We’re Building a Clear Path to Real Estate Profits
Five very experienced executives are pooling their talents to take advantage of a unique and very lucrative opportunity provided by the JOBS Act and Regulation Crowdfunding (Reg. CF) rule changes in the past year. Marketing for financial products online is essentially a “numbers game”; the more people who see your advertisements the more sales you will make. With a Reg. CF crowdfunding portal each issuer pays for the ads that drive the investors who make your cash register ring.
Our customers are Realtors who are listing commercial properties and who wish to double their commission by syndicating the property rather than splitting the commission with a buyer’s broker. On a $5 million property, that puts an extra $150,000 in the Realtor’s pocket.
ere is nothing new about real estate syndication. Until now investors needed to be “accredited” (net worth over $1 million or income over $200,000). Reg. CF reduced that requirement. It opened the door for an enormous untapped pool of middle-class investors to participate alongside accredited investors and add a slice of an office or apartment building to their investment portfolio. A Reg. CF funding portal is the intermediary that connects those Realtors with those investors.
We are seeking $200,000 to build a Reg. CF funding portal and to market our services to Realtors who see the opportunity to sell properties quickly, without countless walk-throughs and negotiations with buyer’s brokers, and to significantly increase their income.
What are we selling?
We will offer each Realtor an all-inclusive and inexpensive package for us to prepare the operating and legal documents, develop and manage the fundraising campaign and deliver the necessary funds to the title company to close the purchase of the property.
For a smaller property selling for less than $5 million, we expect the package price for our services to be a flat $10,000. We would structure each offering to raise enough to return that amount to the Realtor and also provide a reserve for maintenance and vacancies.
We have retained the services of one of the preeminent crowdfunding marketing companies to develop email templates and other marketing materials for these offerings. We can assist the Realtor to secure mortgage financing for the property if needed.
The Realtor will provide the property description, rent roll, tax information, title, appraisal, and inspection reports as if the property were listed for sale rather than syndication.
Where do the investors come from?
Selling real estate is all about “location, location, location”. We would expect to offer investors the opportunity to invest in properties in their own communities. The marketing campaign would first be targeted at people with whom the Realtor has already done business, not just buyers of homes but former residents who have used the Realtor to sell their homes and others who already know the Realtor’s name.
Emails will also be sent to a list of every homeowner in the county where the Realtor operates. Most Realtors would not send out an email to that broad of an audience with the message “think of me when it comes time to sell your home”. An email that offers homeowners the opportunity to earn 12% or more investing in a property that they frequently drive by sends a different message. It says that the Realtor has much more to offer than his competitors.
Finally, we can purchase lists of the email addresses of accredited investors in the vicinity of the property and use data mining techniques to identify those who have previously invested in other real estate offerings.
We want to be clear that we expect to aggressively market each property in order to attract more investors than we will need. We want to over-subscribe every offering and leave each Realtor with a list of potential investors anxious to participate in the Realtor’s next offering. This is a numbers game, after all.
Did we mention that this is recession proof?
Real estate changes hands in good markets and bad. After the crash in 2008 investors went looking for bargains. Real estate prices are at historic highs in many markets. Should they come down many investors who cannot afford to buy a whole property are likely to be interested in a share in a property that becomes less expensive or distressed.
Competition and our market
There are currently approximately 30 Reg. CF funding portals in operation. In 2021, the industry as a whole raised a total of $1.1 billion. Three portals dominate the market. Those portals are focused on raising funds for start-ups and small businesses. Smaller portals raise funds for franchisees and independent films.
There are a few small portals that specialize in real estate but they are irrelevant to our operation. There are approximately 1 million Realtors in the US. We would be happy to sign up 100 in our first year of operations.
Where is our spreadsheet?
There is no need to open Excel because our operation is lean and mean; no office space, office assistants, or overhead. The five founders are hands-on. Initially, we will work with our marketing company to walk each Realtor through the process. If a Realtor calls with a question, one of the founders will respond. We understand customer service. We do not anticipate taking salaries. We will be content with our share of the profits.
Reg. CF funding portals are permitted to charge a success fee as a percentage of the funds that are raised, typically 7%-9%. A property selling for $4 million might borrow $3 million and raise $1 million as equity from investors. Assuming that we would net 5% of the 7%-9% we charged, raising that $1 million would net our portal $50,000.
If we raise $1 million per month we would net $600,000 per year. When raising $1 million per week, $2.5 million per year. The number of offerings is limited only by the number of salespeople we ultimately hire to reach out to Realtors.
Why do we need $200,000?
Part of the funds will be used to create the portal itself and move it through the licensing process.
Part of the funds will be used to have our portal professionally branded. We want a brand that tells investors that we are trustworthy and professional; that the investments o˝ered on our portal are good investments worthy of their consideration.
Some of the funds will be held in reserve in case we underestimate how much it will take to fully fund a particular property. If we come up short then we will be prepared to keep the marketing campaign going, sending out more and more emails. We expect to be able to advertise that we will fund the purchase of the property, every time, just like Wall Street does.
We saved the best for last
Reg. CF requires that every investor in any offering do so through a portal. Every email that is sent out will have our portal’s logo and direct people to the portal’s landing page. Everyone who lands on that page will be a self-described investor. The portal is required to take some basic information about the investor’s income and net worth even if the investor does not invest and is just looking around.
That ever-expanding database of investors will be a valuable asset that we can easily monetize. As the database grows we can offer these investors proprietary real estate funds, a link to a robo-investment advisor, and develop marketing relationships with companies selling home, auto, and life insurance.
Fidelity, Vanguard, and Charles Schwab spend their own capital to fund the marketing campaigns to drive investors to their websites. The marketing campaigns that will attract investors to our website will be paid for by the Realtors that list their offerings upon it. That fact is unique in the Financial Services industry and what attracted us to Reg.CF in the first place.
What does an investor in our portal get for $200,000?
We are offering a 10% interest in the LLC that will own the portal we will operate. Given that the founders are not taking salaries we would expect to begin profit distributions within 24 months.