September 10, 2017

JF1104: How to Start a Real Estate Crowdfunding Platform #SkillSetSunday with Amy Wan

Amy is one of the best real estate, crowdfunding, and syndication lawyers there is. Today she is here to explain different crowdfunding platform types, and how you can start one.  If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Amy Wan Background:
-Founder & CEO of Bootstrap Legal and former partner at Crowdfunding Lawyers
-In 2014, named one of 10 women to watch in the legal tech by the American Bar Association Journal
-Formerly was General Counsel at Patch of Land, advised the company on its $23.6M Series A funding round
-Holds an LL.M. in Public International Law from the London School of Economics and Political Science
-Based in Los Angeles, California
-Say hi to her at

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Joe Fairless: Best ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Amy Wan. How are you doing, Amy?

Amy Wan: I’m good, how are you, Joe?

Joe Fairless: I’m doing well, nice to have you back on the show. A little bit about Amy – she is a partner at Crowdfunding Lawyers, where she advises on syndication and crowdfunding law. She’s also the founder of Syndication Bot. She is a former general counsel at Patch Of Land, and has been named one of the top 10 legal tech females to watch by American Bar Association Journal. Based in Los Angeles, California… With that being said, Amy, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Amy Wan: Sure. Like you said, I pretty much focus in real estate crowdfunding and syndication law. What that really means is for anyone who wants to go raise money and they’re offering investors a return on investment, that requires some legal docs… So I’m an attorney and that’s what I do all day long.
How I got into this industry was I actually used to work for the Federal Government; I did international trade policy, and when I moved back to L.A. I found this little tiny startup at the time which was called Patch Of Land; they’re still around, they do real estate crowdfunding on the debt side. I helped them pioneer some really new and interesting products… There we came out with the first payment structure that was a trustee and a security element to it.

Most recently I helped Alpha Flow put together their managed portfolio product, which basically allows for dynamic rebalancing. It’s basically like a real estate [unintelligible [00:02:54].12]  advisor, and today I just help everyone who’s trying to go out and raise money for their deal.

Joe Fairless: And on that note, what caught my attention – we’re friends and we’re connected on LinkedIn – I saw that you had written an article on how to start a real estate crowdfunding platform, and I immediately replied and I said “This has to be an interview on this show”, because I had never thought about actually starting my own real estate crowdfunding platform [unintelligible [00:03:27].14] so I’d love to hear how to do that, and we’ll talk through it, for the Best Ever listeners who would be interested in starting one, or just the components and things we need to be aware of that exist in crowdfunding platforms I’ve already come across.

How should we approach our conversation so that at the end of it we know how to start a real estate crowdfunding platform?

Amy Wan: I think the important thing to remember here is that there are different types of real estate crowdfunding platforms. Obviously, when we say real estate crowdfunding platforms, a lot of people think about the big venture-backed ones. Patch Of Land, Realty Shares, Fundrise, Realty Mogul – all of them have gone out and raised a lot of money. Now, that in and of itself is a huge full-time job. The type of real estate crowdfunding platform I’m talking about is today probably maybe at least a couple times a week I’m getting calls from people who are saying, “Hey, actually this is not that hard. I would like to be able to put my own deals online for people to have a better investment experience.”

So I think in approaching this conversation what you have to keep in mind first is what is your goal? Are you trying to start this huge behemoth, or are you simply putting your offerings online to allow people a better user experience, to allow the automation of payments, things like that? So there’s definitely a couple questions I think people need to think about when they’re beginning in this whole endeavor, and those are — like I said, is this going to be your own personal platform for your own deals, or is this platform going to help other people raise funds for their deals?

The reason why that’s an important distinction is because there’s a very big difference in the level of legal and compliance… If you’re just raising money for yourself, then it’s fairly simple; people raise money for their own projects all the time, but when you start raising money for other people, then you’re starting to get into what we call brokering and dealing, and for that you have to have a license or some sort of registration, and there’s definitely a lot more compliance involved. So I think people have to really understand what they’re approaching this idea for.

Joe Fairless: And I’m sure there’s gonna be a lot to go along with that, a lot of financial ramifications too for startup costs when you do the raising money for other people and bringing through your crowdfunding platform that you’re creating, versus your own. So let’s just assume that it is for your own deals, because I think the majority of the Best Ever listeners are gonna wanna do their own deals and create a platform so that people can review the information and have a better (as you say) investment experience. So how about we go with that example?

Amy Wan: Perfect. I think then you have to think about “How much do I really wanna invest into this project?” Let me frame the conversation… I think 10-20 years ago when everyone started putting up web pages, real estate companies thought “Well, why do I need to put up a web page?” Today if you don’t have a web page, you are not credible. So it’s a matter of presence and credibility, letting people know who you are; having that LinkedIn profile, so on and so forth. From what I’ve been seeing over the past year, I’m getting so many calls about people trying to create their own personal platforms…

I think the way we’re trending now is that you’ve got your own website, and hey, we’re just gonna add an additional tab called ‘Browse Investments’ or ‘Invest With Us’, or whatever your take on it is. That basically allows people to see your offerings. Now, obviously, you’ve got to do it in a compliant matter, but I think that’s what we’re gonna start seeing over the next ten years – just being able to attract and take investors who just happen to find you; maybe they’re looking at your LinkedIn profile or something, but they can invest right then and there.

Joe Fairless: It’s interesting, because I’m thinking about this… I would be a prime candidate for this, but I initially am not interested in starting my own — and I know you’re not advocating to start one… We’re just talking about how to do it if you choose to do it, but just for some context for the Best Ever listeners as well… I wouldn’t start my own platform at this point, because what helps me maintain conversation with my investors about a deal is we’ll have additional marketing stuff in conversations; I need to have a reason to reach out to them.

For example, when I have an opportunity, I initially e-mail it out to my private investor network, and then I set up a call and we have a call; then I send another e-mail after the call is done, with the call recording, and then once that’s done, usually about three or four days (sometimes a week later) we’ll have a video that we finally complete with… Just a video walkthrough of the actual property and the deal. If I were to upload all this stuff at once on this platform, then I wouldn’t be able to have a reason – although I’m sure I can make one up… But I wouldn’t be able to have a reason to follow up with them, not asking “Hey, are you in?”, but rather “Here’s something else that will be useful for you as you evaluate the deal.”

Amy Wan: Right. So the point of creating that whole “Browse Investments” tab is not so someone comes across your web page and drops maybe $10,000 or $20,000, because that doesn’t happen. There’s an element of trust that needs to be had. You have to create that relationship.

What we’re starting to see a lot of people approach us for is that they’re simply using it as a way to catalyze their funnel, if you will. Basically, someone goes, they see your website, they see maybe past deals that you’ve done – anyone can put those up – and even if these people for most of their deals they’ll use a traditional 506(b) private placement, everything is done with their private investor network, but once in a while they’re now starting to put up a 506(c) offering… And 506(c) is basically a credited crowdfunding; you’re allowed to advertise and generally solicit.

So they’ll once in a while do one of these deals. They will tweet it out, post it on LinkedIn, do Facebook advertising – just lots of digital marketing, and it brings a lot of eyes. Now, those people aren’t gonna invest right then and there. They might come back for a couple times if you have one of those boxes that’s like “Hey, are you interested?” or even if they try to invest, it’s mostly capturing your e-mail. And they can invest if they want, but there’s still that element of forming that relationship, because what you really wanna do is get them into your long-term investor base. One day you want them to be able to invest in your 506(b) deals.

Joe Fairless: And that’s a strategy that you mentioned to me when we met in person about a year and a half ago, and you said “Continue to do – if you wanna do – 506(b)”, which is just the people that I know in my networks and I already have a pre-existing relationship with, “…but then if you want to cast a wider net, then sprinkle in a 506(c) and bring in people who you don’t know, but you can publically advertise to, and that will allow you to grow your investor network even more so than where you’re at now.”

Amy Wan: Right. And we’re starting to see a lot more traditional syndicators do that today. Now, at the end of the day all this is just marketing strategy – do you have to do this? No. If you have a huge private investor database and you haven’t come close to tapping out that capital, then you may not need to. But there’s a lot of people who are continually searching for capital, continually searching for people with money, and this might be a strategy that they might think about adopting.

Joe Fairless: With the content on the website, what can and can’t we put up there?

Amy Wan: It depends on what you’re doing, because everyone’s doing something different. If you have a 506(b), what you can put up there is different from if you’re doing 506(c), which is different from whether you’re doing a [unintelligible [00:12:11].25] which is something where you’re not raising from accredited investors, you’re raising from the crowd, and you can raise up to 50 million.

Then the newest one of course if regulation crowdfunding. Right now under that you can raise from the crowd up to one million dollars, which is not so appetizing for really sophisticated real estate investors, but it’s an additional option.

Joe Fairless: Let’s go with the scenario 506(b), where we’re only doing the deal with people we have a pre-existing relationship with. What can we put up there so it’s publically available

Amy Wan: [laughs] Well, don’t hold me to this, because it’s not legal advice, we cannot rely on this. There is “What should you put” and “What might you put.” I think there’s a little bit of lack of certainty or clarity in the law today. If you wanna be super safe, I would say you can put up past deals that you’ve done, where fundraising is done, you’ve completely closed it out. You can put your previous results on there; past things are the best. You never want to make any sort of statement or proclamation of “Guaranteed returns, no risk.” I know that sounds dumb, but I’ve seen a lot of really interesting things over the past couple years.

If you wanna put a current offering up, that becomes a little bit trickier. What definitely needs to happen is it has to be password-protected, it has to be someone that you have that pre-existing relationship with. You’ve grabbed a coffee with them, you’ve touched them three times through telephone or e-mail or whatever it is, and you’ve really interacted with them. That is a strategy that some of the real estate crowdfunding platforms adopt today if they’re gonna do 506(b) deals online… But they make sure that they have a very good record or documentation that they have these pre-existing relationships. Otherwise, if it’s new people, then you have to set up certain best practices about how you’re gonna develop that pre-existing relationship and document it before they can invest in you that first time.

Joe Fairless: What are some ways to do that? What are some best practices for developing the pre-existing relationships before they invest with you?

Amy Wan: Just like you were talking about earlier, maybe they come to the web page and they enter in their e-mail address or they try to invest and it kind of blocks them; they can’t really see any 506(b) deals. What you’re gonna do then is you’re gonna reach out to them and be like “Hey, let’s grab a coffee, let’s jump on the phone.” You’re gonna ask them “How sophisticated are you? How much money do you have to invest? What do you like investing in? Have you invested in real estate before?”

There is an educational and informational component, and if it sounds like they’re going to be the type of investors who might be interested into your deals, then you want to take that relationship a little bit further. There’s no black and white “Here’s a pre-existing relationship, here’s not.” It’s more of a fluid thing.

Some of my clients, for example, they’re very good about documenting every single time they have a call with this person. They’ll try and get maybe two or three calls in over the course of two or three weeks, and after that, then they will allow that investor to see any new investment that is coming out in the future, not anything that was currently open for funding when that investor first tried to sign up.

Joe Fairless: Okay. You mentioned earlier the process for showing your deals, and we talked about a 506(b) scenario – basically, you don’t show your current deal on a 506(b) scenario, you show your past deals. With 506(c) do you still need that password-protection online if you verify they’re accredited after the fact?

Amy Wan: This point is actually a little unclear. It is recommended that they actually register on the website and create a password, but there’s no restriction now on “Hey, it’s password-protected, but they can see the deal immediately, not maybe a month later.” What we always say to clients is “What the SEC giveth, the SEC taketh away.” The more the SEC allows you freedom and flexibility in going and raising funds, they’re gonna ask for something in return. So here they’re allowing you to tell the entire world about your deal freely; you can, like I said, go on LinkedIn, go on Twitter, go on all those things. You can tell it to people that you’ve never met on your podcast. The price that you pay is at the back-end when they are trying to actually invest in the deal, you do have to actually verify they’re accredited status. And you can do that yourself, there are third-party companies where you pay like $30 or $50 and they’ll verify it for you, but at the end of the day you do wanna make sure you do that so that your protecting yourself in case the SEC ever comes hunting for an audit.

Joe Fairless: Do you know how the third-party company verifies accreditation?

Amy Wan: There’s a few third-party companies out there, but mostly what they do is — there’s only a couple ways, actually, that the SEC has specifically talked about, to verify someone’s accredited status. One is you can have a letter from your attorney, your CPA, your broker-dealer. Another one is you just show, for example, [unintelligible [00:18:02].00] if you’re trying to verify under your income. So you [unintelligible [00:18:06].17] or W2 for the past few calendar years. Then for your net worth, you basically don’t have to share your entire net worth, you just have to show enough that it qualifies you. Basically, a million dollars in net worth excluding your primary residence.

Joe Fairless: Well, a letter from your CPA, attorney or broker-dealer seems like the path of least resistance… Just reach out to him or her and ask them to write a letter, and then that’s that.

Amy Wan: You would think that… [laughs] But actually, what we’ve found from practical experience is that these people – except for broker-dealers – a lot of attorneys, a lot of CPAs actually don’t like doing this. They will actually charge their client a huge amount of money for it, because they fear at the end of the day that it’s them making some sort of representation, that it’s their liability that they’ve made this representation… So actually a lot of people use the other two methods.

Joe Fairless: Wow… That’s surprising.

Amy Wan: Yeah. I’ve heard of one CPA who wanted to charge their client $5,000 for this letter. We gave them the template, too… It’s just ridiculous.

Joe Fairless: I would immediately move on to another CPA. [laughter] That’s criminal, almost. Alright… Amy, this has been education and very practical for all of the Best Ever listeners who are out there bringing investors into their deals. Is there anything else that we haven’t talked about that we should talk about as it relates to starting a real estate crowdfunding platform for our deals?

Amy Wan: Yes. Please, please, please, don’t go out and hire a developer or a team of developers. That’s gonna be very costly. I don’t think it’s gonna be a good return on investment. What I usually tell people to do, depending on what their goal is, is they can either go and license a white label from an existing provider, or there’s a couple companies out there who have something called “Invest Now” button, and you basically copy and paste the code, you put it on your website, and whenever someone wants to invest on your website, all your compliance automatically gets handled through a broker-dealer.

Joe Fairless: Thank you for mentioning that. That saves a lot money, and time (more importantly). Best Ever listeners, I forgot to mention this is a Skillset Sunday episode… So I hope you’re having a best ever weekend, by the way. Today is Sunday, and this was the skill, clearly, how to start a real estate crowdfunding platform for your own deals. Where can the Best Ever listeners get in touch with you, Amy?

Amy Wan: They can find me on LinkedIn… It’s, or they can go to our website, My Syndication Bot website is, and then of course I’m on Twitter and Instagram.

Joe Fairless: Excellent. Well, from the initial clarification of scope, which was important, where we were talking about big venture-backed platforms who were bringing other people’s deals, or are we talking about our own deals exclusively, and we decided to focus the conversation around our own deals, just for the [unintelligible [00:21:22].27] of time, and I think it’s most practical or relevant to the listeners.

Then we talked about 1) how much do we want to invest in this project, and fortunately at the very end you gave the advice of “Don’t go out and hire a developer team. Look at the Invest Now button or white label from an existing provider” – I’m sure that’s a quick Google search.

Then the approach for the 506(b) versus 506(c) – not legal advice, but some things that we talked about was having the current offering, if it’s 506(b), not be shown at all, but rather have the past deals being shown, and previous results from past deals as long as you’re not raising money. Obviously, we never want to write or communicate in any form or fashion “No risk” or “Guaranteed returns”, because there is risk and the returns are not guaranteed, even if it’s a preferred return.

Then we talked about the difference between 506(b) and 506(c) just as a refresher for the Best Ever listeners.

Thanks so much for being on the show. I hope you have a best ever weekend, and we’ll talk to you soon.

Amy Wan: Awesome. Thanks, Joe!

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