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Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
You had to have been living in a cave somewhere to not have heard all the blather about real estate crowdfunding over the past six months.
To recap, crowdfunding is:
“The practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.”
It blasted onto the scene nine months or so ago when the SEC finally, and grudgingly, gave its blessing (and guidelines) regarding crowdfunding after congress passed it into law way back in 2012.
The cool thing about crowdfunding was that it was supposed to make raising money for real estate deals a whole lot easier. And it has. But until now, pretty much all of the crowdfunding activity has focused on funding big commercial and multi-family deals, leaving sole proprietor investors like us out in the cold.
No Love from the “Big Boys”
Early last year, I spoke with a newish crowdfunding company in my state that was going after – surprise – big commercial deals. We spoke numerous times, and I explained, or tried to explain to them the need to address the rehabber market because it fit in well with their business model.
The rehabber market at the time was not being addressed by any of the crowdfunding sites, and the ROI of doing crowdfunding deals would be higher. In the current extremely low interest rate environment, there is so much money looking for better returns that it’s actually pretty easy to find people willing to invest in big commercial projects.
But they scoffed at the idea because they wanted to play with the ‘big boys’ in the commercial and multi-family space. But the joke is on them, since to date, they’ve done two whole deals – and raised a whopping $685,000 between them. Yawn. I’m shocked that they’re still in business.
But Thankfully Things Have Finally Changed
Now there's a company cracking open the world of real estate investing for individual investors like us. It’s Atlanta-based Groundfloor, and back in September, they received permission to seek investors across state lines using crowdfunding.
On its site, Groundfloor describes themselves as…
“…the first and only real estate lending marketplace open to non-accredited investors. We open the door to short-term, high-yield returns backed by real estate. Typical loans have returned 12 percent annually on a six- to 12-month term.”
In a nutshell, Groundfloor lets non-accredited investors put as little as $10 toward fixing up a house. A non-accredited investor is someone who doesn’t have a high net worth. He or she can be a person with some savings in the bank.
Under the new SEC regulations, Groundfloor can look for investors in eight states and the District of Columbia. Faith Anderson, Chief of Registration and Regulatory Affairs in the state of Washington’s Securities Division, helped draft the new SEC rules to allow for inter-state crowdfunding from non-accredited investors. “Groundfloor was the first to take advantage of this multi-state coordinated review program,” Anderson said.
Anderson points out that investing in Groundfloor poses risk just like any other investment.
The typical Groundfloor loan term is between six and 18 months and the interest rate ranges from 6% to 26%.
Looking on their site, I found funded and repaid rehab deals that ranged from 20% to 100% LTV.
That’s right – you can get 100% LTV funding using Groundfloor. And the interest rates for the 100% LTV loans ranged from 6% to 12% - which is a whole lot less than that guy at your local REIA charges.
So, crowdfunding for rehabbers has finally arrived – and it deserves a look if you’re seeking funding for deals. Check out their site at Groundfloor.us.
Will You Join the Crowdfunding Rehabbers?
So, you in? Tell us why – or why not – in the comments section below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.