Real Estate Crowdfunding (LA 862)

Real Estate Crowdfunding (LA 862)

Transcript:

Steven Butala:                   Steve and Jill here.

Jill DeWit:                            Hello.

Steven Butala:                   Welcome to the Land Academy Show, entertaining land investment talk. I’m Steven Jack Butala.

Jill DeWit:                            I’m Jill DeWit, broadcasting from sunny Southern California.

Steven Butala:                   Today Jill and I talk about real estate crowd funding, and it’s here to stay let me tell you. I love it.

Jill DeWit:                            I know.

Steven Butala:                   It’s just, I love crowd funding in general. It opens up opportunity, where it wasn’t before.

Jill DeWit:                            Is it just me or is it not like, I don’t think … It should be huge and celebrated, but I don’t see it very often. Is it because there are not as many people out there, or are you going to share that when we get into the show, because I’m …

Steven Butala:                   I just don’t think it’s caught on yet. I don’t think it’s even in the first inning.

Jill DeWit:                            That’s even better.

Steven Butala:                   Yeah.

Jill DeWit:                            Well good, that’s where I want to be.

Steven Butala:                   Right, me too. That’s why we’re doing this show.

Jill DeWit:                            Cool.

Steven Butala:                   I think it’s, especially for real estate. We all know what crowd funding is.

Jill DeWit:                            Right.

Steven Butala:                   I think it’s, in its current form, is really silly, but we’ll talk about that in the show. Before we get into it, let’s take a question posted by one of our members, on the landinvestors.com online community. It’s free, and as you’re listening please drop your questions into the comment section below.

Jill DeWit:                            Matt asks, Hello, I’m looking to purchase a parcel of land that was rolled into someone’s mortgage for their primary residence. It has its own EPN from the property, with a home on it. Will I be able to purchase that? I could foresee the mortgage having some due on sale clause, or something if you sell part of the property, that was used as collateral for the loan.

Steven Butala:                   Yeah.

Jill DeWit:                            They still have the house and everything, so maybe they can be separated. Anyone have experience?

Steven Butala:                   The best way to … Unfortunately it’s probably not going to be good news. Deals like that are cross-collateralized, so … We’ve all seen this. If there’s a house and a vacant lot next door, and they’re being sold together, and they’re two EPNs, if you’re lucky there are actually two EPNs. Banks love that, because you just kind of look, and buyers love it. It’s like getting a free piece of property.

Jill DeWit:                            Right.

Steven Butala:                   Hopefully the owner of the property was smart enough to separate them out, but I really doubt it.

Jill DeWit:                            Sounds like so maybe they could be separated. It sounds like they didn’t.

Steven Butala:                   Yeah.

Jill DeWit:                            Is there a chance that there is a lien on both? That’s, I think, the question.

Steven Butala:                   Yeah, I think it’s the same lien.

Jill DeWit:                            That’s what I think is the problem.

Steven Butala:                   I think there’s one lien. I think the property’s actually cross-collateralized.

Jill DeWit:                            Exactly, and so how do you undo that? Can you undo that without them paying it off?

Steven Butala:                   There could be a due on sale. I highly doubt it. The best way, unfortunately to determine all this, is to ask for a copy of the mortgage. Even then, I’ll bet you a dollar it’s not addressed.

Jill DeWit:                            Right.

Steven Butala:                   I think it’s probably a mortgage for the purchase of these two properties and that’s it. That’s all, and when it’s paid off, you own the two properties. I think that’s probably what’s going on.

Jill DeWit:                            The end result would be, if that’s the case, you have to walk away unless you want to buy the house too.

Steven Butala:                   Yeah, that’s right.

Jill DeWit:                            Yeah, okay.

Steven Butala:                   Which, you know, we’re not against.

Jill DeWit:                            That’s another show. Yeah, another program, so sit tight it’s coming.

Steven Butala:                   I could be completely wrong until you get into that mortgage. Maybe there’s two mortgages. I doubt it. I don’t know, that’s an interesting situation. I kind of like those deals.

Jill DeWit:                            Yeah.

Steven Butala:                   Now you have an opportunity to make twice as much.

Jill DeWit:                            Yeah.

Steven Butala:                   Today’s topic, real estate crowd finding. This is new to the show. We all know what crowd funding is, right?

Jill DeWit:                            Mm-hmm (affirmative)

Steven Butala:                   How would you describe crowd funding, since this week I get in trouble for describing the [inaudible 00:03:43], you know.

Jill DeWit:                            What? Well I’ll give you one word, like I did the other one. When I think of crowd funding, I think of, for everyone to just kind of get your head around it, think of Kickstarter. That’s like crowd funding. Someone puts something up there that they want to do, maybe it’s writing a book, maybe it’s …

Steven Butala:                   A book’s a perfect example, I think.

Jill DeWit:                            Okay.

Steven Butala:                   It all started with books.

Jill DeWit:                            Okay, writing a book, crowd funding, so everybody puts in however much money they want to put in, maybe it’s $100.00, maybe it’s $1,000.00, maybe it’s $10,000.00.

Steven Butala:                   Maybe it’s 50 cents.

Jill DeWit:                            Right, maybe it’s 50 cents.

Steven Butala:                   On Kickstarter you can literally put like $1.50.

Jill DeWit:                            Okay, and then on different levels you might get a copy of the book, and maybe you get a copy of the book and something else, depending on how much money you kick in. They can reward you or pay you back, if you will, in some way. The whole point of that kind of a thing is, it’s like you’re helping somebody out. That’s what I think with Kickstarter, is the whole, is the purpose.

Steven Butala:                   It’s charity.

Jill DeWit:                            It is charity.

Steven Butala:                   I think it’s literally a non-profit.

Jill DeWit:                            Right, but at least it gives you an idea what, just thinking about crowd funding. Now what Steven’s talking about is … That was for you.

Steven Butala:                   Oh, nice intro.

Jill DeWit:                            Thank you.

Steven Butala:                   Doing it with real estate.

Jill DeWit:                            Mm-hmm (affirmative)

Steven Butala:                   I’ve got a deal, like let’s say it’s an apartment building that costs $10 million dollars. The cash flow is really well, because I’m great at finding inexpensive real estate.

Jill DeWit:                            Which you are.

Steven Butala:                   I don’t have $10 million dollars in my checking account, so I go put it on the Internet, or I … What’s been going on since the beginning of time is I call up my buddy that I went to college with, and he’s loaded, so he’s like, “Yeah, I love the deal, but I don’t want to put all the money in it, so I’ll put $4 million dollars in.”

Jill DeWit:                            Right.

Steven Butala:                   He calls one of his buddies, or I call another buddy, and we all agree, and I’ve raised the $10 million dollars through people that I have personal relationships with, or family, or whatever. I buy the asset. Let’s say we start an LLC, and then in a perfect world we own it for just a very short amount of time, and resell it. People who buy commercial real estate, the vast majority of institutional real estate owners, commercial real estate owners are looking for their exit as quickly as possible. There’s all kinds of issues associated with that. That’s why using equity and debt together can, they can cause problems unless you know the outcome right before it’s going to happen, which is the perfect situation.

Steven Butala:                   Anyway, this $10 million dollar building gets sold for $15 million six months later, and we all split the pie up according to the percentages that we put it. If I didn’t put any money in because I found it, but I negotiated a 6% kind of deal to manage the asset, and manage the sale of it, I take my cut, and then what happens is those guys never leave you alone again. All they ever want to do is give you money constantly, because they got they return that they wanted, or a real good return. In that case 50% on their money, in six months, that’s crazy. Actually, those are kind of our numbers, so …

Jill DeWit:                            Yeah.

Steven Butala:                   Little bit less than that, but that’s the example. Wouldn’t it be great if you could get in on that with $50 bucks?

Jill DeWit:                            $500.00.

Steven Butala:                   You turn your $50.00 or $500.00, or let’s say even $10 grand. Who doesn’t want to turn $10,000.00 into $15,000.00 in six months, just while I’m going to my regular job?

Jill DeWit:                            Yeah, and I didn’t do any of the work, because I paid you 6% of whatever it was, do to the work. I’m happy with that.

Steven Butala:                   That’s the idea of crowd funding, and the Internet’s made that possible. Now we don’t have to call the people we went to college with, or anything of that, and get into a smoky, dark room somewhere, and cut a deal. It’s a great idea. Here’s what happened. In the 20s, and 30s, and 40s, people were selling stock for companies on Wall Street, to people who were living on Main Street, and cleaning out their savings accounts. It was all fraudulent based, so the SEC, Securities and Exchange Commission, regulated and then consequently, like everything in this country, over-regulated the whole thing. It’s making it really difficult.

Steven Butala:                   If you want a real estate crowd fund, you are generally put into two categories. One, an accredited investor, so you have to go through this process, which is loosely defined. You have to have a couple hundred thousand bucks. If you’re married it’s 300, 400 thousand liquid, prove it all, and then the other category’s the rest of us.

Jill DeWit:                            Right.

Steven Butala:                   The SEC is protecting the rest of us, so there’s two ways to get around this. Number one, and I’m not advocating getting around the SEC. You know, I have to say stuff like that, I just do. This is a top broadcast show. Number one, have a membership group like we have with Land Academy, where you’re in it for a long time, and you sign some stuff, and you understand it, and you’re just not some schmo off the street.

Jill DeWit:                            Right.

Steven Butala:                   You’re not a bus driver, who could potentially, without knowing it, really hurt himself financially.

Jill DeWit:                            Right.

Steven Butala:                   Number two, the second way to get around it, is to not charge anything for it at all, which is what goes on with companies like Kickstarter. They’re just in it to get the traffic to the website, and get some notoriety, and maybe eventually sell the website, which this probably happened. I don’t know.

Jill DeWit:                            Probably four times over.

Steven Butala:                   In good Steve and Jill form, we’re doing both. We do have a membership group, and we’re not charging anything at the moment, so that’s what crowd funding is all about. We’re taking the concepts of commercial real estate, which has long been around, and applying them to lower cost, high margin real estate products, like rural, vacant land, ranches and wholesaling houses. So far it’s working great. We have a massive response.

Steven Butala:                   There’s a handful of people in this group, us included, who have been flipping real estate, working with investors, forever. We’re not breaking one single rule doing that, not one single rule. It’s closed. We’re not broadcasting it. We’re not openly syndicating. We’re raising money. It’s a …

Jill DeWit:                            We’re not like advertising.

Steven Butala:                   People contact us weekly to throw money at us.

Jill DeWit:                            Yeah.

Steven Butala:                   What we’re trying to do is to take that concept and make it so that people who are interested in doing this can go online, in a relational database, watch these deals happen, and get real comfortable with it, and put money in, or deals in.

Jill DeWit:                            Right.

Steven Butala:                   We have a lot of people who just want to put deals in, some people who want to put money in, and I mean I’m both.

Jill DeWit:                            Right.

Steven Butala:                   I would love … There’s some … A lot of it for us is based on personality, like I know who’s doing great in our group.

Jill DeWit:                            Right.

Steven Butala:                   I know who’s not going to make, generally not going to make a bad decision.

Jill DeWit:                            Right.

Steven Butala:                   There’s a lot of other benefits, like another set of eyes or six set of eyes on a deal, that’s a good thing.

Jill DeWit:                            Yeah.

Steven Butala:                   If you’ve got six professional real estate people in our group saying, “This is a good deal.”

Jill DeWit:                            They want to put in money now, it makes you feel good.

Steven Butala:                   Yeah.

Jill DeWit:                            The deal that you brought to the table.

Steven Butala:                   I can’t think of a faster way for somebody who’s new and really aggressive and bright, to learn than in CRM like that, online watching someone who’s 20 years older do a deal and how to do it.

Jill DeWit:                            Exactly.

Steven Butala:                   The guy who’s 20 years older, that’s me, watching the young person, from a tech standpoint and how they think, there’s a huge benefit. It’s a two way street, so real estate crowd funding is awesome. It’s just the regulations and some of the other stuff that are in place that kind of stand in the way, but …

Jill DeWit:                            I was going to say the same thing.

Steven Butala:                   If you chose the right people, which we have, it’s a great thing.

Jill DeWit:                            Yeah.

Steven Butala:                   There’s a company called, Fund Rise that’s been doing this. I’m not sure they’re doing it legally. I haven’t looked at it, into it enough. There’s a couple other ones that have been around for a while, but it seems to me, I think they’re all accredited investor driven.

Jill DeWit:                            Exactly.

Steven Butala:                   You have to put, it’s a lot, what they want you to put in is …

Jill DeWit:                            There’s a whole process.

Steven Butala:                   The minimum buy in is like $50 to $80,000.00, which quickly eliminates almost everybody from doing it.

Jill DeWit:                            Right.

Steven Butala:                   We are in the process of getting this done. Actually, we’re pretty far down the road.

Jill DeWit:                            I’m excited.

Steven Butala:                   I am too.

Jill DeWit:                            When do you think you’re going to be able to make an announcement officially?

Steven Butala:                   Well we’re meeting on this, when does this show air?

Jill DeWit:                            This show airs on Thursday.

Steven Butala:                   We’re meeting on it today, even though this is being recorded lots of days earlier than that.

Jill DeWit:                            That’s cool. All right, so we’re maybe this time next week, we can have some insight on that.

Steven Butala:                   My whole goal is to get 15 or 20 people, and then beginning to test it. Everybody can see it. If you’re a Land Academy member, you can just logon and watch. You can’t participate yet, until we get these 20 people that are, have really kind of orchestrated this thing with us. We’ll put all the completed deals that we have in there so you can see. This is all theory now, and you can watch it happen the same way ultra-rich, you know, Donald Trump/Sam Zell level commercial real estate people have been doing this for years and years, and years, only we’re applying it to wholesale houses and …

Jill DeWit:                            For lots.

Steven Butala:                   For lots and sub-divided land.

Jill DeWit:                            Yep, beautiful.

Steven Butala:                   How bad was that?

Jill DeWit:                            That was great.

Steven Butala:                   How PhD awful was that?

Jill DeWit:                            That was actually not that bad.

Steven Butala:                   Okay.

Jill DeWit:                            Thank you.

Steven Butala:                   Well you’ve done it again. You spent another 15 minutes or so listening to the Land Academy Show. Join us next time, where we discuss why playing at your level is imperative.

Jill DeWit:                            And answer your questions posted on our online community, Landinvestors.com. It is free.

Steven Butala:                   You are not alone in your real estate ambition.

Jill DeWit:                            You don’t have to be hyper-sensitive to the PhD.

Steven Butala:                   Okay.

Jill DeWit:                            You’re so funny. Please be sure and hit the subscribe button to say up to date on our podcasts. Like us and comment on what you would like to see in future shows. If you are listening on iTunes, please rate us there. We are Steve and Jill.

Steven Butala:                   We are Steve and Jill. Information …

Jill DeWit:                            And inspiration.

Steven Butala:                   To buy under-valued property.

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