The next gold rush

[schockergd]

SEC has just green-lit small cap companies to crowdfund investment. This is absolutely earth shattering.

I'm already talking to our attorney about this in order to get ready for this. Caps are $20m and $50m depending on what kind of filing you're willing to do. It allows additionally solicitation to unaccredited investors which is a BIG thing since accredited investors are only investing in a limited band of investments (Mostly tech and oil from what I see).

 

[StackCash]

Is there going to be a central crowdfunding platform for this?

 

[schockergd]

Is there going to be a central crowdfunding platform for this?

There are multiple ones already, the big thing is going to be them lowering the bar for companies to take smaller investors on through said platforms.

 

[infoslob]

Gold rush, it's a possibility, but just remember that before that happens the regulators (and the lawyers) will eat first.

This is Title IV of the JOBS Act, passed by the Congress in 2012. To date none of the SEC-approved provisions of that Congressional act of what, superficially, looked like ground breaking innovation have proved to be jack fuck.

Here's a decent take on Reg A+ ... sad final words from link "Given the expense and demands of blue sky compliance, it’s unlikely many issuers will use Tier 1. That means that companies seeking less than $20 million will either choose a Tier 2 raise or, more likely, find that the new Reg A+ is as unusuable as the old one."

I used to think over-regulation in finance was a political byproduct of well-intentioned politics to idiots from losing money, but I've long since come around to believe it's simply about control.

 

[schockergd]

Gold rush, it's a possibility, but just remember that before that happens the regulators (and the lawyers) will eat first.

This is Title IV of the JOBS Act, passed by the Congress in 2012. To date none of the SEC-approved provisions of that Congressional act of what, superficially, looked like ground breaking innovation have proved to be jack fuck.

Here's a decent take on Reg A+ ... sad final words from link "Given the expense and demands of blue sky compliance, it’s unlikely many issuers will use Tier 1. That means that companies seeking less than $20 million will either choose a Tier 2 raise or, more likely, find that the new Reg A+ is as unusuable as the old one."

I used to think over-regulation in finance was a political byproduct of well-intentioned politics to idiots from losing money, but I've long since come around to believe it's simply about control.

The T2 compliance doesn't look THAT difficult to me, we're already looking for the financial audit process, and that seems to be our hurdle. The blue sky exemptions/non compliance looks to be huge.

 

[secretagentdad]

Am I the only one that thinks this is horrible?

The biz op and ponzi scheme guys are gonna take people to the cleaners.

Grandstanding politicians will slam the door after the horse is gone and kill lots of legitimate things in the process.

 

[schockergd]

Am I the only one that thinks this is horrible?

The biz op and ponzi scheme guys are gonna take people to the cleaners.

Grandstanding politicians will slam the door after the horse is gone and kill lots of legitimate things in the process.

It's already happening with OTC stocks.

With A+ and T2 you at least have to prove you can go through a financial audit and a few other things. If the restrictions are too lax then, it's gonna be a 2-3 year gold rush for companies to fund, then they'll revert to standard Reg D rules. My goal is to get in this , get our company over funded while it's easy and keep on trucking.

Additionally with our seed funding round, around $25m of funds were invested with 50 or so companies. Out of those 50 companies something like 45 have gone under or run away. Total volume of those bankrupt/lost companies is in the $24m area.

 

[Smidge]

So you can raise $100k with unreviewed financial statements that don't require disclosures until the end of the first year? Brb, gotta go write an $10,000 e-book on how to dilute the shit out of private venture investors using 409a approved offsheet financing arrangements.

Seriously though, there's some cool stuff you could do with this. That guy whose been killing it here with cheap real estate could form a SPV and start selling off his mortgages on Ebay.

Additionally with our seed funding round, around $25m of funds were invested with 50 or so companies. Out of those 50 companies something like 45 have gone under or run away. Total volume of those bankrupt/lost companies is in the $24m area.

From what I've seen, 1/20 success rate is considered a baseline in private venture capital. Despite the $24m bath, the exit value of the 5 might actually be more than enough to make up for it. I've seen 1 company float 12 super-loser websites AND meet the fund high-water mark year after year for 5 years straight. That was before the exit, and ignores that tax treatment of this sort of stuff makes losses magically disappear (at least where I'm from).

 

[jonbird]

It's already happening with OTC stocks.

With A+ and T2 you at least have to prove you can go through a financial audit and a few other things. If the restrictions are too lax then, it's gonna be a 2-3 year gold rush for companies to fund, then they'll revert to standard Reg D rules. My goal is to get in this , get our company over funded while it's easy and keep on trucking.

Additionally with our seed funding round, around $25m of funds were invested with 50 or so companies. Out of those 50 companies something like 45 have gone under or run away. Total volume of those bankrupt/lost companies is in the $24m area.

Just a heads-up the images in your sig link aren't working.

 

[schockergd]

So you can raise $100k with unreviewed financial statements that don't require disclosures until the end of the first year? Brb, gotta go write an $10,000 e-book on how to dilute the shit out of private venture investors using 409a approved offsheet financing arrangements.

Seriously though, there's some cool stuff you could do with this. That guy whose been killing it here with cheap real estate could form a SPV and start selling off his mortgages on Ebay.



From what I've seen, 1/20 success rate is considered a baseline in private venture capital. Despite the $24m bath, the exit value of the 5 might actually be more than enough to make up for it. I've seen 1 company float 12 super-loser websites AND meet the fund high-water mark year after year for 5 years straight. That was before the exit, and ignores that tax treatment of this sort of stuff makes losses magically disappear (at least where I'm from).

I think i'm that guy you're talking about.

That's what we're looking to do, or something similar as these new rules seemingly makes it alot easier to do.

Our problem is/continues to be that the banks we talk to want us to grow slow. From our standpoint there's no good reason to grow slow because the market is starting to heat up again and if we wait 2-3 years to buy 50-100 properties we're gonna pay 30% more for them, spend 30% more on interest, and have a much smaller pool. As it stands now, we can buy $500k a month in property and not flood the market with new supply.

 

[chatmasta]

I'm a little confused how this is different from crowdfunding on kickstarter/indiegogo/etc. Can you now crowdfund on your own, without those platforms? Is that the difference?

Does this mean that a business can now package its debts as a security derivative, and sell it to its customers/supporters via crowdfunding?

What use cases can you think of for small cap crowdfunding beyond real estate? Perhaps a decentralized product development shop, similar to assembly (https://assembly.com/) might be a good place to implement a model like this.

 

[Cashless Clay]

I think i'm that guy you're talking about.

That's what we're looking to do, or something similar as these new rules seemingly makes it alot easier to do.

Our problem is/continues to be that the banks we talk to want us to grow slow. From our standpoint there's no good reason to grow slow because the market is starting to heat up again and if we wait 2-3 years to buy 50-100 properties we're gonna pay 30% more for them, spend 30% more on interest, and have a much smaller pool. As it stands now, we can buy $500k a month in property and not flood the market with new supply.

Do you think Realty Shares would work for your company?

 

[schockergd]

Do you think Realty Shares would work for your company?

They only want to deal with large properties. Most of these real estate crowdsourcing websites are looking for $350k-$5m properties or even higher. Our average property is worth $62k and on average we pay $40k for it. We'd have to package quite a few together to get them to invest, and for the most part none of them want to do it.

One company did want to do it as a package, but the rate was looking to be 10%-13% which is just too high. Bank rates right now are in the 5% for commercial entities like ours, but they're so slow to lend money it makes it hard on us.

We are HOPING to split the difference and issue some sort of security in the 7%-8% range with a A+ filing. This would allow us to sell something like bond units (Think of a tradable bank CD) that could be purchased, then traded on a secondary market for redemption at some point in the future.

I'm a little confused how this is different from crowdfunding on kickstarter/indiegogo/etc. Can you now crowdfund on your own, without those platforms? Is that the difference?

Does this mean that a business can now package its debts as a security derivative, and sell it to its customers/supporters via crowdfunding?

What use cases can you think of for small cap crowdfunding beyond real estate? Perhaps a decentralized product development shop, similar to assembly (https://assembly.com/) might be a good place to implement a model like this.

With kickstarter and the like, you just are pre-selling products to consumers. With this you can sell shares of your company (or other securities) to individuals looking to invest. It isn't possible or legal to do that on kickstarter.

 

[richcookies]

They only want to deal with large properties. Most of these real estate crowdsourcing websites are looking for $350k-$5m properties or even higher. Our average property is worth $62k and on average we pay $40k for it. We'd have to package quite a few together to get them to invest, and for the most part none of them want to do it.

One company did want to do it as a package, but the rate was looking to be 10%-13% which is just too high. Bank rates right now are in the 5% for commercial entities like ours, but they're so slow to lend money it makes it hard on us.

We are HOPING to split the difference and issue some sort of security in the 7%-8% range with a A+ filing. This would allow us to sell something like bond units (Think of a tradable bank CD) that could be purchased, then traded on a secondary market for redemption at some point in the future.




With kickstarter and the like, you just are pre-selling products to consumers. With this you can sell shares of your company (or other securities) to individuals looking to invest. It isn't possible or legal to do that on kickstarter.

Real estate for lack of a better word must be bought at the right time. If you buy when must people are buying, you would lose your money when the prices do crash.

Your best bet is to focus on large multi-family buildings that sells for multiple XX rent-roll. I once tried to buy 100 units building with some friends and outside investors. This was in 2010 in Dallas, but the main guy with the money chickened out.

I can connect you with the right people selling, if you have the money.

Remember, go with larger multi-family properties and you should do fine with proper due diligence.

Just remember, I do not work for free, neither do I connect for free, as my name and ASS will be on the line. Your concept is doable with the right lawyer. Contrary to what some people might think, compliance is not as hard as getting your site well known.

What you need is a top notch lawyer. This is not a time to try to shop around for the lowest bidder.

 

[schockergd]

Real estate for lack of a better word must be bought at the right time. If you buy when must people are buying, you would lose your money when the prices do crash.

Your best bet is to focus on large multi-family buildings that sells for multiple XX rent-roll. I once tried to buy 100 units building with some friends and outside investors. This was in 2010 in Dallas, but the main guy with the money chickened out.

I can connect you with the right people selling, if you have the money.

Remember, go with larger multi-family properties and you should do fine with proper due diligence.

Just remember, I do not work for free, neither do I connect for free, as my name and ASS will be on the line. Your concept is doable with the right lawyer. Contrary to what some people might think, compliance is not as hard as getting your site well known.

What you need is a top notch lawyer. This is not a time to try to shop around for the lowest bidder.

We completed a seed funding round last year using a 506 S exemption (Foreign investment) for a total of $400,000. From that $400,000 we were able to buy around 10 properties. We then refinanced two of them giving us around $110,000 , this with a little bit more cash bought us 2 more properties for a total of 12 properties and 17 units purchased for $400k seed + $110k in debt.

The properties appraise for $750k-$800k right now because we invest money into them via rehab. This represents a 57% gain in equity based on the original seed capital invested to us.

The properties produce revenues of $11,000 per month. Our margin including debt service on this is about 60% (Mortgages, taxes, insurance, vacancy and repair escrows) or $6,600/mo | $79,2000 per year. This is a 19.8% return on investment and 76.8% ROE over the investment.

The system we use works pretty well, the problem is banks want to see 3 years of rental returns which we don't have since we formed in late 2013 and most of our income was from last year, resulting in only around 1 year of cashflow history.

 

[chatmasta]

We completed a seed funding round last year using a 506 S exemption (Foreign investment) for a total of $400,000. From that $400,000 we were able to buy around 10 properties. We then refinanced two of them giving us around $110,000 , this with a little bit more cash bought us 2 more properties for a total of 12 properties and 17 units purchased for $400k seed + $110k in debt.

The properties appraise for $750k-$800k right now because we invest money into them via rehab. This represents a 57% gain in equity based on the original seed capital invested to us.

The properties produce revenues of $11,000 per month. Our margin including debt service on this is about 60% (Mortgages, taxes, insurance, vacancy and repair escrows) or $6,600/mo | $79,2000 per year. This is a 19.8% return on investment and 76.8% ROE over the investment.

The system we use works pretty well, the problem is banks want to see 3 years of rental returns which we don't have since we formed in late 2013 and most of our income was from last year, resulting in only around 1 year of cashflow history.

Great post.

How do you calculate vacancy when factoring it into your margins? Do you have a method of estimating it?

With 11 units * 12 months, you have 132 possible "units of vacancy". How many can your portfolio tolerate in a given year? How are you hedging your portfolio against the risk of economic downturn?

Granted I know nothing about real estate so maybe 60% is such ridiculous margin that all your black swan error rates are covered.

 

[rusvik]

Business wise can't comment on how I could use it, but I am all for tech which breaks the monopoly of those big IB firms in raising funding.

 

[Paper_Chase]

It allows additionally solicitation to unaccredited investors

The bar is so low to qualify for "Accredited Investor" anyhow. They make you qualify for a reason, they don't want people blowing their entire life savings on a single investment.

I would be concerned with the amount of headache involved with pooling together $10k from a couple hundred peasants. Good luck finding time to actually run your company.

 

[chatmasta]

The bar is so low to qualify for "Accredited Investor" anyhow. They make you qualify for a reason, they don't want people blowing their entire life savings on a single investment.

I would be concerned with the amount of headache involved with pooling together $10k from a couple hundred peasants. Good luck finding time to actually run your company.

Apparently you have never heard of the Internet.

 

[Paper_Chase]

Apparently you have never heard of the Internet.

I was referring to the amount of headache you would have dealing with the amount of questions and concerns you would receive from such a large group of unsophisticated investors.