All Forum Posts by: Ivan Vargas

With a private lender, you can bypass the credit issue if you have 30% of the purchase price and the property appraises for the purchase price. However, you'll be paying 12% interest only payments and not helping repair your credit at all in the process.

If this works for you, I know a few if you need contacts.

9 acre, 33 single family, ground up development project in West Palm Beach 33413 asking $2.3M ($70k/lot) for raw land. Property has been rezoned and plans are approved.

Welcome to BP! Great place to network and learn about investing in Real Estate. 

I've said it before and I'll say it again: Palm Beach County is on Fire! Competition is fierce, demand is high and supply is scarce. Even land is becoming hard to get at decent prices since the owners have realized what they have. Buying cash helps however be prepared to offer high, usually above asking.

See this image below, asking was $183k, sold for $215k, closed in 30 days. Needed a new roof and had severe water damage inside and out (at least $40k in repairs total). And this is only one example, I've lost quite a few to these extremely competitive offers.

Palm Beach County is on fire! Check this out, sold for $32k over asking and they closed in 30 days. This is who were competing with here in West Palm Beach.

As Scott Purcell said in his most recent blog post: "it costs money to raise money."

The costs may be somewhat of an issue but I think they'll do fine. The real issue is that those costs will come at the expense of investor returns in the long run.

Title 3 may not have much of an impact in the current Real Estate Crowdfunding space, but it should open the doors for new projects/sponsors seeking $300k for a single family flip. Any offerings over $1M shouldn't be looking at Title 3 anyway. 

I'm not sure what it costs to have your financials reviewed or audited, but for a startup, a newly formed single purpose LLC, with $0 revenue and $100 in a bank account, I can't imagine it being much.

Ongoing reporting is yearly unless the LLC is dissolved. A typical fix and flip should be completed and sold or refinanced within a year at which point investors can receive their final distributions and the LLC dissolved. Form a new LLC for each project just like the big names do.

@Bryan Hancock it seems they are using the terms interchangeably. Even in his article he quotes the definition of a platform as an excerpt from the Title 3 rules where they clearly mention "registered" funding portal, then further down he refers to it as a Title 3 License. 

Either way the funding portal is a new entity that must register with the SEC see below copy and paste from the rules: 

Crowdfunding Platforms. One of the key investor protections of Title III of the JOBS Act is the requirement that Regulation Crowdfunding transactions take place through an SEC registered intermediary, either a broker-dealer or a funding portal. Under Regulation Crowdfunding, offerings must be conducted exclusively through a platform operated by a registered broker or a funding portal, which is a new type of SEC registrant.

Since they refer to a portal as an SEC "registrant", I say it is not a license but I am no attorney, and I haven't read all 685 pages either. 

He also mentions how he would rather create a separate legal entity to hold the Title 3 "license" to keep the Title 2 & 4 offerings separate because the rules are different. I'd love to see RealStarter up and running and or a demo of the SaaS you will provide. 

@William Morrison great point. That's another reason why most platforms prefer not to deal with non-accredited investors, the information disclosure requirements. Issuers need to provide much more information to non-accredited investors than they provide to accredited investors. According to what I've read, 506 offerings not only need to restrict sales to "sophisticated" non-accredited investors, but they also need to provide information equal to that of a registered [public] securities offering. The slightest mistake and the exemption is void and they have to refund all investor's monies. 

With Title 3 offerings, the focus is on welcoming non-accredited investors into the marketplace. All the same information, disclosure and reporting rules should apply and quite possibly more than those in 506 offerings. Whether the information is accurate is another story. Any materially false or misleading information is considered fraud and a criminal offense. An error as in over/under estimating projections is not illegal and the reason all investors should do some kind of due diligence before investing in any offering rather than relying on the platform to due it for them.

One more thing to look at is the relationship between portal and issuer in Title 3, and how it compares to that of the platform, issuer and sponsor in Reg. D offerings. 

The portal is NOT allowed to invest in or purchase securities from the issuer. They are however allowed to accept securities, up to 10% equity in the issuer, as compensation for their services.

There's plenty of talk about how platforms prefund projects and have skin in the game... This is a totally different structure. What they do is they give a loan to or buy an equity stake in the developer, then form a new LLC which becomes the issuer offering securities/ownership, and they remain the managing member of that new LLC. As an investor you're buying securities in what is basically a shell company that in turn invests in the real estate company. If they offer/sell all the securities in that LLC, that is 100% ownership, then they no longer have any "skin in the game", unless they retain some equity in that newly formed entity. Yes they prefunded the project, but if they sold all securities in that entity, they recouped their investment from the crowd, and continue to charge fees based on the performance of that project. If the project fails or doesn't perform as projected they don't exactly lose, only the investors lose.

The portal on the other hand, is not allowed to do this. The portal cannot even advertise any of the specific offerings listed on the portal. The issuers themselves have to advertise their offerings and in their advertising provide the name of and a link to their offering on the portal. If the portal decides to accept an equity stake in the issuer as compensation for their services, then their interests are truly aligned with investors and, if the project does not succeed, they will not be compensated for their services. The more successful the project, the greater the compensation. 

There's a huge difference and I believe the way the SEC set up the relationship in Title 3 is safer than what the current platforms are doing with Reg D offerings. There is so much more but there's 686 pages to read and they must be read more than once to fully understand them.

Its not a license, its a registration. A new entity created by the SEC called a funding portal. There's a few applications yes FINRA, and the SEC the process should take about 90 days. 

Once the funding portal is registered it can display Title 3 offerings, but they are only the intermediary just like a registered Broker/Dealer (who can also display Title 3 offerings on its "website").  The "portal" cannot handle money, it needs to go through an escrow agent, directly to the issuer, and the portals need to take extra measures to prevent fraud (similar to 506c taking extra steps to confirm accreditation).

Most existing "funding platform" is now running on 506c exemptions, maybe a few 504 or Reg A+. Those are from Title 2 & 4 of the JOBS Act. These are all Wordpress websites running fancy plugins. They have a great team of software geeks to make their systems functional and polished from the project widgets to the investor dashboard and registration process. With a few million in VC money they can make really nice "websites" and market the hell out of them. 

They are mostly offering single family rehab projects under $1M each. These projects are clearly 506c because they are using general solicitation. The rules state clearly if you use general solicitation NO non-accredited investors allowed. But they don't need non-accredited investors because when they send an email blast (general solicitation), the projects get funded within hours. 

So far the SEC has received 33 applications for funding portals. When these portals open up, they open to non-accredited investors with the same single family rehab projects under $1M and they CAN advertise to non-accredited investors. However these new inexperienced investors with under $1M in assets and less than $100k yearly income are only allowed to invest 10% of their income or net worth whichever is greater, and a maximum of $100k in a year. Funding portals need not verify the investors income or net worth just don't sell them more securities than they are legally allowed to buy. 

The funding portal needs to vet the sponsor more than the existing platforms do (they are not regulated on that department), and the funding portals have a whole section just for that in the 686 pages of rules. Also, Title 3 issuers have to register with the SEC 21 days before they can sell the first security, whereas 506c issuer just files a simple Form D, 15 days after they sell the first security. 

Is there still a chance for fraud? Maybe, but they took great measures to prevent it. There is still a chance for fraud with any Regulation D offering as well.

Will the sponsors be inexperienced or incapable of completing a single family rehab? That's up to the funding portal to be selective and perform due diligence just like the existing platforms. But just think how many investors here on BP can raise the capital to fund their first or next flip.

Will the current platforms bother to run Title 3 offerings? I doubt it, actually I think its not allowed but I'm not 100% on that. They may have to open a separate "website" for that and register it as a funding portal. They can do fine with their top 1% accredited investors and leave the millions of newly available non-accredited investors to the newly created funding portals.

So many factors to consider before answering this question. 

1. Is it an REO? Does it need repairs? If so, how much is repair cost?

2. What are comps in the area? 

3. What are your plans for the property? Fix and flip? Rental? Primary Residence? 

If its an REO and in need of repairs most likely yes thats the price and 5k over asking might not be enough. I've offered 20k over asking and still got beat by a higher offer.

You can look up comps without an agent using realtor.com and most likely zillow and redfin will show you recent sales in the area with an interactive map where you can see the details of the homes to compare them to yours by # of rooms and sq. ft. If you are looking to flip it you need to make sure the numbers are right so you can make a profit. 

Is it absolutely necessary to sell right now? Do you really need the money? If not, I would rent it out and hold it for a year in which the market may be a little better so you can sell it higher and the rental income will help increase your profit.