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
What would this make possible?
• Stability
What would this make possible?
• Stability
• Savings
What would this make possible?
• Stability
• Savings
What would this make possible?
• Stability
• Savings
What would this make possible?
• Stability
• Savings
• Community
Let’s slash property prices (not values)
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
Split 3 ways! No remodeling needed!
Total price: $549,000
Price per household: $183,000
Financed (4.5% for 30 years): $927/mo
Split 4 ways! No remodeling needed!
Total price: $949,000
Price per household: $316,000
Financed (4.5% for 30 years): $1601/mo
Legal strategies
Legal strategies
Legal strategies
• CA residents only  intrastate exemption
Legal strategies
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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.”
Legal strategies
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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.
Legal strategies
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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
Legal strategies
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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
Legal strategies
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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.”
Legal strategies
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CA residents only  intrastate exemption
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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.”
Legal strategies
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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
Legal strategies
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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.
Legal strategies
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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
Legal strategies
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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.”
Legal strategies
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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)
Legal strategies
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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)
Legal strategies
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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 … ????
Legal strategies
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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)
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
CHALLENGES
Long-term loans?
Doing the work
Showing it will be a good investment (aka why
not just get a bank loan?)
Solutions
1. Form a group, the more sharing, the better
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Cheaper per person
Easier to show it’s a safe investment
2. Self-directed IRAs
3. Intermediaries
e.g.: patch of land,
PRIMARQ,
fundrise,
crowdstreet,
realtyshares