Realty Mogul’s CEO, Tax Protests & “Personalized" Note Investing

READ TIME = 4 min
Realty Mogul CEO: 1 min
Two Tips: 3 min

— -

CROWD INVEST SUMMIT 2017:

Highlights from Jilliene Helman, CEO of Realty Mogul

IMPORTANT: the below is not an endorsement of Realty Mogul, just some POV worth reading.

“Real estate has always been more about the people than the real estate.”

(CE NOTE: Jilliene’s response when asked how RM vets deals. She’s referring to the sponsors and deal originators RM chooses to partner with.)

“We are not an acquirer. We are a financier.”

(CE NOTE: all crowdfunding platforms have different models. Some hold title, others, like RM, do not)

How do crowdfunders like Realty Mogul protect investors? Collective Bargaining. If in aggregate the co controls 70+% of the equity table, it has full authority to change property mgmt, mandate an asset sale, approve material expenditures, etc. Exerting control is never RM’s intent or desire, but they’ll do so as needed to protect their investors’ interests.

“If you want liquidity, don’t invest in real estate.”

(CE NOTE: emerging blockchain applications have the power to change that)

“We choose to be regulated. Our business model can withstand the scrutiny. We take what we do seriously and want to signal that to our investors.”

(CE NOTE: This is paraphrased)

35,000 companies / sponsors have applied to raise capital on the Realty Mogul platform. Only 65 have been accepted & received funding.

— -

TWO TIPS

Easy-to-digest nuggets.

PROPERTY TAX PROTESTS ARE PUBLIC RECORD:

These protests are a great way to find off-market leads & motivated sellers.

A homeowner’s property tax is based on the mill levy applied to the appraised value of their “land and improvements”, with re-appraisals done by the board of equalization once per year. Normally, property owners have the right to protest this appraised value…& these protest submissions include ALL sorts of fantastic supporting documentation, such as transaction comps of similar properties sold nearby, schedules of deferred maintenance & many other goodies. These protests are almost always public record (published online, avail via written or in-person request, etc).

Why is this awesome? Two main reasons.

1. Protest lists are potential leads for motivated sellers who are either frustrated with the increased rate or at risk of not being able to afford payment.
2. Negotiation fodder. Imagine this conversation:

BUYER: I’m interested in buying your property. What price are you seeking?

SELLER: I’m asking $235k. My property is so great because blahhhhh.

BUYER: Hmm, I reviewed your tax protest submitted last month, which states your home is worth $179k for the following reasons you cited here…

SELLER: Sh*t.

Even if you have to show up at the county clerk’s office & wait in line for 30 minutes, I HIGHLY recommend the effort. Where there’s challenge…lies opportunity for competitive advantage. Shout-out to Chris Rodriguez for putting this tactic on my radar.

HOW TO “PERSONALIZE” YOUR NOTE INVESTMENTS:

One of the smartest investor tips I heard in the past year was from Bigger Pockets podcast #131 with Serge Shukhat. Serge, an experienced investor who has a large portfolio of MFUs, wanted to diversify his holdings & also minimize his operating resources on future investments. He therefore decided to start investing in notes.

But, Serge didn’t simply buy performing or non-performing notes in a variety of different markets, where there are many variables. He is laser focused on building his competitive advantage, which is driven by his intimate knowledge of the local markets where he invests.

So how does Serge do this with note investing?

Serge identifies his preferred underlying property (aka collateral). He then buys the property…then chooses the seller…then provides owner financing at a rate slightly above market, thereby offering an attractive debt vehicle likely unavailable in the traditional open markets.

Talk about controlling ALL variables.

As Serge describes, he knows the underlying asset (the security pledged against the note) extremely well since he is the original buyer. He therefore has no qualms about having to take the property back in the case of delinquency → this makes note recovery (finding a new buyer & note holder, or deciding to rehab the property himself for a LT hold) much easier. Further, he knows the buyer & note holder since they were HAND-PICKED by Serge, & he’s probably worked with said investor in the past…meaning Serge knows their track record for successful fix-and-flips, making payments on time, the rest of their portfolio performance, etc.

Serge is controlling for ALL variables in his note investing & has the asset’s most complete info set. His competitive advantage is unmatched.

Pure. Genius.