Postcast: An Australian’s Guide to Investing in U.S. Real Estate

AussieEarlier this month I had the pleasure of being interviewed by Reed Goossens, who speaks with a strange accent but knows a heck of a lot about real estate. During the program, the third installment in Reed’s series on U.S. real estate syndication, I talked about raising capital from non- U.S. investors and other more general issues that face syndicators and investors.

If you’re interested, you can listen to the podcast here.

Crowdfunding A Reit

REIT Blog Post Image

People sometimes ask “Will Crowdfunding replace REITs?” That’s not exactly the right question.

A REIT – an acronym for Real Estate Investment Trust – is not a function of real estate law or corporate law. A REIT is solely a function of tax law. Section 856 of the Internal Revenue Code defines a REIT as a corporation, trust, or association that satisfies certain criteria, including these:

  • At least 75% of the entity’s assets must consist of real estate assets or cash.
  • The entity must have at least 100 owners.
  • Interests in the entity must be transferable.
  • No more than 50% percent of the interests in the entity may be held by five or fewer individuals.

There is only one benefit of qualifying as a REIT: as long as he distributes at least 90% of its income to its owners, the entity itself is not subject to tax. Only the owners are subject to tax, when they receive dividend and capital gain distributions. The whole REIT industry is built around this tax benefit.

Because the REIT label is solely a function of tax law, not corporate or securities law, a REIT can be:

  • A publicly-registered company with publicly-traded securities; or
  • A publicly-registered company with privately-traded securities; or
  • A private company with privately-traded securities.

The second category of REIT is probably most common and, frankly, it is the category that has given REITs a bad name. Sold through the traditional broker-dealer channels, it is not unusual for the shares of publicly-registered, privately-traded REITs to carry a load of more than 10%, great for the broker, terrible for the customer. That’s why people say “Private REITS are sold, not bought.”

Compare a publicly-registered, privately-traded REIT to a garden-variety limited liability company owning real estate assets. In both cases, the entity itself pays no tax. And now, through Crowdfunding, the garden-variety LLC can solicit investors using the Internet, leading to transactions cost (load) much lower than the private REIT. Economically it’s a no-brainer: the Crowdfunded real estate LLC is better than the private REIT.

As I said, however, that’s really comparing apples with oranges. The REIT designation is about taxes; Crowdfunding is about how you find investors.

The real question is “Can I find investors for a private REIT using Crowdfunding, rather than through the traditional broker-dealer channels?” And the answer to that question is a resounding “Yes!” When you check the deals available at your favorite real estate Crowdfunding site tomorrow morning, you could well see a REIT.

And why would a sponsor offer a REIT rather than a garden-variety LLC? One reason – maybe the only reason – is tax reporting. An investor in an LLC receives a full-blown K-1 each year, and faces at least the theoretical risk of paying tax on “phantom” income. An investor in a REIT, on the other hand, receives only a simple 1099 and pays tax only on actual distributions.

Be that as it may, nobody should be paying a 10% commission. By connecting sponsors directly with investors, Crowdfunding promises to squeeze this kind of inefficiency out of the capital formation industry. Especially when Regulation A+ comes into effect, opening the market to non-accredited investors, there is every reason to believe that Crowdfunding will replace the traditional broker-dealer as the preferred method for distributing REIT shares.

Questions? Contact Mark Roderick.


Names matter, even for a local business, but they matter a great deal for a Crowdfunding business, where your customers know you only from a distance.

Generally speaking you can choose three kinds of names:

  • A name that describes what you do, e.g., Real Estate Crowdfunding Portal, LLC.
  • A name with no inherent meaning, e.g., Xeta, LLC.
  • A name somewhere in between, e.g., Lifelong Investments, LLC.

Each category has advantages and disadvantages:

  • A name that describes what you do…well, it describes what you do. When a consumer sees the name she knows what you’re selling. On the other hand, a name that describes what you do is often not very memorable.
  • The strongest names are those that start out with no inherent meaning. Amazon, Starbucks, E-Bay. When consumers think of Amazon they think about the gigantic online retailer, nothing else. The name is worth a billion dollars! On the other hand, Amazon had to spend more than a billion marketing dollars to give meaning to a name that otherwise belonged to a river.
  • A name somewhere in between is somewhere in between. It might be sexier than a name that is merely descriptive and require a lot less marketing fuel than a name with no meaning, but with the associated disadvantages as well.

In the Crowdfunding industry to date, most portals have chosen the more descriptive over the more powerful. Poliwogg is an exception. Fundrise might be another.

With two well-known Crowdfunding companies – Crowdentials and VerifyInvestors – we see two different approaches to choosing a name. And we can’t say for certain whether one is better than the other. That will depend on what each company does with its name.

Having chosen a name, how do you protect it?

To start with, a business acquires “common law” rights to a name merely by using it, without filing anything with the government and without involving lawyers. If another real estate Crowdfunding portal tried to use the Fundrise name today they couldn’t do it, even if the Miller brothers had never done anything to protect their name (they have).

Contrary to common belief, merely registering a company name with the state by forming a corporation or other entity provides no real protection. State filings are simply a matter of bureaucracy – the state wants to make sure that no two names are confusingly similar on its own records.

For the best protection, however, the business owner should obtain a Federal trademark from the U.S. Patent and Trademark Office. A Federal registration provides important benefits, including:

  • The registration constitutes “constructive notice” to all later users in all locations.
  • The registration permits the owner to get an injunction against a trademark infringer and sue for damages, including profits, costs, treble damages and attorneys fees.
  • The registration can strengthen the value of the name as a corporate asset.
  • The registration demonstrates your right to use the name to the owners of other websites, such as Google, Facebook, and Twitter, which are often called on to “officiate” disputes over names.

The trademark application process normally takes about a year, assuming no significant problems. Once granted, a trademark registration can last forever if continuously used and renewed.

NOTE: Not every name can be trademarked. A name like “Real Estate Crowdfunding Portal,” which merely describes the product or service, probably cannot be registered by itself. But it might be registered with a distinctive logo.

Finally, don’t forget to acquire the domain name.

Questions? Contact Mark Roderick at Flaster/Greenberg PC.


Statue of Lib CF_PurchasedBy: Jason Fritton, Founder & CEO of Patch of Land

Our headquarters is in Los Angeles, but Patch of Land was really born in Chicago.

Like all American cities, Chicago is a tale of two cities: one where the streets are lined with mansions, tidy row homes, and plush high-rises; and the other where most houses, if you can call them that, have boarded up windows, loose bricks, and rotting wood.

You can’t see those neighborhoods without wanting to help, and if you’re a real estate entrepreneur, as I am, you think there must be a lot of money to be made from all those vacant and abandoned buildings.

I went to foreclosure auctions but found that the market was broken. On one hand, the same handful of ultra-wealthy individuals or companies bid on $10 million properties. On the other hand, nobody bid on the smaller properties in blighted neighborhoods even though they could be had for a pittance, $10,000 or $20,000 apiece. The problem was (and is) that banks wouldn’t touch them, even if the developer had a proven track record. So the properties stayed vacant and abandoned, basically worthless, eyesores in the community.

I had a great idea – Crowdfunding! I’d ask for money from everyone. Not just as charity, although revitalizing neighborhoods would be the goal, but also as good investments for the donors/investors. We would start in Chicago and then move across the country, helping communities along the way.

We had our motto – Building Wealth & Growing Communities – before we knew how we were going to do it.

As it turned out I was a little early. I wanted to advertise my investments to everyone but in securities law terms that would have been “general solicitation,” which was still illegal. To keep my idea alive I found myself in Washington, D.C. lobbying for the JOBS Act, where I learned how political compromise can work. Republicans liked the economic freedom the bill gave to entrepreneurs and individual investors, while Democrats liked the potential for improving neighborhoods and the boost for small business.

Both sides came together and President Obama signed the bill into law on April 5, 2012. Now, without going to jail, I could start improving those neighborhoods.

There is an old African proverb: “If you want to go quickly, go alone.  If you want to go far, go together.” I started building my team piece by piece, knowing a lot of other smart people were getting into the market at the same time. And I’m proud of the team I built, the best in the business as far as I’m concerned. We did our first deal on October 15, 2013 and within six were the leading platform in the country dedicated to real estate debt.

We pre-fund all our deals, meaning we invest our own money before asking for money from anyone else. Unlike some other platforms, we also start paying interest as soon as we take an investor’s money. We are completely transparent. We charge no fees to investors. We offer very fast turnarounds to borrowers and very competitive returns to investors. We do a great job evaluating loans, based on our credit experience to date. We’ve taken big steps toward bridging the gap between the old world of behind-closed-doors capital formation, and the new world of online transparent capital structures.

But they’re just first steps. We and the industry have a long way to go. More than anything, we need a workable Title III or its equivalent. Accredited investors, all eight and a half million of them, make up only a small fraction of American adults. To truly democratize the formation of capital, we need to let everyone into the game.

Less than a year after Title II came into effect the market is exploding, with some very large real estate players getting into the business. To me, that’s just vindication of our business model, proof that the Crowdfunding business is being taken seriously.

I don’t worry much about the competition from those companies because small, nimble companies like Patch of Land enjoy a bunch of advantages:

  • Crowdfunding is a new business. Those of us who have been here from the start know the business inside out.
  • There’s a reason Walmart can’t seriously challenge Amazon. Amazon’s business was built online from the ground up, while Walmart’s entire model, entire way of thinking, is based on bricks and mortar. For more on that, click here.
  • Our business runs on technology, and our technology is second to none. In one seamless, integrated process, we control a project from application to interest-paying loan.
  • Our cost structure is far lower, allowing us to share the savings with both borrowers and investors.
  • There are wide swaths of the American real estate market the big players have never touched and will never touch. We call that market “under-served” or “most of America.” That’s the market Crowdfunding was created to address.

Among the many transactions we’ve complete, our loan to Deborah Smith in Georgia shows what we’re about. Deborah developed a rent-to-own program where veterans with poor credit could qualify for financing from the Veterans’ Administration. Using financing from Patch of Land, she was able to get those veterans in homes they couldn’t afford otherwise. And our investors made money in the propatch of landcess. That’s a long way from solving every problem in the real estate market, but it’s a start.

I’m super optimistic about the future of Patch of Land. If you had told me five years ago that I could be doing what I’m doing today, I’d have thought you were dreaming. Wait until you see what we’ve built five years from now.

Follow Jason Fritton on Twitter: @JasonFritton

Follow Patch of Land on Twitter: @PatchOfLand



WM ScottBy: Scott Picken, Founder & Senior Managing Partner of Wealth Migrate.

I’m Scott Picken, the founder and Senior Managing Partner of Wealth Migrate. Our investment committee has collectively 227 years of experience in international real estate. We have facilitated 10,779 investments to a value of over $1.3 billion and invested on five continents. We’re passionate about Crowdfunding as an enabler of our current business, helping to make everything more efficient, accessible, and transparent.

When I spoke at the Coastal Shows event in New York City at the end of June, many of those speaking and attending seemed to believe that Crowdfunding was invented in America in 2012. Far from it! In Australia and elsewhere around the globe, companies have been Crowdfunding for years. At this moment I’m returning from a Crowdfunding conference in Singapore, which was conservatively speaking 10 times the size of the New York City event.

Why invest globally? Because real estate markets do not all move in synch. When the U.S. market was plummeting in 2007-8, the Australian market was doing quite well, actually growing on average by 8.6% in 2009. And if anyone hasn’t noticed, the U.S. dollar has lost about 72% of its value against other major currencies over the last 10 years. No one market, not even the U.S., can protect itself against that kind of loss.

It is just like in nature. When winter comes in the Northern hemisphere the birds fly south and when summer returns they fly north. Migration is a law of nature, and yet we humans remain firmly planted in one place, winter and summer. It is why we called our company Wealth Migrate, as in the 21st century it is about finding the safest and best returns, globally.

Robert Kiyosaki, the author of Conspiracy of the Rich and Jim Rogers in Street Smarts, both teach that the easiest way to get rich is to follow long-term trends. If the globalization of the international economy is not a long-term trend, then I don’t know a long-term trend.

Actually, globalization is not enough – just try selling American cheeseburgers in China. At Wealth Migrate we believe in glocalization, which means thinking globally and acting locally. McDonald’s modifies its menu to fit local tastes and we find best-of-breed partners on the ground in local markets and then partner with them. A bird in a flock can fly 70% further than a bird flying on its own.

Read my book, Property Going Global. It’s all about successful investing in foreign markets.

When I read Ben Miller’s post about the problems he faced with his first Crowdfunding offering, I knew exactly what he was talking about. You can’t imagine how many accountants and lawyers told us “No!” when we started to look at the U.S. investor market and the opportunities in the US. With everyone using the Internet for everything, with Twitter literally driving the Arab Spring, the investment world needed to change from horse-drawn carriages to automobiles and these “experts” were like policemen not giving us a license to drive a car. It just about drove me crazy but fortunately not so crazy that I gave up.

In 1998 I wrote a dissertation about the real estate market and the coming IT revolution. My synopsis said “taking an old industry, steeped in tradition and run by many smaller, disparate and often inefficient operators, and redefining it through the use of web technology to increase global reach, partnerships and efficiencies of scale, so as to provide a ‘one stop’ enhanced and personalized service to our clients.” I didn’t realize then that I was talking about Crowdfunding, the real estate finance market, and Wealth Migrate, but that sums up our business model pretty well.

Look, almost 50% of the world’s wealth is held in real estate yet only a small fraction of the world’s population (12.9%) owns real estate, much less has access to great deals. I am a firm believer in the business philosophy of Zig Ziglar that “You can have anything you want in life if you help enough other people get what they want.” The Afrikaans say “Ver van jou goed, na aan jou skade,” which loosely translated means “Keep your assets close to home, if you don’t want to lose them.” But in the 21st century that is no longer true. To give millions of individuals what they want, we need to look beyond our own homes, even beyond our own national borders, and ultimately help create global wealth for all.

In my opinion it’s a great time for cars, not a great time for carriages or outdated policemen, but the cars do need to be driven safely. It is all about trust, transparency and most importantly everyone’s interests being aligned. You are no longer bound to a country, a currency, an economy or even an asset class. I believe it is less about where you live and more important about where you wealth lives.



Thank you to the panelists and audience members who braved a biblical downpour to attend the SOLD OUT Harvard Business School Club Innovations in Real Estate: Crowdfund Investing program last night at the UJA Federation of NY Conference Center. Former New York Governor David Paterson kicked off the evening with his typical wit and insight before our panel of Crowdfunding industry experts shared their experiences and knowledge with an extremely engaged and thoughtful audience.

Our panelists:

  • Jason Fritton of Patch of Land and William Skelley of iFunding, two of the earliest Crowdfunding innovators and most successful Title II portals
  • Elvin Ames of Golden Eye Investments and Erin Wicomb of Mavrix Group, two experienced and successful real estate developers who have recently turned to Crowdfunding to raise capital
  • Scott Lichtman, a real estate investor who has himself invested in Crowdfunded deals and did a super job putting the conference together

Thus, all sides the Crowdfunding triangle were represented: portals, developers, and investors. And Jason, William, Elvin, Erin, and Scott – not to mention Governor Paterson – acquitted themselves with flying colors, demonstrated why they have been so successful generally and specifically why they have been leaders in Crowdfunding.

Some of the issues discussed:

  • The build-out of the Title II portal market, and how it is likely to segment into verticals
  • How portals successfully distinguish themselves
  • What investors look for in a portal and a project sponsor
  • The legal basis for Crowdfunding, and its significance in the marketplace
  • Why Crowdfunding is attractive to developers
  • How portals can participate in community development and “do well by doing good”
  • How portals market and price their services
  • How developers distinguish their projects
  • What due diligence means in a Crowdfunded environment

Judging by the number and quality of questions from the audience following the presentation, there are likely a few dozen more Crowdfunding entrepreneurs this morning than there were yesterday. Including one statistician, who asked about the standard deviation of Crowdfunding investments.

Thanks again to everyone. I hope to stay in touch with all of you. Email me at, subscribe to my Crowdfunding blog at, or follow me on Twitter at @CrowdfundAttny.


The Harvard Business School Club is presenting Innovations in Real Estate: Crowdfund Investing from 6:30 pm to 8:15 pm today at 130 E. 59th St. I’m honored to be moderating for this panel of industry leaders as well as former Governor David Paterson. Other panelists include: Elvin Ames, Golden Eye Investments; Jason Fritton, Patch of Land; Scott Lichtman, Heartland Real Estate; William Skelley, iFunding; and Alex Twining, Twining Properties.

Please join us for what promises to be a very exciting and informative evening. If you’re unable to attend and still interested in listening in on the conversation, follow the hashtag #crowdfundrealestate on twitter or send me a tweet @Crowdfundattny.

Tickets can be purchased here

Event Overview:

Learn how crowdfunding will affect fundraising by developers/operators, alternative investment opportunities for individuals, and community development initiatives in cities. HBSCNY, with the Harvard Business School Alumni Angels of Greater New York, and the Harvard Real Estate Alumni Organization, invite alumni and all interested individuals to an evening panel and networking event, where real estate operators, entrepreneurs, an investor and attorney discuss the impact of real estate crowdfunding.

The federal Jumpstart Our Businesses (JOBS) Act has made it easier for web entrepreneurs to facilitate wider participation in private investments. As a result, over a dozen websites are in a race to become leaders in the RE crowdfunding space. Real estate is poised to join consumer lending, angel funding and other asset classes – which together generated over $5 billion in online transactions last year – that are that are undergoing fundamental changes in fund-raising.

Though promising, RE crowdfunding will no doubt face questions along the way. Do the newer investors appreciate the risks they are taking on? What will happen when a project first undergoes foreclosure? How do the projects’ operating agreements, as well as the corporate structure of the crowdfund websites, affect future performance? And, which sites will emerge on top? The evening is an entrée to meet those leading this field and understand opportunities for participation.


Attention New Yorkers! On Wednesday, April 30th, I will be moderating an expert panel hosted by The Harvard Business School Club of New York, Inc. to discuss the rapidly-growing market of Crowdfunding in NYC.

The event, “Innovations in Real Estate: Crowdfund Investing,” consists of a panel of heavy-hitters in the Crowdfunding industry.  Tickets are cheap and can be purchased here.

Below is more information on the event. Please contact me directly if you have any questions.


Wednesday, April 30th, 2014


6:30 -8:15 pm

6:30 -7:00 pm registration

7:00 -8:00 pm panel

8:00 -8:15 pm audience Q&A


The Conference Center, 130 E. 59th St. (between Park & Lexington Avenues)

Price: $15/Members of the HBSCNY, HBS Angels, Harvard Real Estate Alumni Organization $15/Member guest (limit one) $35/Non-member alumni $50/Non-alumni


Click here to register!

Event Overview:

Learn how crowdfunding will affect fundraising by developers/operators, alternative investment opportunities for individuals, and community development initiatives in cities.  HBSCNY, with the Harvard Business School Alumni Angels of Greater New York, and the Harvard Real Estate Alumni Organization, invite alumni and all interested individuals to an evening panel and networking event, where real estate operators, entrepreneurs, an investor and attorney discuss the impact of real estate crowdfunding.

The federal Jumpstart Our Businesses (JOBS) Act has made it easier for web entrepreneurs to facilitate wider participation in private investments.  As a result, over a dozen websites are in a race to become leaders in the RE crowdfunding space.  Real estate is poised to join consumer lending, angel funding and other asset classes – which together generated over $5 billion in online transactions last year – that are that are undergoing fundamental changes in fund-raising.

Though promising, RE crowdfunding will no doubt face questions along the way.  Do the newer investors appreciate the risks they are taking on?  What will happen when a project first undergoes foreclosure? How do the projects’ operating agreements, as well as the corporate structure of the crowdfund websites, affect future performance? And, which sites will emerge on top?  The evening is an entrée to meet those leading this field and understand opportunities for participation.

Speaker Biographies:

Mark Roderick, Flaster/Greenberg PC:  Flaster/Greenberg ( is a full-service commercial law firm with offices along the mid-Atlantic corridor.  Markley Roderick concentrates on representing entrepreneurs in technology, real estate and other fields, and is an acknowledged expert in crowdfunding, with a blog at

Elvin Ames, Golden Eye Investments:  Via roles as a broker, loan officer and most recently a real estate developer, Elvin has completed more than 300 real estate transactions.  This includes over 60 house refurbishments he has led. He also owns leased properties, with a focus on New Jersey.  The company does business via  Mr. Ames is a US Marine Corp. veteran.

Jason Fritton, co-founder and COO, Patch of Land: The company ( is a pioneer in the real estate crowdfunding industry, focused on highly-attractive debt investments.  Jason oversees the company’s due diligence practices, legal compliance and client services. Previously, Jason ran digital marketing at a national retail company and managed a major technology project for the US army.

Scott Lichtman, Heartland Real Estate: Scott is a real estate investor and software entrepreneur.  He has invested in five properties through crowdfunding, interviews crowdfund CEOs for a blog at, and serves in a user-feedback role for several of the sites.  Scott has worked at Oracle, Deloitte and startups involving online collaboration and research.  He graduated from Harvard Business School, the London School of Economics and MIT.

David Paterson, former Governor of New York, and Director of Community at iFunding: David A. Paterson became New York’s 55th Governor in 2008, the state’s first African-American governor and only the second legally-blind governor in the nation’s history. Throughout his career, Governor Paterson has achieved bi-partisan change, leading the charge on issues ranging from renewable energy to championing minority and women-owned businesses.  He currently works with the crowdfund company iFunding on matters of community outreach and development.

William Skelley, CEO of iFunding: The company ( is a crowdfund leader that focuses on institutional quality deals with commensurate returns, scalable investment amounts and asset types, and global access.  Prior to founding iFunding, William was a principal at Rose Park Advisors, a hedge fund founded by Harvard Business School professor Dr. Clayton Christensen.  He also has worked at General Electric and Bain Capital.

Alex Twining, CEO of Twining Properties:  The company ( is a developer focused on urban use green projects at transit nodes of the Northeast Corridor.  They have over 4 million sq. feet under development and are pursuing a first deal with crowdfund participation.  Previously, Alex was CEO of MetroNexus, a Morgan Stanley real estate funds enterprise, and a director at AvalonBay Communities, a $4bn REIT.

Crowdfunding Real Estate

Many people associate Crowdfunding with investments in exciting new technology companies that promise to transform the world and make millions for their owners. But Crowdfunding is just as Skyscraper Buildings Made From Dollar Banknotesrelevant to investing in real estate, whether vacant lots, apartment buildings, or multi-billion dollar redevelopment projects. Although the world of real estate investing has historically been separate from the world of business investing, Crowdfunding is likely to revolutionize capital formation (fundraising) in both worlds.

Pending the release of SEC regulations that will authorize “true” JOBS Act Crowdfunding, portals focused on real estate have already sprung to life using the legal model approved by the SEC in two no-action letters earlier this year. RealtyMogul, for example, allows accredited investors who have signed up with the site to view a variety of real estate investment opportunities, from single-family rehab projects to a 240-unit apartment complex. The size and complexity of real estate projects listed on RealtyMogul and other portals are certain to grow as the Crowdfunding market matures, probably dramatically.

Real estate might even lend itself to Crowdfunding in ways that other industries do not. Because all real estate is local, it is easy to imagine a portal that specializes in Philadelphia real estate, for example, or in commercial Philadelphia real estate, or in commercial real estate in Center City, Philadelphia. That kind of focus, repeated in other cities and regions, might give investors exactly what they are looking for and thereby provide a reliable source of capital for developers.

It is just as easy to imagine a portal focused on shopping malls, or on high-end residential projects, no matter where they are located.

Real estate might seem less sexy than hi-tech, but it is a source of enormous wealth in this country and an important contributor to the national economy. And because real estate requires capital – oceans of capital – Crowdfunding is certain to play an important role.

Questions? Contact Mark Roderick at Flaster/Greenberg PC.