My daughter was flying home from Atlanta and the following was a game provided by the airline to pass the time:
I forgot to send this. A game that was available to play on my flight home from ATL. They had screens in each of the seats. -Jess
Yesterday I attended an all day Crowdfunding seminar held by Venture Hive, a Startup Incubator and Accelerator located in downtown Miami.
The main speakers were Jason Best and Woody Neiss from Crowdfunding Capital Advisors. Neiss was the founder of FlavorRX, a company that created the flavor additives that are available for a pharmacist to add to kids liquid prescription meds so your child will actually take them.
Why do these guys matter? They are the coauthors and promoters of Title III of the 2012 JOBS Act (overview of Act) that allows for equity and debt crowdfunding.
I was really surprised at the quality and depth of the presentation. Both guys were engaging speakers.
The day started off with Jason speaking about the political process and how both parties tried to pull them to “their” side. They resisted those forces and in doing so the bill received bipartisan support, changing SEC rules that dated back to 1933 and 1934. There is a lot to be learned from them on political success.
What is crowdfunded equity? I’m sure most of us are at least basically familiar with how stocks work. You pay a few hundred dollars and now own 1/1,000,000,000th of General motors or some such thing. If GM does well the value of your portion of the company goes up. If they fail and the government has to bail them out your stock value plummets or disappears completely.
Crowdfunding equity is similar but for smaller offerings with a cap of $1 million per year per business. Investors need to be “accredited” (see below) and are limited to how much each investor can invest. Those limits are 10% of their income/net worth, up to $100,000, for investors with more than $100,000 of income or assets and 5% for those with income and assets less than $100k. Everyone is permitted to invest $2000 per year regardless of income.
You are required to use an approved platform for the offering, think of something like Kickstarter, as well as a licensed broker-dealer to promote it
Regulation A+ has changed to allow for offerings up to $50 million per year. Only accredited investors may invest, but now offerings may be offered and sold publicly. There is a ton, read expensive, paperwork involved in a Regulation A+ offering.
The interesting thing is using these tools for debt. So rather than give up a portion of ownership, you can crowdfund debt, i.e. mortgage money.
Manhattan Attorney Douglas Ellenoff presented via video feed. His presentation was on the ethics requirements and how painful it is to get it wrong.
Ellenoff is a founder/principal in iDisclose.com, an online tool for creating the required SEC disclosures.
He also is a founder/principal in LexShares.com, an investment platform for commercial litigation. You can think of this in the context of the recent case where billionaire PayPal co-founder Peter Thiel took out his arch enemy Gawker media by funding Hulk Hogan’s litigation against Gawker.
The real use of a litigation equity tool is in allowing cases that would make a difference be heard despite the cost involved being too great for any individual to cover. For example, you have a case that could change our industry. There is so much at stake you realize that if you win, your opponents will appeal, perhaps all the way to the US Supreme Court. How the heck do you afford a case that will cost perhaps hundreds of thousands of dollars or more? This is where litigation investing comes in.
So what does this mean to us in rental real estate? Let’s say you found this great deal on a $4 million property. But there is that sticky wicket of the $800k downpayment. Something like this could conceivably work, although those numbers are at the outer edge and realistically would impossible to achieve, at least until you had a couple of successful offerings. But I see this as viable for smaller deals, allowing small investors to be in properties that they otherwise could not.
Heck, with Reg A+ you and your buddies could conceivably buy something really big. A $50 million down payment would go quite a ways.
If you are thinking about giving crowdfunding a go, be prepared to spend a lot of time learning the ropes and a bit of money getting the legalities correct.
A couple of mainstream articles on real estate crowdfunding
What is an accredited investor?
It is a person with a net worth of at least $1 million, excluding the value of their primary residence, or have income at least $200,000 each year for the last two years (or $300,000 combined income if married) and are expected to make the same amount this year.
We spent much of week two of our three weeks out west in the warehouse district of Los Angeles. I was shocked at how large LA’s homeless population is. I was also a bit shocked as how bad the area smelled – stale urine, extreme heat and no rain to wash it away is not very pleasant.
It is really a sad scene given the overall wealth of our country and of SoCal in particular.
An interesting real estate related concept in LA was the number of what appears to be privately owned SRO (Single Room Occupancy or rooming houses) Nice, modern buildings.
So even in this most economically, and probably socially, challenging housing environments, rental owners are able to find workable solutions by providing housing uniquely suited for a specific population.
The third thing I learned while out west for much of July is the most interesting. It has kept me busy for the past three weeks. … More to come 😉
Every year we spend about three weeks in the southwest. Typically it starts with four days at a database developer conference, this year and last were in Vegas. While I was honing my computer skills, my wife offered some classes and coaching for her Vegas area students of the Event Decorating Academy. We then rented a car and headed to Los Angeles to reconnect with vendors that supply the Event Decor Mart.
Carmen put on a couple of more classes and coaching sessions while in LA. The trip ends in Vegas for the ASD trade show. In general, I do not like Vegas. It is expensive, and we are not gamblers or night people. Although one night I did stay up to 11 PM;-) It is also triple digit hot every day.
I always return with a lot of new database techniques and skills. More importantly to this conversation, I am a constant student of the housing industry, taking every opportunity to learn something while away from home.
We rented furnished apartments in both Vegas and LA through Hotels.com. These are units that the property management has set aside just for this purpose. If you have mid to upscale rentals, this might be an opportunity to increase your occupancy. It appears the going rate per week is around the half the monthly rent, plus a $100-150 fee per rental for cleaning.
Renting an apartment for extended work trips is a heck of a bargain for the consumer. The cost is half that of renting a hotel room in the same area. Plus you get a full kitchen to make your meals, which is important given Carmen’s extreme food allergies, and a washer as you are not going to make it three weeks without doing laundry.
In LA we stayed in a one bedroom at the Apex, just a block or so from the Staple Center. The Apex is a modern glass high-rise with a good sized living room, which Carmen needed for her coaching sessions. In Vegas, we found a place half a block from the Convention Center – two bedroom, two baths, kitchen and laundry with a large living room for far less than the cost of a Vegas hotel.
From an owner’s perspective, weekly furnished business rentals could help owners of mid to upper-end apartments in high demand areas increase their collected rent. I’m sure AirBnB also fits in here.
Municipalities often oppose things like weekly rentals and AirBnB because they cut into the hotel tax revenue. So if you are going to give this a go I would check local ordinances as well as with your city’s taxing authority to make sure you stay on this side of the law.
There was a recent question about the legality of imposing a non-refundable $40 application fee in Wisconsin even if the prospective tenant was providing their own, current credit report.
(4) Credit check fee.
(a) Except as provided under par. (b), a landlord may require a prospective tenant to pay the landlord’s actual cost, up to $20, to obtain a consumer credit report on the prospective tenant from a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis. The landlord shall notify the prospective tenant of the charge before requesting the consumer credit report, and shall provide the prospective tenant with a copy of the report.
(b) A landlord may not require a prospective tenant to pay for a consumer credit report under par. (a) if, before the landlord requests a consumer credit report, the prospective tenant provides the landlord with a consumer credit report, from a consumer credit reporting agency that compiles and maintains files on consumers on a nationwide basis that is less than 30 days old.
Note: Paragraph (b) does not prohibit a landlord from obtaining a more current consumer credit check at the landlord’s expense.
Here, the $40 fee fails on two points. 1) It exceeds the $20 cap, and 2) You can’t charge a fee at all if the tenant is providing a copy of their credit report that is less than 30 days old. Could the tenant forge a copy of their report that they are providing … sure. So I would not rely on that report, but would run my own at my cost. I would also compare the two copies as an honesty check.
How about if you call the fee something else like a processing fee? Can you keep the money then? Again the Wisconsin landlord-tenant law is clear.
ATCP 134.02(3) ”Earnest money deposit” means the total of any payments or deposits, however denominated or described, given by a prospective tenant to a landlord in return for the option of entering into a rental agreement in the future, or for having a rental agreement considered by a landlord. “Earnest money deposit” does not include a fee which a landlord charges for a credit check in compliance with s. ATCP 134.05 (3).
Some owners feel that they can ignore this and charge the fee to offset the rerental costs. What tenant will go after you in court because you kept 20 or 40 bucks that you may not have been entitled to? The risk here is that if a tenant does sue, you owe the tenants’ court fees and attorney’s costs. So you are risking perhaps thousands of dollars to keep a couple of bucks here and there.
Personally, I find it more important to attract tenants and quickly fill vacancies with the best applicants than it is to recover the minimal amount of a credit report. If I were looking for an apartment I would start with the ones that do not have an app fee. That makes those owners charging the fees less competitive and they will lose more than the fees charged. The old saying pennywise and pound foolish kind of fits here.