finish their job of approving the bill. Amen?
Success through cooperation has never been sweeter than being able to crowdfund any project, anywhere. I learned a few tricks on how to divide and conquer commercial real estate by subdividing properties and selling them off. Or assuming the lease, buying a brown field on the cheap, and converting it into a green space, etc. I once saw an apartment complex, which went for a little over a million in Cabarrus County, North Carolina. We even looked at the old Washington Post Printing Plant downtown DC, which we wanted to convert into a neutral data center. I knew that was a good idea because Verizon bought it for their own data center. I even became a member of the National Capital Area United States Green Building Council. None of those strategies mean a thing, if you can’t buy the property. The latest craze is to take a commercial building in a blighted part of town and convert the upper floors to office and condos, and maintain retail on the first floor.
Thanks to Crowdfunding, I can realize those dreams once again. This is very good news for the people that had dreams of real estate ownership, but lacked the capital. So once I learn everything I can at the Real Estate Summit @ Kickercon, I will get back in the practice of researching commercial real estate deals using crowdfunding and economic development. We have a great line up of speakers from various platforms, including: IndieGoGo, PatchofLand, RealtyShares, GroundFloor, and Emition. More platforms to come.