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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.

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How to Crowdfund a House

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  1. How to Crowdfund a House

  2. Disclaimer: This is NOT LEGAL ADVICE!

  3. Buying property $ from individual investors. Win-Win: Access to financing Ethical investments

  4. Not donations

  5. What would this make possible?

  6. What would this make possible? • Stability

  7. What would this make possible? • Stability

  8. What would this make possible? • Stability • Savings

  9. What would this make possible? • Stability • Savings

  10. What would this make possible? • Stability • Savings

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

  12. Let’s slash property prices (not values)

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

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

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

  16. Legal strategies

  17. Legal strategies

  18. Legal strategies • CA residents only  intrastate exemption

  19. 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.”

  20. 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.

  21. 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

  22. 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

  23. 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.”

  24. 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.”

  25. 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

  26. 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.

  27. 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

  28. 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.”

  29. 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)

  30. 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)

  31. 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 … ????

  32. 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)

  33. Total price: $549,000 Downpayment: $120,000 Need to Raise: $429,000 §25102(n) CA Qualified Purchasers 100 loans of $4,290 each? 5% for 5 years  $8095.76, $2699/mo/household

  34. CHALLENGES Long-term loans? Doing the work Showing it will be a good investment (aka why not just get a bank loan?)

  35. Solutions • Form a group, the more sharing, the better • Cheaper per person • Easier to show it’s a safe investment • Self-directed IRAs • Intermediaries e.g.: patch of land, PRIMARQ, fundrise, crowdstreet, realtyshares

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