All Forum Posts by: Mark Robertson

@Byran Hancock  is correct about the 506b and 506c  definitions etc.. The only  3 real estate 506c crowdfunding portals that have substantial volume are RealCrowd, Fundrise and Patch of Land.  The active 506b platforms are Realty Mogul, Realty Shares and ifunding.  There are list on the internet of 60+ real estate crowdfunding platforms, but the vast majority have closed very few, if any transactions.  Many have already come and gone.

@Xavier Randall I seen stats posted online that up to 5% of the US population qualifies as accredited under the current definition. SeedInvest puts the number at 8.5 million.  The rules have stayed very close to the same for 30 years and inflation is increasing the number of accredited investors each year.

@Leslie Pappas  It should not be too surprising that the typical crowfunding investor is in their 40's with a net worth over $1 million.  Under current crowfunding sec regs 506b and 506c, they are only open to accredited investors.  Only investors with net worth's north of $1 million excluding their primary residence or income over $200k single or $300k married can invest.

The main reason investors are using (and will use the corwdfunding platforms more in the future) is they have exposure to  much, much higher deal flows.  In the past, the only exposure a typical investor would have to deals was from the few local relationships they  have with syndicators.

@Fred T.  they did have other categories for expenses, I just combined them to reduce the size of the post..they had these as well...

Salaries & Related (10,050) (10,151) (10,252) (10,355) (10,458)
Marketing (660) (667) (673) (680) (687)
Repairs & Malntenace (5,935) (5,994) (6,054) (6,115) (6,176)
Administrative (3,350) (3,384) (3,417) (3,452) (3,486)
Turnover (1,740) (1,757) (1,775) (1,793) (1,811)
Management Fees 4.00% (11,588) (11,874) (12,159) (12,452) (12,752)
Utilities (15,840) (15,974) (16,110) (16,247) (16,386)

It is not value add.... 

"Assets acquired are 100% leased at current market rents with significant opportunity for future rent growth with modest unit upgrades. Distributions to be made on a quarterly basis to all investors based on excess cash flow. First year cash on cash returns projected to exceed 10%."

I ruled this investment out, just confirming that their assumptions are Whack!  

Gross yearly income $290K (Rent per unit $940/month)

Real estate taxes $65K

Repairs/Main $6k

Capex $2k

Insurance $9k

All Other exp  $43K

Total exp $125K

NOI $165K

Capex and Repairs seem low to me as well.

A new crowdfunding deal (I will not name so I will not have to deals with lawyers etc., again) is for a fund to buy up 24 multifamily units located in Drexel Hill/Upper Darby, Pennsylvania. 12% preferred, then 60/40 split (60 to investor)

• Internal rate of return in excess of 15%
• Minimum cash-on-cash return of 10%
• 1- to 6-unit multifamily buildings
• 5% loan at 70% LTV, amort over 25years
• Trailing Cap Rate 8.63%

These are a few of the assumptions that I am I am having a problem with:

1. Economic Occupancy is 99% for the next 5 years. (.5% for bad debt and .5% for vacancy)

2. Rent Growth 2.5% a year

2. Expense growth 1% a year

To anyone that owns or manages small multifamily units, do these assumptions ring true to you?

The project looks good!  Is it on, under, or over budget?  The original estimated sell date was 12/31.  Have prices continued to rise in Austin?  Will the delay actually help with a higher sells price (assuming  prices are still rising)?

Thanks

Realty Mogul has raised almost $10 million in VC funding, so I think their chances of going belly up in the short term are pretty slim. For the long term, I still feel comfortable with their model. They have set up contingency plans for 3rd party's to manage distributions and K1's for the LLC investment vehicles. The reason they can do this is they charge a 1 to 2% annual fee on the investments which is more than enough to compensate a 3rd party to handle this. While the annual fee is my main gripe with Realty Mogul, it does insure that we will get paid if they go under. I personally think 1% or less fee is more reasonable than a 2% annual fee.

Realty Mogul  is using the dealer/broker model and they fund a lot of deals.

@Bryan Hancock

In general the higher the returns, the higher the risk. If a deal has higher risk and returns, I want to capture my "fair" share since I put my capital at risk.  It seems your model is to target an 18-20% return for investors and change the payout structure to meet that goal depending on the deal's projections.  I would rather capture a consistent 70% of the return no matter what the risk/return of a particular investment is.

The Linden deal you capture 33% of the profit and we are projected to make an 18% return.  The new deal you capture just under 50% of the profit and the investor is projected to make a 20% return. It's not about a 20% return being to low for some folks, its about capturing a consistent and fair portion of the return.  Changing the payout formula from deal to deal does not seem to accomplish that in my eyes.  That's why I like the industry standard of 8% preferred with a 70/30 split thereafter and no catch up provision. (yes that's an average, most are either 60/40, 70/30 or 80/20 splits) The less skin a sponsor has in the deal the higher I want my split to be. I perceive a higher risk with little to no developer skin in a deal.

I am really not trying to rain on your deal. Just trying to give you the perspective of an investor on how We like to see deals structured. I had this discussion with many fellow investors and without exception none like to see a catch up provision.

Your quote: "Yes, I am serious. There is no need to make the split more complicated than is necessary. The investors get 60 and we get 40. That's it."

No, that's NOT it.  Its not 60/40 from what I read.  If it was there would be no Catch up.  The catch up provision makes it a 50/50 split up to 20% and then its 60/40 after that.  My discussion above was about a 20% return on EQUITY.  For the sake of argument, I simply assumed the project would make 20% on EQUITY.  

Your projection is it makes $69K or 36.4% return on equity.  The first 10% to the investor, then the next 10% to the sponsor. then the 60/40 split.  (10% to investor 6.4% to sponsor) So yes, if you hit your project,  the investor gets the 20% return.

Your notion of grade school fairness has changed since your Linden raise on a crowd funding platform. That projection had $103k to the investor and $56k to sponsor.  65% to investor and 35% to sponsor.