It seems like you find a deal, place an offer, present deal to crowdfunding, and raise the capital. It’s really quite beautiful. So I place and offer and am asked for a pre-qualification letter or proof of funds. If you have experience with crowdfunding, how do you get over this hurdle? I doubt the seller has even heard of crowdfunding real estate haha.
The only times I have been required to produce a pre- quality letter or proof of funds is when a real estate agent was involved…which is why most of my deals came from FSBO’s. Why would I be making an offer to buy and offer earnest money as a good faith deposit if I was not able to close?!!
When I am asked for proof of funds, I demand they prove their ability to deliver a clear title. It is so irritating to see investors manipulated by seller’s agents!
Rob, to answer your question… (as if you needed one)
Earnest/binder deposits mean squat. Any buyer can get his money back, by going to small claims.
The buyer could have defaulted so hard that he chipped the seller’s teeth, and a judge will return the money.
I had a buyer default on a purchase agreement. He blew off all the deadlines and just before we were scheduled to close, he backed out. I refused to return his deposit. It cost me two months of lost marketing time, and a better buyer.
Regardless, a judge ordered that I return the $2500 earnest deposit. To add insult to injury, I ended up with a judgment on my credit.
Earnest deposits are just fiction to make the ignorant feel secure.
The only earnest deposit I’ll look at twice, is the one written for the full asking price.
BTW, I don’t offer earnest deposits on FSBO deals. Like you said only agents require them.
Real estate has been basically the same since 1776. Anything new is just a new vehicle for the basics. Now Crowfdunding is like asking people to give you money to invest. That doesn’t really seem like it will work in large enough volumes to build a business from. it is also not necessary in real estate. There are already vehicles in place to buy and rehab real estate using other people’s money. Real estate is no better than any other investment except for the ability to use other people’s money.
Crowdfunding for real estate is like putting tax free municipal bonds inside a tax free IRA.
All the crowd funding sites I’ve looked in to require you to have many years of real estate investing experience. Is this not what you’ve seen? What sites do you use?
Crowd funding loans are at terrible terms… It’s just a loan… Don’t let the fancy terminology confuse you… I think the max term would be 5 years, maybe 10… as oppose to the 20 - 30 year term you’d be getting elsewhere… Imagine the difference that makes on a monthly payment… Plus, the interest rates are much higher than traditional commercial real estate loans…
(notice that Redstar knows what he’s talking about sometimes! High five myself!)
There are a lot of creative crowd funding businesses raising money to loan out on real estate deals, they are loaning money not actually setting you up to raise money directly, although you can raise up to $1m in a lot of states that have adopted crowd funding laws.
Essentially crowd funding uses the federal securities exchange commission Reg D 504 offering to raise money up to $1m dollars from anyone up to state limits, the problem is the time to put the prospectus together, find a platform (Web Host) and promote your project to those people in the one state your raising capital in.
Experience and a history of success is important as your hoping people will invest in your expertise. You still have to file a state capital raise with the state and federal up to $1m is probable exempt, but that has to be verified according to your capital raise parameters.
Then it could take a number of months to raise the money, the federal law says your initial raise is good for 6 months and can be extended an additional 6 months if you could not successfully raise all your capital goal in the initial 6 month period.
Raising money by crowd funding is much harder than it looks.
I sent emails to the 10 largest Crowdfunding platforms.
They all said I needed substantial real estate investing experience, which I did not have.
Also, even if you do get approved, they are pretty lousy loan terms. Something like 15% over 5 years. 8% over 10 years in best case scenario if I remember correctly.
Have you ever thought of selling junk bonds through the Securities and Exchange Commission? I started to do that, but never followed through. I don’t know why anyone would want to buy into my company since I have no track record or experience, but I don’t know why they wouldn’t, either.
Junk bonds can be something like 9% over 30 years. That’s pretty good.
Well, this seems new to me. Crowdfunding, I haven’t tried it yet and this is the first time I heard about it. But, it seems like or similar to networking. You get funds from different people to finance a certain business, project or a property. I hope, I’m correct with it?
The theory is correct your looking to get investments from multiple people, they can invest a certain percentage of their income for a state crowd funding campaign or must be an accredited investor for a multi state federal Reg D 505 or 506b or c capital raise.
You will need to create a state corporate entity as a corporation or LLC and have to decide whether you will offer an equity, debt or hybrid offer and what those terms and conditions will be. Then you have to have an exit strategy or term limit for a private company or intentions to do an IPO and enter the publically traded market including a ticker symbol and market platform.
The costly part is the time and consultants you may need to write a prospectus, gathering together a accomplished board of directors and / or management team and the potentially required financial projections which in some states have to be done by a CPA.
The state may charge a few hundred to a few thousand dollars to register your offering, may require the cash placed with a third party trustee until a minimum capital raise is met, and some states require capital be raised on a platform online.
Overcoming these obstacles is a challenge and you have to be creditable, have experience and have an operational plan to convince investors to place their faith, trust and cash with you and confidence you will succeed.