How to crowdfund a house
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How to Crowdfund a House. Disclaimer: This is NOT LEGAL ADVICE !. Buying property $ from individual investors . Win-Win:. Access to financing Ethical investments. Not donations. What would this make possible?. What would this make possible?. Stability.

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How to Crowdfund a House

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How to crowdfund a house

How to Crowdfund a House


How to crowdfund a house

Disclaimer: This is NOT LEGAL ADVICE!


How to crowdfund a house

Buying property

$ from individual investors.

Win-Win:

Access to financing

Ethical investments


Not donations

Not donations


What would this make possible

What would this make possible?


What would this make possible1

What would this make possible?

  • Stability


What would this make possible2

What would this make possible?

  • Stability


What would this make possible3

What would this make possible?

  • Stability

  • Savings


What would this make possible4

What would this make possible?

  • Stability

  • Savings


What would this make possible5

What would this make possible?

  • Stability

  • Savings


What would this make possible6

What would this make possible?

  • Stability

  • Savings

  • Community


L et s slash property prices not values

Let’s slash property prices (not values)


How to crowdfund a house

Add: $100,000 for remodeling – add 2 bedrooms (maybe 1 more bath)

Total: $600,000

Price per household: $300,000

Financed (4.5% for 30 years): $1520/mo


How to crowdfund a house

Split 3 ways! No remodeling needed!

Total price: $549,000

Price per household: $183,000

Financed (4.5% for 30 years): $927/mo


How to crowdfund a house

Split 4 ways! No remodeling needed!

Total price: $949,000

Price per household: $316,000

Financed (4.5% for 30 years): $1601/mo


Legal strategies

Legal strategies


Legal strategies1

Legal strategies


Legal strategies2

Legal strategies

  • CA residents only  intrastate exemption


Legal strategies3

Legal strategies

  • CA residents only  intrastate exemption

  • Secret loans to CA residents (??)

    § 25102(e): “any offer or sale of any evidence of indebtedness, whether secured or unsecured, and any guarantee thereof, in a transaction not involving any public offering.”


Legal strategies4

Legal strategies

  • CA residents only  intrastate exemption

  • Secret loans to CA residents (??) § 25102(e)

  • Small number of investors who know you:

    § 25102(f):

    • No public advertising

    • Sales to no more than 35 investors

    • All investors have a preexisting personal or business relationship, or by reason of their business/financial experience, could be reasonably assumed to have the capacity to protect their own interests.


Legal strategies5

Legal strategies

  • CA residents only  intrastate exemption

  • Secret loans to CA residents (??) § 25102(e)

  • Small number of investors who know you § 25102(f)

  • Private placements § 25102(d)

    “Any offer or sale of a security with respect to a transaction that is exempt from registration under the Securities Act of 1933 pursuant to Section 18(b)(4)(E) of that act….” (=§77r(b)(4)(E), which refers to § 77d(a)(2), “transactions by an issuer not involving any public offering.”

    Adds CA notice and fee requirement


Legal strategies6

Legal strategies

  • CA residents only  intrastate exemption

  • Secret loans to CA residents (??) § 25102(e)

  • Small number of investors who know you § 25102(f)

  • Private placements § 25102(d)

    Match Federal Rules 504, 505, or 506 (private)

    Adds CA notice and fee requirement


Legal strategies7

Legal strategies

  • CA residents only  intrastate exemption

  • Secret loans to CA residents (??) § 25102(e)

  • Small number of investors who know you § 25102(f)

  • Private placements § 25102(d)

  • Loans Secured by Real Property, where loans do not have equal priority § 25100(p)

    “A promissory note secured by a lien on real property, which is neither one of a series of notes of equal priority secured by interests in the same real property nor a note in which beneficial interests are sold to more than one person or entity.”


Legal strategies8

Legal strategies

  • CA residents only  intrastate exemption

  • Secret loans to CA residents (??) § 25102(e)

  • Small number of investors who know you § 25102(f)

  • Private placements § 25102(d)

  • Loans Secured by Real Property, where loans do not have equal priority § 25100(p)

  • Realtors § 25102.5:

    “a series of notes secured directly by an interest in the same real property, or the sale of undivided interests in a note secured directly by real property equivalent to a series transaction, that complies with all of the provisions of Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code.”


Legal strategies9

Legal strategies

  • CA residents only  intrastate exemption

  • Secret loans to CA residents (??) § 25102(e)

  • Small number of investors who know you § 25102(f)

  • Private placements § 25102(d)

  • Loans Secured by Real Property, where loans do not have equal priority § 25100(p)

  • Realtors § 25102.5

  • CA Qualified Purchasers § 25102(n)

    • Net worth $500,000 (excluding home, furnishings & cars) or

    • Net worth $250,000 (excluding home, furnishings & cars) plus gross income over $100,000

    • Can only invest 10% of net worth


Legal strategies10

Legal strategies

  • CA residents only  intrastate exemption

  • Secret loans to CA residents (??) § 25102(e)

  • Small number of investors who know you § 25102(f)

  • Private placements § 25102(d)

  • Loans Secured by Real Property, where loans do not have equal priority § 25100(p)

  • Realtors § 25102.5

  • CA Qualified Purchasers § 25102(n)

    • Advertising in prescribed form: brief description of issuer, certain legends/warnings, call this number for more info.

    • Written only.

    • Notices required.


Legal strategies11

Legal strategies

  • CA residents only  intrastate exemption

  • Secret loans to CA residents (??) § 25102(e)

  • Small number of investors who know you § 25102(f)

  • Private placements § 25102(d)

  • Loans Secured by Real Property, where loans do not have equal priority § 25100(p)

  • Realtors § 25102.5

  • CA Qualified Purchasers § 25102(n)

  • Rule 506(c). ADVERTISING OK!!! Sales to Accredited Investors Only.

    • Net worth exceeds $1M (excluding home), or

    • Income over $200,000 or $300,000 w/ spouse


Legal strategies12

Legal strategies

  • CA residents only  intrastate exemption

  • Secret loans to CA residents (??) § 25102(e)

  • Small number of investors who know you § 25102(f)

  • Private placements § 25102(d)

  • Loans Secured by Real Property, where loans do not have equal priority § 25100(p)

  • Realtors § 25102.5

  • CA Qualified Purchasers § 25102(n)

  • Rule 506(c). ADVERTISING OK!!! Sales to Accredited Investors Only.

  • Investment Crowdfunding under the CROWDFUND Act (part of JOBS Act) (15 U.S.C. §77d(a)(6))

    • Will be legal soon??????

    • Raise up to $1 M in any 12-month period;

    • Limit per investor: $2,000 or 5% of income/net worth, or if income or net worth is over $100,000, then 10% of income or net worth up to $100,000

    • Must use a Portal, which is going to be highly regulated

    • Disclosures/documentation required

    • May “not advertise the terms of the offering, except for notices which direct investors to the funding portal or broker.”


Legal strategies13

Legal strategies

  • CA residents only  intrastate exemption

  • Secret loans to CA residents (??) § 25102(e)

  • Small number of investors who know you § 25102(f)

  • Private placements § 25102(d)

  • Loans Secured by Real Property, where loans do not have equal priority § 25100(p)

  • Realtors § 25102.5

  • CA Qualified Purchasers § 25102(n)

  • Rule 506(c). ADVERTISING OK!!! Sales to Accredited Investors Only.

  • The CROWDFUND Act

  • Subdivided Lands § 25100(f)


Legal strategies14

Legal strategies

  • CA residents only  intrastate exemption

  • Secret loans to CA residents (??) § 25102(e)

  • Small number of investors who know you § 25102(f)

  • Private placements § 25102(d)

  • Loans Secured by Real Property, where loans do not have equal priority § 25100(p)

  • Realtors § 25102.5

  • CA Qualified Purchasers § 25102(n)

  • Rule 506(c). ADVERTISING OK!!! Sales to Accredited Investors Only.

  • The CROWDFUND Act

  • Subdivided Lands § 25100(f)

  • Register the Security = Direct Public Offering

    (special regs for real estate)


Legal strategies15

Legal strategies

  • CA residents only  intrastate exemption

  • Secret loans to CA residents (??) § 25102(e)

  • Small number of investors who know you § 25102(f)

  • Private placements § 25102(d)

  • Loans Secured by Real Property, where loans do not have equal priority § 25100(p)

  • Realtors § 25102.5

  • CA Qualified Purchasers § 25102(n)

  • Rule 506(c). ADVERTISING OK!!! Sales to Accredited Investors Only.

  • The CROWDFUND Act

  • Subdivided Lands § 25100(f)

  • Register the Security = Direct Public Offering

  • Nonprofit § 25100(j)

    • Organized exclusively for educational, benevolent, fraternal, religious, charitable, social, or reformatory purposes…

    • Can sell securities EXCEPT loans … ????


Legal strategies16

Legal strategies

  • CA residents only  intrastate exemption

  • Secret loans to CA residents (??) § 25102(e)

  • Small number of investors who know you § 25102(f)

  • Private placements § 25102(d)

  • Loans Secured by Real Property, where loans do not have equal priority § 25100(p)

  • Realtors § 25102.5

  • CA Qualified Purchasers § 25102(n)

  • Rule 506(c). ADVERTISING OK!!! Sales to Accredited Investors Only.

  • The CROWDFUND Act

  • Subdivided Lands § 25100(f)

  • Register the Security = Direct Public Offering

  • Nonprofit § 25100(j)

  • Agricultural Cooperatives § 25100(m); Food and Agriculture Code §§ 54001 – 54294. See also 15 U.S.C. § 77a(c)(a)(5)(B)


How to crowdfund a house

Total price: $549,000

Downpayment: $120,000

Need to Raise: $429,000

§25102(n) CA Qualified Purchasers

100 loans of $4,290 each? 5% for 5 years  $8095.76, $2699/mo/household


Challenges

CHALLENGES

Long-term loans?

Doing the work

Showing it will be a good investment (aka why not just get a bank loan?)


Solutions

Solutions

  • Form a group, the more sharing, the better

    • Cheaper per person

    • Easier to show it’s a safe investment

  • Self-directed IRAs

  • Intermediaries

    e.g.: patch of land,

    PRIMARQ,

    fundrise,

    crowdstreet,

    realtyshares


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