how to crowdfund a house

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

What would this make possible?• Stability

What would this make possible?• Stability• Savings

What would this make possible?• Stability• Savings

What would this make possible?• Stability• Savings

What would this make possible?• Stability• Savings• Community

Let’s slash property prices (not values)

Add: $100,000 for remodeling – add 2 bedrooms (maybe 1 more bath)Total: $600,000Price per household: $300,000Financed (4.5% for 30 years): $1520/mo

Split 3 ways! No remodeling needed!Total price: $549,000Price per household: $183,000Financed (4.5% for 30 years): $927/mo

Split 4 ways! No remodeling needed!Total price: $949,000Price per household: $316,000Financed (4.5% for 30 years): $1601/mo

Legal strategies

Legal strategies

Legal strategies

• CA residents only intrastate exemption

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 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 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 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 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 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 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 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 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 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 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 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 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 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)

Total price: $549,000Downpayment: $120,000Need to Raise: $429,000§25102(n) CA Qualified Purchasers100 loans of $4,290 each? 5% for 5 years $8095.76, $2699/mo/household

CHALLENGES

Long-term loans?Doing the workShowing it will be a good investment (aka why

not just get a bank loan?)

Solutions

1. Form a group, the more sharing, the better• Cheaper per person• Easier to show it’s a safe investment

2. Self-directed IRAs3. Intermediaries

e.g.: patch of land,PRIMARQ,fundrise,crowdstreet,realtyshares