Rocket Your Dollar Ep. 40: Equity Crowdfunding in Real Estate

CEO of EquityDoor, Clint Anderson, has opened the door to all levels of investors to share real estate equity via crowdfunding.

Transcript:

Thomas Young:

Hi everyone. Welcome back to Rocket Your Dollar. Today, I have Clint Anderson with me. Clint is the CEO and founder of EquityDoor (a real estate crowdfunding platform). Clint is a 20 year veteran of both the technology and real estate investing world. He has a passion for emerging technologies and personal experience with property management, single and multifamily rentals, house flipping, and real estate sales. Clint brings a unique hands-on perspective to equity. Clint, thanks so much for being here.

Clint Anderson:

Thank you for inviting us. EquityDoor is a new portal designed for sharing real estate equity via crowdfunding, and it's a new environment coming out that came out in 2016 from the Jobs Act. Crowdfunding has never been able to do crowdfunding via equity and sharing equity as shares, instead of just crowdfunding for different reasons. We focus on real estate projects that bring the environment to allow average Joe to be able to invest in real estate projects and not just the high end accredited investors being able to invest.

Thomas Young:

I mean, it seems like to me that there's been just an explosion since the Jobs Act, but the equity angle that you guys are bringing to it is certainly interesting. Going to the beginning, what was it that made you want to start a project like EquityDoor and start offering these investments?

Clint Anderson:

It goes back to my 20 years of small real estate investing. I own real estate properties around central Texas, and about three years ago I had a vision. I had a rental property that I'd owned for around 15 years. I had a lot of equity in it, but I needed to cash some equity out and go on to another project. To do that, I had to sell the property, and that's where I come up with a vision of, "What if I was able to crowdfund some of my capital, share it with the crowd, everybody is equal owners of this property, we share in the income, and together we own this project?" That's how I came up with the idea of sharing equity. Then, I learned a lot about crowdfunding, crowdfunding regulations, and Reg CF. Finally, it took us nine to ... I don't know ... eleven months to get through the SEC approval process of getting the portal up and running and programming.

Thomas Young:

Right. That's a really interesting case study. For example, let's say that I was in your situation, and I have a rental property that I've owned for however long. Let's just say I own it outright, and I identify another property that I think has some upside. Can I go an EquityDoor and list half of the equity of my house, take on some partners in that rental property, but then cash out ... Not the full amount, but the amount I need to go do another project? Is that basically how it works?

Clint Anderson:

Yeah. That was the vision of it. Either you could cash out if you owned it free out, or if you had a few debt services, you could sell that debt service, pay off what that mortgage you had against the property, get the property, and then everybody owns the property together.

Thomas Young:

That's a really interesting model that you guys built because I feel like especially in real estate and sort of "crowdfunding platforms", either they're only open to accredited investors ... And I haven't asked that question yet ...

Clint Anderson:

Yeah.

Thomas Young:

... But it's also for bigger projects, right? Let's say I want to invest $1,000 or $3,000. As an investor, it's usually a huge multifamily property or a big project and I'm a small part of it, but for the holder of the equity that maybe wants to take some cash off the table or they need money to do something else, there are not that many platforms that allow them to do this work thing. Is there?

Clint Anderson:

We have some competitors out there that focus on neighborhoods and things like that. We're going to focus on the equity, removing the debt services out of projects, sharing the equity, everybody being an equity shareholder, and everybody's sharing their profits. If you remove debt services out of it, your numbers change dramatically in different projects. We do offer Reg D 506(c) projects also, but we are in the vision of doing dual projects of offering a project that has ... I mean, you can do Reg CF and Reg 506(c) together at the same time, as long as you launch them both at the same time, everybody's on the same page, understands the contracts, and everybody's informed at the same time. We have that vision of enabling that to be over a million-dollar raise, and the projects can be dual raised, two different projects ... Some focused on the upper accredit investors and some parts of it to the lower investors.

That will open it up to different classes of the same project and being able to raise the funds, because right now we have the limitations of, "Oh, we're raising a million dollars of commercial projects." As both of us living in Austin, Texas, anything that's a million-dollar project ... There's a lot of houses that are way over a million dollars, different kinds of rental income based properties that are over a million dollars in projects in what we focused on, and different things like that. Crowdfunding is going to open the environment up and allow average Joe to be able to invest a smaller amount, get into a project, and share in the equity with somebody that has a vision and has a business plan. We vet all these issuers, what we call issuers ... Some people call them sponsors. We call them issuers because they're the principle that brings the project to us.

We outsource the attorneys to prepare the PPMs, the form Cs. These are all the stuff that's required that goes through the SEC and FINRA regulations on how we're able to put a project out there. These are strict rules we have to follow and document. There's always all those PPMs and stuff that have to be created. We outsource all of that and use the principles. Then, before the projects, we vet the projects and do background checks on all the principles and the issuers. We do background checks, so there are no Bad Actor Checks, and all that's documented. When you look at the projects online, you can see the full business plan. What we call the Form C is filed with the SEC, and then also the Bad Actor Check is documented. All of that is out there in full access and on our portal.

Thomas Young:

Yeah. That's fantastic. I think that's one of the huge advantages of platforms such as y'all's. For someone that's writing a smaller check, whether they're accredited or not, sometimes the amount of due diligence and the amount of work that has to go into vetting one of these projects is not worth the dollar amount that's being invested. By you guys taking on a lot of that burden ... You know, every investor should do their due diligence before investing in anything, but knowing that you guys have sort of covered that whole landscape makes it easy for someone to either feel comfortable investing a smaller amount or spreading a certain amount of money through various projects. I think that's what you guys are doing. I think it's changing the way that people look at a lot of these asset classes. At the same time, letting younger people participate earlier because they might not have the funds available to buy a single-family home or to buy a fourplex or whatever it is. It's a great way to sort of dip your toe into that world.

Clint Anderson:

As we started growing and launching the services, we learned ... I mean, we had lots of inquiries about, "What's the taxes? We're going to be hit."

I was like, "We have no idea, because we don't know your income level, and we don't know the taxes of how much profit or loss projects are going to make me." Hopefully they're always going to be profitable, but ...

Thomas Young:

Right.

Clint Anderson:

That's why we partnered with Rocket Dollar to help people understand and get advantages of being able to do these projects, invest their money, and save on their taxes.

Thomas Young:

Right. That's always our shameless plug. When Investing in a lot of these alternative asset classes, the taxes aren't as clear cut as they would be maybe in regular equity, public markets, or whatever. It's important to know, so for us it makes it easy, because it's pretty straightforward inside of our retirement account.

Clint Anderson:

When we bring in an investor to support an issuer that has this project, we have a KYC program that is Know Your Customer, and the person that comes in is vetted. It's proven that they are a U.S citizen, and it's all documented and proven that we have to go through that process. The investor or the issuer knows when somebody is invested that it's not an offshore account, and it's not somebody that's hiding money.

Thomas Young:

Right. You guys probably have very similar KYC requirements to us at Rocket Dollar ...

Clint Anderson:

Yes.

Thomas Young:

... Because it's in the same world.

Clint Anderson:

Yeah.

Thomas Young:

That's one of the things that we built at the very beginning of Rocket Dollar. We had to satisfy KYC requirements to file all of the different things that have to get filed to open an IRA, an LSU, or whatever it might be that goes into opening the account. It's good to have those processes in place. It's not always the simplest thing to build, but once you do it, it's a good thing to have and it keeps you safe for sure.

Clint Anderson:

Yeah.

Thomas Young:

Clint, I'm curious ... Right now we're recording this in mid-May of 2020, right in the middle of this COVID-19 pandemic. What are you guys seeing in the coming months? You know, maybe the second half of this year and 2021. How do you think the landscape is going to shift, not only for real estate but for investing platforms? Do you think there's going to be a flight to these sorts of investments as people want to maybe get out of the market turbulence?

Clint Anderson:

Yes, very heavily. As we all know, if you have any stocks and you watched it in the last few months, it pretty much disappeared. Then, what we see is, we have seen a huge influx of people coming to us as issuers. I would say over 100 percent increase in these last month of issuers trying to get projects because we hear that a capital or commercial capital has pretty much come to a halt right now, so now people have that opportunity. If we can get these projects vetted, built, and then posted, then people have another access to invest. When they invest in something and in these projects, they're equity-based. We're going to vet them that they have a piece of real estate backing this business plan.

Thomas Young:

Right.

Clint Anderson:

It's a corporation that's set up, and either it's our previous corporation or it's a new corporation set up that has a real estate asset that's backing the project versus just somebody writing a business plan to create a widget. We're going to be a real estate asset class project.

Thomas Young:

Right. For the people that want to invest in startups or small companies, there're platforms for that, but you guys are sort of sticking to your niche ...

Clint Anderson:

Yeah.

Thomas Young:

... Which is great, because I think a lot of times platforms try to do too much. It's better to just stick to sort of what you're very comfortable, what your strengths are, and go from there.

Clint Anderson:

We're asked every week to do small business loans. We are asked all the time to do loans. There are other portals out there that handle loan services and things like that. I kind of go back to it ... That's kind of against what our original features and functionality were. We didn't want to be loans and debt services, so we're going to be an equity play of a project and not in competition against the hard money lenders out there. These guys, these hard money lenders of real estate make a lot of money. If we could take the hard money lending processes out, the numbers just really go through the roof on commercial. It's just amazing how some commercial real estate projects, smaller ... You know, like little small malls, small duplexes, fourplexes, and things like that ... How much hard money lenders get involved in it, how they just take the margins, and the small issuers are still making money. If they take those large 10% loans out, it just changes the game.

Thomas Young:

Right. Right. As we enter a lot of uncertainty, the timelines for those loans ... You know, if you're taking a hard money loan for a three-month flip, it's probably not that big a deal just in terms of the sheer dollars going in and out. If we're in an environment where there's a lot of uncertainty, things might sit on the market longer, rents might not get paid, or capacity might not fill ... Whatever it might be. I think everybody's a lot safer as an equity holder than being an investor in something where there's a huge mountain of debt sort of hanging over the project. A Lot of times you can hold on a lot longer, right? I think that makes ...

Clint Anderson:

Drop the foreclosure and things like that, and then let the real estate flatten out, let the market level out, and things like that.

Thomas Young:

Right.

Clint Anderson:

There are lots of different options. I also want to bring up ... There are some new rules you can go out and search for, and I will send over links to the SEC rules. There are some new rules. Right now, we're limited to $1 million dollars, but there're rules out there that it's coming in June ... I think the SEC is going to vote or talk about the rule change of raising the crowdfunding to have a $5 million raise, is the maximum. That'll be a game-changer for crowdfunding across all businesses.

All the attorneys and lawyers I talked to across the country don't see anything about it being denied because of all the push for SMB. This year, if these rules come into effect, it's going to be a game-changer for us to be able to raise $5 million for a Reg CF project, but we have to wait and see what the SEC says. I will put a link on this podcast so people can go out and make comments on that, and send a link to the SEC. Anybody can post their comments on the SEC port. I think it closes on June 3rd, so we'll have some time.

Thomas Young:

Yeah. That's fantastic. I think that, just for starters ... The jump from one to five, just in the world of real estate, opens up a lot of markets. It opens up Austin a little bit. It opens up most of the rural parts of Texas. It opens up a lot of the country. Yeah.

Clint Anderson:

I was talking to an issuer all about two hours ago, and he is looking to raise about $2 million. I informed him of this model of being able to do this. When SEC changes its rules, he'll be able to raise to $5 million. He was like, "Oh, that'd be a game-changer that I wouldn't have to go to credit investors. The cost of the PPM and the SEC cost of that is different than the cost of doing just Reg CF, which is a much lower cost of services from the attorneys", and things like that.

Thomas Young:

Right. It also completely changes the landscape of what non-accredited investors can invest in because bigger projects might be a little safer. They might be a little more desirable locations. They can access a lot of different things.

Clint Anderson:

And be able to access a bigger project and a bigger issuer's project.

Thomas Young:

I hadn't heard about that, to be honest with you. I think it's fantastic because a lot of ... For example, Rocket Dollar account holders that might be a little bit younger, not accredited yet, and want to access projects like this across asset classes, whether it's real estate, small business, or even just the host, the gamut, right? We have people that want to try and do it all. I think that's fantastic news, and I have a feeling our blog will be featuring something about that pretty shortly, as soon as I get around to writing it. That's fantastic. Clint, as we go through this pandemic, what other things are you guys seeing and what are you guys excited for, just on your end with what you guys are doing specifically at EquityDoor?

Clint Anderson:

We're looking and partnering with Rocket Dollar. We're looking to partner with more attorneys and SEC attorneys to provide a better solution and more services out there. We've got some great partners right now, but we want to grow this industry. We're open and growing this industry. We have some new web pages coming out for social media, and we're going to say this. We're going to build a link into it at the end of this podcast. Hopefully that new webpage will be launched by then. It's going to be a new web page dedicated to building the industry, and everybody in the industry will be able to share it into real estate equity.

It's not dedicated to EquityDoor. It's dedicated to everyone to be able to be open in the market and understand. I'm trying to build, with this new webpage that we're going to be launching, a partner portal for everybody to share and grow this industry because it's not just the portal that takes everything. It's going to take the Rocket Dollars, the attorneys, the developers, the contractors, and everything that's going to be taken into effect to build these business plans and things like that to grow this industry. It's not just one. That's our vision at EquityDoor to grow this industry, and that's our next vision. I'll share that at the end of this podcast.

Thomas Young:

Yeah. That's fantastic. The work you guys are doing to grow is fantastic. Not only building the platform and connecting investors and issuers but also just wanting to bring it more and more into the mainstream is great. I want to thank you for that. Clint, just to wrap it up, what's the best way for someone to get in touch with you and your team apart from equitydoor.com? Where do people go to learn more? How can someone get in touch with someone on your team if they're looking to invest or if they have a project?

Clint Anderson:

The main email that pretty much everybody on the team will get the email, or mainly the support guys will get, it will be help@equitydoor. You can also email me. It's clint@equitydoor.com. If you want somebody that might be able to get back to you a little bit quicker, it would be help@equitydoor. Yeah. Our portal is EquityDoor. Our phone number is (512) 335-9400, and that's set up on a hot desk environment, so it rings and somebody will pick up. It rings a lot of different phones when that phone number rings because we're all working from home now. We set that up on hot desking. The first one to get it gets the phone call. We will always answer the phone call hopefully. Yes, we will.

Thomas Young:

Fantastic. Clint, thanks so much for being here and taking the time out of your day to talk with me and our listeners. Let's get through this Coronavirus thing, and let's go back to doing what we like to do. Thanks so much.

Clint Anderson:

Thank you.