Crowdfunding. how to buy real estate without credit or need of a bank

Crowdfunding. how to buy real estate without credit or need of a bank

Ney Torres:        [00:00:00] Welcome to the show.

Bram:                   [00:00:02] Thanks Ney.

Ney Torres:        [00:00:03] We met in a real estate seminar probably a year ago, and you are starting now into real estate. Today’s episode is going to be super interesting because you are going into crowdfunding. For people that don't know what crowdfunding is, is when you buy a property and you put it on the web so a lot of people can just fund, give you the money so you can go with the project.

[00:00:29] You don't necessarily need nowadays a credit or a bank. It's another way to fund your investments. So, Bram, can you tell us how you get into real estate in the first place?

Bram:                   [00:00:45] Yeah, sure. I got into real estate three years ago through a seminar I followed, the seminar of whom you also followed. Then the ball just got rolling. I followed a few more seminars and then I bought my first property, which I house hacked. And then, within a year I bought my second property, which I rented out completely.

[00:01:21] And both of those are in Amsterdam. Now, I've bought my first property in Rotterdam and I'm doing that via crowdfunding.

Ney Torres:        [00:01:31] Perfect. So how does it work? Because a lot of people say, “Oh, I don't have the money to make a deal.” What do you think about that?

Bram:                   [00:01:41] Yeah, you see that for people in that situation, a crowdfunding can be an interesting solution because crowdfunding can give you more flexibility to do a deal, to grab a deal that you otherwise might have to let go because it doesn't fit in the standard box that the bank set, that the standard lenders set.

[00:02:11] With crowdfunding, you're able to do deals that are a bit more hairy or deals where you have a bit less liquidity to put into the deal than you would like. So, it's a bit more high risk because you also pay a higher interest rate. But that's a very interesting option for people that are getting started or have a deal that is a bit more hairy.

Ney Torres:        [00:02:40] Perfect. So, can you tell us about these deals? What is the process, and how do you decide to go through crowdfunding in this particular property or investment?

Bram:                   [00:02:52] Yeah. Initially, my plan was to attract regular bank financing for the property, but when we received the appraisal of the property, the appraisal value was quite a bit lower than we expected. So, with three, I mean, my business partner… I can continue on that later on.

[00:03:29] So we decided to go a different route and to go for the crowdfunding route. We had the money to do it via traditional bank financing, but the return on equity metric for this transaction was, was much more interesting if we would do it via crowdfunding. And we plan on buying several more deals this year. So for us it was just much more interesting to put a bit less equity into this transaction and to save our cash for future transactions later this year.

Ney Torres:         [00:04:08] That makes sense. And so, let me tell you what I think and how it   works. You can tell me if I'm wrong or not please. What I see in crowdfunding, normally, it's something around 200,000 euros. Is that right?

Bram:                   [00:04:24] Yeah. The crowdfunding platform that we use, that's transactions between 100,000 and 500,000 euros, but the large majority of all deals fall around the 200,000 mark. That's correct, yeah.

Ney Torres:        [00:04:44] Okay, perfect. So, you have a good deal. You may be bought under, you know. Or you added value, or for some reason you found a deal. And then, do you hire a copywriter? How do you prepare to show the product on the webpage?

Bram:                   [00:04:59] Yes, so the process is as follows. And then I'll mention how I prepared for it. First, you present the deal to the crowdfunding platform team. They first review the deal, review all your documents to see if this is a deal that they want to propose to the investors on the platform.

[00:05:25] And once you pass that stage, they publish the transaction on the platform, and then the investors can decide whether they want to invest or not. And they indeed base that upon the presentation that you present as a property owner, as a buyer, and also on the pictures of the property, and certain financial metrics.

[00:05:55] I have not hired a copywriter to write the presentation. I've written it myself just by thinking about what I really like about the deal, what I want to tell the people about the property, about my business partner and me, and also by, of course, looking at other successful transactions.

Ney Torres:        [00:06:22] Sorry. So, the people that are in the crowdfunding, the company that crowdfunds this, do they actually do that for you or do they let you put anything or like they approve the text? How does it work?

Bram:                   [00:06:36] No. So you have to write the text yourself. You have to come up with the texts yourself, but before they allow you to publish your project on the platform, they review your project as well. And if they don't like your project, they will not publish it on the website. 

Ney Torres:        [00:06:57] Got it. So, to people that are listening to us right now, I'm going to describe a little bit how the webpage looks like. And is it okay with you if I share your numbers today for your property?

Bram:                   [00:07:05] Sure.

Ney Torres:        [00:07:07] Cool. So, you posted this how many days ago?

Bram:                   [00:07:10] Seven days ago.

Ney Torres:        [00:07:12] Seven days ago, and I see you already raised 140,000 euros out of 205. So, you still have three more weeks to get to your goal.

Bram:                   [00:07:21] Correct.

Ney Torres:        [00:07:22] So it's doing great. You have 140 investors. You still have 21 days. You reached 70% almost of your goal. And you divide this in one, two, three, four different levels. How do you decide to divide this? And by levels, I mean, for the people listening, there's a bracket, it's called 1A, where investors are paying 4.7% for the project duration, which in this case is five years.

[00:07:55] The second level is 4.95%. Third level is 6.25%. And the fourth levels are 7% return. How did you decide on those levels?

Bram:                   [00:08:07] Yeah. Actually, for this platform the interest rate levels are set by the platform itself. I unfortunately can't influence them. There is another platform where you can set the interest rates, you as the property owner. But on this particular platform, the interest rates are set by the platform.

Ney Torres:        [00:08:31] Got it. So, walk with me through this example. I have a property. Can I put it for crowdfunding if I already own it?

Bram:                   [00:08:43] Yep, definitely. Yeah. Yeah.

Ney Torres:        [00:08:45] Yeah. Cool. So, if I was going to buy a new property. Do I go make an offer, get the offer, accept it, and I say I'm going to pay you in 30 days and I'm going to look depending on the financing, I guess.

Bram:                   [00:08:59] Yup.

Ney Torres:        [00:09:00] And then you go and present this house in the crowdfunding and you buy the house through the crowdfunding. Right?

Bram:                   [00:09:08] Yeah, exactly. What you just described as the second option, where you use the crowdfunding as financing to finance the acquisition of the property. That's what we did.

[00:09:23] So then, you just need to make sure that your window, in which you have the time as a buyer to finance the property, that your time window is wide enough. That's the route that we've taken. Actually, the platform is more popular with investors who use it as a way of refinancing.

[00:09:49] You have quite a few investors who buy properties cash, and who then refinance it immediately after buying it on this platform. The reason why it's used more as a refinancing method is because you have a bit of a financing risk from the point of view that if an insufficient amount of investors put forward the money for you to obtain your financing, you will have an issue as an investor. So that's why it's used more as a refinancing method.

Ney Torres:        [00:10:36] That is so exciting, man. As I told you, I'm going in a couple of weeks to Netherlands and I'm looking at some properties. I know exactly what to do with those properties, but nobody else wants it. So of course, I'm a tourist. And I have no credit. I have nothing there. So, crowdfunding is perfect for people like me.

[00:10:58] I'm getting the company. I'm setting up a company. I'm setting up everything else. But this is amazing because now I can walk in, make an offer. And did you tell the owner that you're going to… Do you have to put in the paperwork that you're doing crowdfunding or just they don't care or?

Bram:                   [00:11:15] No, no, no. You're not obliged to mention it. We have also not discussed it. It's up to the buyer to pick his source of financing. The buyer is in no way obligated to mention anything to the seller.

Ney Torres:        [00:11:33] Interesting. Perfect. And, okay. So, what are you going to do with short term financing? This is obviously five years. It is not 30 years. For example, just so people know from other countries. I think Netherlands right now the interest rate for housing is 1.7% or something like that at 25 years.

[00:11:56] You are asking here for five years and you are paying up to 7%. That's average at 5.5%. So, what's your goal with this? This is a special type of finance and it's not long-term financing, right?

Bram:                   [00:12:07] No, exactly. It's a bit more expensive. I do have to mention that indeed, the interest rate in the Netherlands right now is at 1.7 but that's for mortgages for your own home. So that's not the rate for investment mortgages.

[00:12:28] The rate for investment mortgage is at an LTV of 80%. The loan to value of 80% is roughly at between 3.5 and 4% depending on the lender. And the average interest rates, which I'm paying right now over across all the tranches of financing I'm attracting, is 5% indeed.

Ney Torres:        [00:12:53] Perfect. So, your goal is to fix it or just seed on it for five years and resell it, or then find… What's your plan with this property?

[00:13:01] Well, can you tell us a little bit about this property and how crowdfunding makes sense for you?

Bram:                   [00:13:06] Yes. So, financing is indeed quite a bit more expensive. I’m paying 5% roughly, on average across all the trenches of financing. However, I think this is still an appropriate and interesting way of financing this property because the cashflow I'm expecting to generate with this property is more than sufficient to cover the financing costs.

[00:13:42] The property is located in Rotterdam. It will have four bedrooms. I'm expecting to be able to rent it out for 500 euros per room so that will be 2000 euros in total in rent.

[00:14:01] The interest cost of this financing is a thousand euros per month. There will be some other costs that I have to pay as a landlord but still my net cash flow on this property will be 500 euros. A thousand euros of financing costs, 500 euros of other costs, and then 500 euros of net cash flow.

Ney Torres:        [00:14:25] That's excellent. How do you find this deal?

Bram:                   [00:14:29] I found it through a deal finder. I'm in a group of investors and we have a social media group. The group is about 250 people big. Yeah. All of a sudden that was an off-market deal that the deal finder sourced and he offered it in the group. And yeah, that's how I bought it.

Ney Torres:        [00:15:03] How much are you paying deal finders for finding a property for you?

Bram:                   [00:15:08] That would be 2.5%.

Ney Torres:        [00:15:13] Cool. Cool. Cool. I've seen a couple of deals this month from deal finders too, but I've only seen cash only deals. So that's not your experience right now. You're seeing people that are actually finding cool deals like these one.

Bram:                   [00:15:26] Yeah, it depends on the deal. There are indeed deals where the requirement is that you have to be able to buy cash. Fortunately for me, that was not the case here.

Ney Torres:        [00:15:41] Cool. Cool. Cool. I understand. Perfect. Now another question. As I look into your webpages, how do you decide how much money you want it for each level?

Bram:                   [00:15:52] That is also set by platform. So, the way they do it is they look at the total amount of money that you want to raise, and then they divided into it into different loan to value brackets. The first level, Level 1A, that is the level of 0% to 50% loan to value.

[00:16:17] And that is of course, the lowest risk tranche or the interest rate on that tranche is the lowest at 4.7%. And then, the last tranche where I pay 7%, that tranche actually covers 85% to 100% loan to value.

Ney Torres:        [00:16:41] I see. Okay.

Bram:                   [00:16:45] Yeah. Maybe one remark. So, sorry about that. So, the loan to value here is not up to the acquisition price, but up to the value, the appraisal value.

[00:17:04] The appraisal value in this case was 10,000 lower than the acquisition value. Some are putting in 10,000 euros in cash into the deal, plus of course transaction costs, but the rest is financed via crowdfunding.

Ney Torres:        [00:17:21] Wow! This is super cool. I’ve never seen something like this before. How do you feel about it?

[00:17:30] This is like normal to you or like, “Oh, well.”?

Bram:                   [00:17:33] No. I know that this is not possible in a lot of other real estate markets but I look at it as very interesting. It's of course also more risky. I've thought a long time about that. I've done some analysis about that but I'm comfortable with the level of risk.

[00:17:59] And if you're really looking to build a portfolio, it's a great way to accelerate your portfolio growth. Yeah. So, I think it's a very interesting option to build your portfolio.

Ney Torres:        [00:18:12] Yeah, and it's just something I learned a long time ago is real estate is financing, and financing is the name of the game. Real estate is numbers. That's what it is.

[00:18:25] Somebody told me a long time ago, just invest where the numbers make sense and leave wherever you want to leave. So, people that may be look here in the days and being like, “Wow, you know, talking about investing in Europe and stuff like that.” Of course, you have to learn the tax goal, and it's worth it.

[00:18:45] You know, I've been looking into it for like a year already, but there's opportunities that there's not… There are other markets like Latin America that do not have those opportunities just yet, for example. And for me right now, it's so easy if you want to look for a financial independence to look into other countries. Is this available in Belgium? You are from Belgium, right?

Bram:                   [00:19:11] Correct.

Ney Torres:        [00:19:12] Cool. You live now in Netherlands.

Bram:                   [00:19:14] Correct. Yeah.

Ney Torres:        [00:19:15] Cool. Where is this available?

Bram:                   [00:19:21] I wouldn't say large but it's definitely very available in the Netherlands. There are 57 crowdfunding platforms active in the Netherlands right now who have all the required permissions from the regulatory bodies.

[00:19:41] So, you know, 57 crowdfunding platforms in a country of 17 million people. I think that's quite a lot. So that's a very interesting development. I'm actually not sure. I haven't heard of a similar platform in Belgium actually. I think this is definitely a Netherlands thing actually.

Ney Torres:        [00:20:09] Interesting. Interesting. Wow. Yeah. How do you decide between platforms? Why did you decide the one that you chose?

Bram:                   [00:20:20] That's a very good question. There are some differences between the approach by the various platforms. As I just mentioned, with this platform, the interest rate is set by the platform. The level of risk tranches is set by the platform. So, you know, the LTV tranches.

[00:20:51] And other platforms leave the pricing up to the landlord. And then the landlord can set the interest rates at which he's willing to attract financing. And besides that, there are also some differences in costs, some differences in information required.

[00:21:13] And of course, I want deal certainty with this deal as much as possible so I've also really looked at how popular is the platform, how many of their projects succeed? And so, this platform called Simon in Health. They're the most popular platform in the Netherlands. Half of their 104 projects have succeeded. Meaning that the amount of money that the landlord wanted to attract has been raised.

[00:21:48] So that's quite a good success rate. It's actually very impressive. I have some friends and business connections who have used this platform. They've been very pleased with the cooperation and, and, you know, with their success on the platform. For me, that was also an important factor.

Ney Torres:        [00:22:12] So you think crowdfunding is here to stay?

Bram:                   [00:22:16] Yeah, for sure. I definitely think so. I also don't see a lot of reasons why it wouldn't go away. I think the worst thing that could happen is that you would have a big financial crisis and some people lose money. And then there was some sort of political pressure to sort of cancel this but I don't really see that happening to be honest.

Ney Torres:        [00:22:52] Because I was talking to Leah the other day and she said you should do this for other countries too. And I was just talking to you about creating this resort in Cotopaxi in Ecuador. Have you seen something for other countries?

Bram:                   [00:23:07] I think actually it would be a very interesting business idea. And definitely for someone like you who’s so entrepreneurial and who is so, you know, active around the globe to maybe create a crowdfunding platform like this in a country where it's not yet common, or where it doesn't even exist because also from a business point of view, since it's such an attractive form of financing and demands from landlords is high, and because you also receive a fairly attractive return on investment from the point of view of an investor. Up to 7% in this case in a very hands-off way.

[00:23:59] There's also quite a lot of demands from investors in this type of investment. So, I think it would be a very interesting business idea maybe to explore whether this is feasible in Ecuador, or the US, or any other country.

Ney Torres:        [00:24:14] Awesome, cool. Great ideas. What would you tell yourself? Well, you're in the middle of it, but what would you tell yourself two years ago when you started doing real estate?

Bram:                   [00:24:25] That's a good question. I would say invest in a coach and invest in education first because I've invested in education. I've started with a real estate course, but you really can't learn enough. So, if I could do it over again, I would invest even more in education. I would go to even more courses. I would take a coach on day one because it makes you move so much faster. It results in you taking better decisions. So, I think that's the best investment you can make is an investment in yourself.

Ney Torres:        [00:25:11] Amen, man. Yeah, for sure. You know, it will seem like we sell coaching here because every interview we had, we ended up saying the same thing, but I don't. I don't. I don't sell coaching or anything like that.

[00:25:24] Someday I may. I do like to show people how it's done, but I agree with you 110%. Now, your experience, before we go with crowdfunding, what would you do different? You're doing great though. You're a week into this out of a month and you have 70% of your financing already in place.

[00:25:46] I think you've done great. I don't know if that's normal by you. I think this is an excellent result.

Bram:                   [00:25:52] No, it's going very well. I'm very happy about it.

Ney Torres:        [00:25:57] Did you market these differently or did you just put it on the webpage and walked away? Or are you calling your friends? Are you promoting this with your friends, family? You know, pushing this a little bit, or did you just put it on the web?

Bram:                   [00:26:12] Just a bit. One of my close friends has invested, but I haven't really marketed it very widely because also, you know, some people would probably not respond to it too positively. So, I first want to do this project, do maybe a second project, and then I will start to market it more to people who are close to me.

[00:26:41] But no, this is actually almost, you know, all the result of just investors who I don't know. And, who've decided that they liked the project and who've invested their money in this.

Ney Torres:        [00:26:56] Wow. So, you don't need investors anymore. That is amazing. And I was talking yesterday about this same subject is when I invite somebody to invest with me, it’s really a favor I'm doing to that person, I think.

[00:27:13] Of course every project has its risks, but when you learn to invest, it is hard, it's not that easy, but you don't really need… There are so many ways to fund a deal. Right?

Bram:                   [00:27:27] Yeah.

Ney Torres:        [00:27:28] I was telling you right now, the way I'm funding this deal is like almost no money, no risks for me on developing this new property and this new idea. It's like when you invite people, you're really making them a favor. Like, come in. I already thought about all this risk. I'm taking care of them. But man, you'll never have to raise money again if you have this. Wow.

Bram:                   [00:27:50] Yeah. It's very exciting.

Ney Torres:        [00:27:54] Well, thank you very much. I want to finish the episode with this. And again, thank you so much for sharing your time. I know it's like 11:00 PM there now in Amsterdam.

Bram:                   [00:28:04] Yeah.

Ney Torres:        [00:28:05] And, thank you. Thank you so much. We'll meet in two weeks.

Bram:                   [00:28:09] Yes, it's a pleasure Ney. Thanks for having me. And, see you soon.

Ney Torres:        [00:28:14] See you soon. Thanks.

Bram:                   [00:28:16] Bye bye. 

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