NEW BOOK BY ADAM GOWER PH.D.
Real Estate Crowdfunding
How a brand-new way to finance real estate has become mainstream, and what you can do to benefit.
241 Scott Picken, CEO and Founder, WealthMigrate
Read the transcript below while listening along:
241 Scott Picken clean.mp3 (transcribed by Sonix)
Scott Picken: I think the story needs to go back a little bit, right back to the beginning. I grew up as a young boy loving two things: technology, and property real estate.
Scott Picken: I did my first programming course when I was six years old. For those people that know what a Commodore 64 is, and [inaudible], the little turtle, who used the program as to how you did it.
Scott Picken: I did my first real estate project when I was 13. I actually led the development ... I was sharing a bedroom with my brother, and I showed my folks how we could knock through the toilet and effectively create a second bedroom or third bedroom.
Scott Picken: I've pretty much spent my entire life trying to marry the two industries together. Where did Wealth Migrate come from? First thing that happened was that my father did what we were all taught to do. He went to school; he went to university; he got a good job. He actually became a financial director of a listed company. He invested. He paid his taxes. He trusted the financial industry. Yet, when he passed away at the age of 59, he died broke. That was a really hard lesson for me to learn because I sat back and I was like, "Well, hang on ... He's done everything that we're all taught to do, and it doesn't work."
Scott Picken: I, at a very young age, started to look for alternatives. When I did the math, 49 percent of the world's wealth is held in real estate, and yet only 12.9 percent of the world's population actually had access to that real estate.
Scott Picken: Then, in the Western world, which is England, Australia, and America, if you take that 12.9 percent, less than one percent of people actually retire wealthy at the age of 65. Quite frankly, for me, Adam, those stats are disgusting. Yet everyone keeps doing what they've been told to do - not only my father, but 99 percent of other people followed in my father's footsteps.
Scott Picken: We decided to do something different. As I said to you already, I did my first project when I was 13; I did my first development when I was 19. I studied construction management, so I got into the building game ... In 1998, I did my dissertation on how technology was going to change the real estate, and construction industry. I then went to London, and I did my masters on the same topic basically 20 years ago.
Scott Picken: I tend to joke with people ... People in real estate, and construction industry 20 years ago couldn't spell IT. Nowadays, it makes a lot of sense, but those days, no one ever considered that it would have an impact on those industries.
Scott Picken: I basically worked for an Irish developer in London for five years, while I did my full-time masters, and I sort of grew ... On the side, we were already doing houses. We were doing houses in London; we were doing houses in South Africa. We were buying/renovating them.
Scott Picken: I had a bunch of friends come to me, and say, "Well, how do we do this?" At the age of 25, I realized I'd be the world's worst employee and I resigned, and set up my own company, which is called International Property Solutions, or IPS. Effectively, we helped people invest in England, Australia, America, and South Africa. Over the years, we helped about 2500 people invest in those four different countries - primarily houses and apartments.
Scott Picken: I noticed three big gaps in the market. Firstly, the majority of people didn't have enough money for a deposit. Secondly, if they had the money for a deposit, quite often, particularly if they were wanting to go internationally, they would consider themselves sophisticated, and so they wanted to go into commercial, but then they didn't have commercial ... They didn't have that money for commercial. The third type of person had enough money and even experience, but then have no idea what country to go, or even how to get started.
Scott Picken: That was the first thing that happened. Second thing which happened was, in 2008-2009, we obviously had the global financial crisis, and there was a significant opportunity particularly in London. There was an opportunity everywhere, but I was really in the London market.
Scott Picken: You could buy buildings for 50p on the pound, and there was an opportunity in Wimbledon, which is where the tennis is in London, to buy 48 units. I just had one small problem - I had to raise £10 million. Now, what was fascinating to me is I could buy these 48 units at less than 50 percent of what they were sold six months before that, with a 12-percent net cash-on-cash return. It's like an absolute no-brainer. Yet I needed £10 million.
Adam Gower: Small snag.
Scott Picken: I ran around to my 2500 investors ... I couldn't get people to invest together. People were interested in buying one apartment, but they wouldn't buy the building together. That created enough pain to say, "No, we need to build a platform to allow people to invest like an institutional investor."
Scott Picken: In simple terms, the very next year I met my co-founder, Hennie Bezuidenhoudt, who's 20 years my senior. We were in Bondi Beach in Sydney, and him and another US billionaire were buying medical centers. Before I go any further, Adam, do you own a medical center?
Adam Gower: Do I own one? I do not. I've been in one, and I don't own one.
Scott Picken: Very interesting. Here's me. I'd helped 2500 people buy houses or apartments. I have a honors degree and a master's degree and, without being arrogant, Cum Laude at both of them, and no one had ever told me to buy a medical center. I asked him, I said why a medical center? He said, "Well, think about it. No matter what happens in the world economy, people will always need doctors." I'm like, "That makes sense."
Scott Picken: "Secondly, no matter what happens, doctors stay in their premises for a long time." I thought back to when I was a child and I thought, in my case, the doctors actually passed away, but the medical premises are still going strong. "The third thing is doctors are very good at being doctors but they're not accountants, so they find very good long-term favorable leases."
Scott Picken: I literally thought about that. I was like, "That's Real Estate 101." You've got a tenant that is economically resilient; stays a long time, and signs a favorable lease. I couldn't believe it; it was so simple, and yet no one had ever taught me this.
Scott Picken: I said to him, "How do I participate?" He said, "No, it's easy. It's just for friends, and family. They [inaudible] up to 5 million Australian dollars each." I was like, "Ah, okay, there's the catch." That company, today, has gone on ... It's listed on the Australian Stock Exchange. Today, it's worth over $700 million. When it started 10 years ago, it was $40 million.
Scott Picken: I think I did one better. I actually built the platform, and we launched it - the first version of the platform - in October 2013. Ever since that day, I've been investing alongside partners like that, but allowing people to participate and invest from ...
Scott Picken: Originally, we started $100,000 dollars; then we got to $10,000; then we got to $1000. We're about to launch version five, which will allow us to get to $100. Our dream is to eventually get it to a dollar per person per investment, so that truly the 99 percent can invest like the top one percent.
Adam Gower: This is Wealth Migrate, is it, where you talk about the platform?
Scott Picken: Exactly. Exactly. WealthMigrate.com, yeah.
Adam Gower: How did the Jobs Act and the changes in the law on general solicitation affect your plan? I forget exactly the timeline that you described, but I want to say it sounds like 2013 ... It was right around that time wasn't it?
Scott Picken: Exactly.
Adam Gower: Did that have a big impact on what you were planning, and your perspective of the US markets? What do you think of the US market for your platform?
Scott Picken: You've got two different questions there, so let me just answer them separately.
Adam Gower: Sure.
Scott Picken: The first one is whether they had an impact, and yes, they had an impact. They definitely had an impact. We were paying lawyers copious amounts of money to figure out how we could invest. We started off [inaudible] already with the minimum investment of $100,000, because we were only dealing with the sophisticated, accredited investors.
Scott Picken: Then, the Jobs Act came out, and it was quite interesting because I was dealing with just a normal lawyer, and what I mean by that is just the normal real estate lawyer. Even in October 2013, after the Jobs Act had already come through, I phoned him up, and I said, "Well, surely this allows us to do all of the different things?" They're like, "No, no, no, you can't.".
Scott Picken: Then, Fundrise came on the scene, and then Realty Mogul, and I was like, "Well, hang on, dude. You're telling me that I can't do this, yet other people are already doing it." It had a material impact for us because it got a lot more clarity around what you could, or couldn't do, and things like getting 506(c)s, and broker dealers, et cetera ... It just made it a lot more transparent as to what you could, or couldn't do. Before, though, it was very murky as to what you were, or weren't allowed to do in terms of using technology to help people invest. That answers your first question.
Scott Picken: Obviously that clarity is nowhere near as good as countries like England, where they've got a hell of a lot better in terms of explaining what crowdfunding is, and how it works, but it is actually ahead of countries like Australia that haven't even got out of bed yet, in terms of crowdfunding.
Adam Gower: Scott, before you answer the second question ... In England, you said they're much better at explaining crowdfunding. When we talk about crowdfunding in this context, you're talking about crowdfunding real estate, is that right, in England?
Scott Picken: Exactly. I'm talking about equity crowdfunding to put it in simple terms. England is the most progressive regulator in the world, and what was interesting is that they did it differently from everywhere else. In America, the regulator basically [pull out] the Jobs Act. It was quite draconian, and the intention was to sorta get everyone to play by the rules.
Scott Picken: What they did in England, but did differently, they went out, and they found five platforms. They did a due diligence on those teams and those platforms, and they said, "Right, we're going to work with you for next year, and we're going to create the regulation with you." Because of that, only after a year or so - don't quote me exactly - 12 to 18 months, they then brought out the regulation, and any new platforms then have to comply with the regulation.
Scott Picken: What that allowed to happen is that you're dealing with best-of-breed partners, so you don't have draconian rules where you're trying to manage everyone, and make sure that you don't have any thieves stealing money, et cetera, which, by the way, you have to have. I completely agree with it. The way they did it in England was far more proactive.
Scott Picken: Don't take my word for it. There's one of our board members, Paul Niederer, that's sort of ... His reputation is Mr. Compliance around the world. He ran the oldest equity-class funding platform in the world out of Australia. He's the one that gets invited by all the regulators around the world.
Scott Picken: England is by far and away seen as the most progressive country when it comes to regulation in the Fintech crowdfunding space, which, by the way is why we're moving our [crosstalk] quickly, by the way, that's why we're moving our head office to England so that we can work at a global level with the most advanced regulator basically in the space.
Adam Gower: Fascinating. Where you're going to go presumably to London. Is that a good bet?
Scott Picken: Correct. Yes, we're in One Mayfair, so we're right in the heart of the city. Your question on America ... I published a book in 2014 called Property Going Global. People can go and see it. Just go to PropertyGoingGlobal.com, and they can get access to it.
Scott Picken: Basically, there's a scenario planner called Clem Sunter that's one of the top five scenario planners in the world. They've basically got this whole methodology on how you create economic scenarios around the world. I've built a four-dimensional model; put it on top of their scenario-planning methodology.
Scott Picken: Most of us make decisions - Do I like England? Do I like America? Do I like Australia? - based on gut feel, or what my neighbor says, or my mother, or my dad, or whatever. The problem is that there's good times to invest in markets, and there's bad times. Then, obviously, there's regional things that you need to take into account, et cetera.
Scott Picken: Do I like America? I very much like America, at the moment. According to our modeling and everything else, once you take all the fundamentals and the algorithms and you stick in the data, it very clearly shows you that America presents a significant opportunity, if you compare it to other first-world countries, in terms of return and risk. That's the first thing, when you look at it from a macro perspective.
Scott Picken: The second thing that I like a lot about America is that it's a really big place. To compare England and America, if I say I want to invest in England, and specifically in London, it's quite a crowded market. It's very, very difficult to find a good deal because every other person is trying to find a good deal in London. Whereas America is so big ...
Scott Picken: There's over 300 MSAs - Metropolitan Statistical Areas. We've done very well in Atlanta, as an example, which is a tier-two city, but yet it's filled with 6 million people. I tend to always joke with people, and I'm not talking about Donald Trump, the president, I'm talking about Donald Trump, the developer ... He can only be an expert or an authority in a few markets. He can't be in all markets. What I mean by that is America is just too big. You can find good opportunities around the country, and then you've also got different regions where they've got different farming.
Scott Picken: What I like about the American market is that once you understand the American market, you can regionally move within America. You don't even have to leave the country if you want to keep finding good opportunities. I'm sure you'll agree with me, Adam, one market is not always good to invest in. It has good times and bad times. There's buying cycles and there's selling cycles.
Adam Gower: Yes, exactly. What is your plan in the States? You're looking to find medical office buildings or medical centers and attract both US and international investors - is that is that the plan?
Scott Picken: Since 2014, we've been buying medical assets in America. We've bought over about $130 million worth of medical assets now, in America. We tend to find that there's three major genres that we've done successfully.
Scott Picken: One is medical assets for the very reasons I've already said to you. We'd like to have a sweet spot where the investment capital is somewhere from $1 million dollars to $10 million. That's the equity. Obviously, we can still get those properties. The reason being is that more than $1 million is sort of too much for the mom, and the pop, the doctor, and the dentist. Then, below $10 million is too small for the big funds. and REITs.
Scott Picken: We've found it is a very good sweet spot, and we basically buy the assets in that range. One of our exit strategies is what we call a portfolio sale, where we bundle them together, and often the people fall into [repo] on that. That's one focus of ours.
Scott Picken: A second focus of ours has been multifamily - another very resilient, economically resilient asset class - with a very similar strategy to the one that I've just told you about, and a third one where there's quite a significant opportunity outside of America. There's a lot of interest in [EB-5]. We've been involved in, specifically, one project in Florida in the EB-5 sector, where obviously people have invested to not only make a return, but to get access to green cards.
Scott Picken: Those three genres have been, for us, very successful in terms of fulfilling a demand in terms of what investors are looking for. To answer your question, we help American investors, although we don't arm wrestle. As you know, there's plenty of platforms in America, and it's quite difficult to necessarily ... Certainly you know we're not interested in having a fight on Google for Google ads with other platforms.
Scott Picken: [inaudible] services, but I'm not aware of a single platform in America that allows non-American citizens to invest. As an example, you have to have an American social security number to invest on any of the platforms in America. That's wonderful. It helps the 300 million Americans in America, but it excludes the other 6.7 billion people on the planet.
Scott Picken: We primarily focus on helping middle class investors from emerging markets and around the world, and even English people in England that want some diversification away from Brexit to be able to invest in American assets. That can be directly with partners on the ground investing in assets.
Scott Picken: Something else we're doing is we partner with platforms. We've been in conversations ... Nir Golan, who's our CEO in America, you've met him ... We've been in partner with platforms that don't actually allow non-American citizens to invest. We're like, "Well, why not? We can provide you with the tech to allow that to happen."
Adam Gower: Yes. I've always thought ... I've traveled a lot in my few years on this planet, from Europe, to Asia, to the United States, and always seen opportunities internationally, and always been hesitant, primarily because of the exchange-rate risk that any kind of potential gain in real estate, or yield even, could be wiped out by exchange-rate fluctuations. How do you see that, and how do your international investors view that, when they're looking at overseas investment opportunities?
Scott Picken: There's two ways to answer that. For the first way, if it's sort of first-world investors to first-world investors, there's not tremendous fluctuations between the Euro, the pound, the US dollar, et cetera. I mean, there are ... When Brexit happened [crosstalk] the pound was 20 percent, and it actually presented quite a significant opportunity, but it quite quickly rectifies itself, because there's a lot of fundamentals that it's based upon.
Scott Picken: The second part of that question that you're asking, which is the more important part, is that you find that investors in the emerging world, be it India, China, Africa, South America, they're investing for that exact reason. They're investing for what I'll refer to as wealth protection.
Scott Picken: I'm originally from a country called Zimbabwe, which had hyper-inflation and, quite frankly, economically imploded on itself. I had three farms that were taken away from me, blah-blah-blah ... The rand, which is South Africa, has lost ... In terms of value, it statistically loses six percent a year against the US dollar.
Scott Picken: The Chinese ... I don't need to tell people the amount of money that's left China to go into property in America, England, and Australia. What's interesting is that they don't take a short-term view on what's going to happen to the currency over the next year between say the yuan and the dollar.
Scott Picken: What they're doing is they're moving the money into what I refer to as first-world countries to create wealth protection. By the way, that's not only on currency. That's also because your land rights are protected; no matter what happens economically, you're not going to lose your property, et cetera. They want to be able to possibly send their kids to university.
Scott Picken: There's a whole bunch of drivers and factors that, unless you're from the emerging world, you'll never really understand why people do it in terms of ... I tend to say to people, "It's a Plan B, it's peace of mind, and it's wealth protection are the three drivers that cause people in the emerging world to want to migrate their wealth to the first world."
Adam Gower: That's extremely interesting. It does actually dovetail into something that you mentioned that is of great interest to me, and that is what is your investment strategy? You've suggested that at some point you look for exits. Can you describe a little about what your strategy is? Are you a yield player? Are you looking for value-add? Are you looking for very-long-term hold, or long-term hold? What's the overall vision for the investments that people make in your ... through Wealth Migrate?
Scott Picken: The first thing that's important is wealth preservation. I don't know if you know a guy called Dr. [inaudible]. He's a famous author in the real estate space. He taught me something years ago. He said, "A lot of people focused on return on capital." He likes to focus on return of capital, as a simple starting point.
Scott Picken: As far as the most important thing is safety ... When someone moves their money internationally, the most important thing they're looking to do is to protect their capital. We're very risk-averse, and we ... To answer your question, yes, we like to look for income-producing assets. That's the first thing that's really important.
Scott Picken: The second thing that's important is that ... As an example, if we buy a medical building, we do like it to be 70 to 85 percent let, because obviously managing the downside, that can give us interest-rate cover of more than 200 percent, and it gives us some flexity. We do like to find assets where we can have value-add because then we're not just driving the market. We can create that value within the opportunity.
Scott Picken: The third thing is that we tend to look at opportunities ... When our investors invest, we give them a five-year timeframe, so we're not getting in and getting out, or trying to flip, or anything like that. In many instances, we're giving them a five-year liquidity event with the intention of either rolling that asset into a bigger portfolio and selling onto a REIT, or actually holding.
Scott Picken: What I find really fascinating, and I've found this all over the world, the more sophisticated an investor is, they actually find five years too short. The less sophisticated an investor is, they want to invest on a one- to two-year timeframe. I don't know if that makes sense.
Adam Gower: It does, absolutely.
Scott Picken: I can tell the sophistication of an investor quite quickly, depending on the term of the investment they're looking at.
Adam Gower: It's extremely interesting that you say that. A couple things have come up that I'd like to drill down on, but talking about that, that is certainly something that I actually think is a huge gap in the markets at the moment. There's a lot of investors out there looking for deals, but who are put off by the two- to five-year time horizon, who want to be able to invest with a view to building generational wealth.
Adam Gower: A lot of the people that I've known in my career, those who are really the wealthiest and have the most stable wealth are those who started buying 30 years ago, and have never sold anything. I think there's a lot of people that think like that, Scott. I think that's a very interesting perspective that you have, and I'd like to understand more about [crosstalk]
Scott Picken: Sorry to butt in, Adam, but on top of that, that's how we buy a good opportunity, because most of these PE funds - private equity - funds work on a 2 and 20 model, and they've got a five-year timeframe. They are actually incentivized to exit the deal after five years. [inaudible] so many times we pick up deals, and people are like, "Why are they selling?" It's like, "Oh, must've got to the end of their time's up ..."
Adam Gower: Exactly. When I was at the Colony, we saw the same ... When I was in private equity, I saw the same exact thing. Because we were IRR-driven - our compensation was IRR-driven - we were motivated to exit quickly because it drove up the IRRs. At the end of the day, it certainly didn't promote a long-term perspective.
Adam Gower: Actually, let me ask you something else, though. Something you said that I didn't realize is you are a sponsor. You've got a platform, but you are directly a sponsor, is that correct? You're doing all your own deals and [crosstalk] Oh, you're not?
Scott Picken: No, that's not the case at all.
Adam Gower: Okay, tell me-.
Scott Picken: Then we'd just be a big property fund, or REIT. I always say to people, "We don't invest in property, we invest in partners." Our job is to find quality partners on the ground, 'quality sponsors,' to use your language. They're the ones that are finding the deal, executing on the deal. We've got a whole set of criteria to finding our sponsors.
Scott Picken: The point being is that we're not trying to run our own deal in Atlanta, or Texas, or whatever. We're dealing with local people with local knowledge. I actually believe that our platform, to put it in simple terms, is that real estate is a local game, and in every market, you need local expertise. Our platform provides a trusted global real estate marketplace because there's good local people in all local markets. Why can they not plug into one trusted platform?
Adam Gower: It's truly interesting. When you look for sponsors or partners, what proportion typically of the equity requirement do you like Wealth Migrate to take? What proportion do you look for in sponsors? More importantly, what would you look for, from your perspective, your role, in any individual deal?
Scott Picken: There are two ways to answer that. For the first way, let's look at how we qualify the sponsor. In terms of the sponsor, there's three specific things that we like to look for in a sponsor. The first one is that they've been in business for more than 10 years. We want to assess their track record. For obvious reasons, with last crash 10 years ago, it's interesting to see how they handled that basically.
Scott Picken: Secondly, we'd like them to be fairly niche-focused. We don't like someone thats day job is running a tire shop, and now, they want to do a multifamily down the road, and that sort of thing. If they've done multifamily, that's what they're focused on. If they've done medical, that's what they're focused on.
Scott Picken: The third thing, which is the deal breaker for most of them, is that we like them to put their own cash in the deal. Without getting caught up too much on percentages, we want them to put in anywhere from $100,000 to $500,000 themselves.
Scott Picken: Why is that important? If we take our average investors, that's more money than any other investor. We get people writing us checks for $1 million, but our average investment size is $37,000, on average, which basically means that the sponsor's putting down $100,000 to $500,000. They've actually got more skin in the game. Forget about the percentage. They've got more skin in the game than any other investor, on their own, if that makes sense. -----------------------------------
Yeah sure does now.
So let me ask you this which actually keeps them which keeps them very alive. Well of course your second question yes. To get to your second question. It really depends on the deal. You know we've got some deals that are much bigger deals and we take a smaller piece of the capital stack and some deals where we take down you know the whole capital stack in terms the equity portion in other than what the sponsor putting in. So it really depends on on the deal. And quite frankly you know we we we tend to sort of we like both you know some deals is better where we know we can have a majority stake with obviously there's more control and and others. You know I actually prefer having a smaller piece of the capital stack depending obviously on the quality of the partner because effectively we can we can help our investors get involved in better bigger deals where we wouldn't necessarily bells take on the whole deal that we were raising all the equity ourselves.
Right. So you said something very important then it ties in with wealth preservation and this is that was the first thing that you said you look for the doctor that you made great. All right. So wealth preservation and you talk about having a greater proportion of the equity in the deal so that you can have more control. Explain that concept to me a little bit. I mean I have my own thoughts quite strongly about control
In deal but I'd be interested to hear what yours are. Well again unfortunately these are things from the school of hard knocks. So there was a story in Australia where cold Zimbabweans invested and they've actually had a partner on the ground and it was a typical 20 model and they all put in a million dollars each. So they basically put in sold million dollars in equity and without them knowing it's the partner on the ground basically didn't put any cash in for the deal and went along to the bank and remortgage for property. And when the last crash happened in 2008 2009 suddenly they find themselves in negative equity situation the bank called the debt and they all lost their money completely and it was sort of like you know the one guy looked at the other guys and I thought use it. So now the guy looked the other guy. That was one of those sort of stories and in simple terms the partner even though they put no cash in the deal had more than a 50 percent ownership and therefore could just go and find stuff willy nilly without having to take into account their equity money. So we always like to put in protection whether we are a minority partner or a majority partner.
We'd like to put in protection for the capital because you'd be surprised how quickly people can you know do things like re mortgages etc. and suddenly you actually find yourself in a negative equity situation. So to answer your question it's not as important whether we're a minority or majority partner but it is very important to put the protections in place to ensure that that you're being looked after. Another example of that is that we like to get sponsors you know to find some sort of surety on the debt if we can okay and why I say that is because you know if they are the ones that are getting tenants you've got to make sure that they're putting tenants in your building first and not the one down the road that they actually own with their buddy all on their own. You know that's sort the facts. So it's not that prescriptive it's hard to explain. It's more of an art than a science. Yeah gosh. In terms of in terms of that deal. But it's also not being naive that you can't just put your cash in and hope it's going to get paid back.
Okay good. So that's extremely interesting and something that we should chat about a little bit when we wrap up. Let me ask you another question and so do you do any ground up.
Will you look at ground up deals so just to clarify the lingo bye by ground up or presumably in development.
Yes a bad piece of land with a plan.
Yeah we did do that. We did do that in 2013. 2012 2013 in in America at the time. You could go to these um housing estates and you could pick up land costing you anywhere from two grand to seven grand a lot. You know previously they were being sold with all the services for 30 to 60 grand doesn't involve right now I mean it seems like an absolute no brainer of an opportunity. Are we actually burns off regular but because it was a lot worse than a no brainer as it was. It's you know there's a huge amount of obstacles in place with it. It wasn't as easy as it said. You know that we weren't behind this then but you know I mean I've been in development like I've told you ready for more than 20 years and I'm yet to meet a developer that finishes on farm. Yeah. Listen plan on budget and without it and on budget without excuses. Know so the challenge we've got as a platform is that if we go back to the very essence of what I said earlier on wealth preservation it's far better to buy an existing building and to get paid an income three months later than to buy into a dream that quite frankly you know you always get told the best case scenario and it can only be worse. And even if the party's base. Yeah you know so so. So the larger question we haven't done we haven't done other than most land opportunities that we did in the early days in Atlanta. We haven't done any others in America yet we have done we have done one in Brisbane and ironically we got we've got a we've got our fingers burnt there because the Chinese government changed the rules and let's listen for the sort of stuff I don't like is that you can have the best investment committee in the world unless you have a seems that the Communist Party table in Beijing you wouldn't have known that China was going to change the rules on its foreign investment by Chinese locals.
He just wouldn't have known that right. And we had a development in Brisbane and most of the development in Australia would be sold to Chinese people and like overnight those who tried to stop allowing their citizens from investing either she is within about a week of that the the Australian banks stopped lending foreign as much as Chinese people South Africans or anyone else. And within about a week of that the construction banks reneges on any construction loans they had. It all happened with the space of luxury Hicks and we are actually just exiting that deal now. That's what we were getting bought out by private equity firm and our clients are getting back a dollar for a dollar. So no return and Roebourne I thought to return to return of capital. More important the return on capital. Yeah. So in simple terms with a very long answer to your question there's a third example I'll give you in 2009 TiVo makes it on. London I watched the developers getting cleaned up. You know some of the relevant titles very risky. You can make a lot of profit in the good times but they really tend to get in trouble in the bad times and it's very difficult to plan for the bad times because tactically they're generally come you know I know I think you know or what's the word called without warning basically we prefer to focus on income producing aspects of the simple answer.
Got it. OK so let me ask you this kind of wrap up the podcast part of our conversation and then let's chat for a couple of minutes if that's OK. So what are the biggest challenges you currently face here in the States for wealth migrate.
One of the challenges that never goes away is the regulation. I tend to joke if you put 70000 lawyers into the Yankee Stadium and things like come down and told me 100 percent what I can and can't do and I'll pay you a million dollars. Probably not one lawyer would come down and actually do that. If a bad take the risk. You know what I mean by that is that the regulation is still quite great as to what you can of can do for American citizens in America let alone cross-border you know you're doing your best to complete compliance and to to stay up to date with the regulations and what you can do. But it is an ongoing challenge I'm going to talk to two different people are two different things so that you know that for me it is an ongoing challenge. I always say you know the number one thing that we should all be responsible for is looking after the investor that should be the number one thing that counts. And sometimes you get you get caught up in these regulations. And what irritates me is that it creates an opportunity for further middlemen that are effectively just taking money off in off of return of the investor.
And I don't see a lot of value that they are quite frankly that I can go on that rather board. You obviously and I have a bit of a rant around that sort of store old school old school rules to new school methodologies and it just doesn't make sense to me because it's actually impacting the investor and taking the return of their investment Chagos. I mean just this example if you take all the financial regulations you know you're pretty much store using broker dealers. But from that you know people with broker dealer licenses and all those and the majority of them are still very much what I refer to as old school or old power and they are very important role to play in the old school way of doing things but in the new school way of doing things I don't see how they add any value and yet they still still the large fees because those are they are a necessity within the current regulation. And the bottom line was those fees are just being passed on to the investor and affecting the net return of the investor. And I don't I don't see that.
I don't see the value that they you know may not have gone so yes but you made a big assumption that why do you think that dealers in your in your from your perspective why a broker dealers are necessary components of expanding into the US market presumably to access investors.
If you look at the if you look at the regulation and please understand that I'm going to switch and try and sound like an expert on American regulation because. Okay. Many of your listeners including yourself are far more qualified in this space than I am. However the feedback did you get generally is that you're working with through a broker dealer you know depending on what type of crowd funding religious regulations you're trying to work under. You're going to be more protected than if you're not. It's generally advised that that's the best way to go to go about it. And there you go again the all digital broker dealers. One of them we use however each person when Jim or Joe Soap invest in a real estate deal in the old traditional way of buying and selling real estate there were 16 different middlemen and every single one of those middlemen was creating friction and cost. Now there's the regulation as it still is. There are still a bunch of people in the process we'd have to be there from a regulatory perspective. But in my opinion don't add value to the investor in terms of helping them make the right investments.
Got it. Okay.
And now once again in the old days favor in the old days again. Although a broker dealer was someone out of personal relationship I was dealing with Joe's side one to one and was helping them make the life decisions and long. You know it's all visual but I even with the broker dealer. I never met the broker dealer the broker dealer hardly even looks at the property. You know the actual due diligence on the property and so they certainly don't know the investor. So you know I you know I really I really challenge you know what where is the value being added to.
I assume then am I correct in understanding that your model for investor acquisition in the US does still require broker dealer. It's that that you're frustrated about. Is that accurate.
You're not going to want to be I want to be I want to be very clear. I've got no problem with anyone that's adding value in the process. So yes our model is we die using a broker dealer. I've got no problem with people that adding value when I've got a problem with that in the traditional mean taking those years I think we've pretty much solved it too many ways. But in the beginning you know you don't talk to your broker dealer and they wanted you know four five six seven eight percent and some of them below 10 percent plus I'd let you two people wanting that happen as if that's completely erodes any return for the investor.
Yeah of course. All right. So but. And what about deal flow. How are you having challenges with dance or no no issue finding the kinds of deals that you on the kind of sponsors and the kind of terms that you like but we're always open to always open to working with quality partners.
So you know we've always got our yes to the ground and looking to meet new partners. Our challenge as you know has not been deal flow. To date we've had a you through our different relationships and through our track record we've had really good quality part of coming to the table and bringing really good quality deals. I think what's also interesting is that we've got something that is unique and different. You know if someone's wanting to invest you know we've got a Chinese team on the ground. We've got a Mandarin site. We've got six people you know a full time on our team in Shanghai. You know a lot of people say ah you don't want to go to China but they probably couldn't point to China on a map you know not being funny. And you know we've you know we've actually got a Chinese team in fact based on a biased track right now with three of their affiliates in America right now. So so. So what we we offer we offer a different perspective. The people like where they can you know that they're not just looking in their local markets but they also are looking internationally which to date has really worked better. Our purpose is is to aim to try and solve the gap to to empower the 99 percent smiles and bears like the top 1 percent. And the way we talk about how we want to impact the billion people and how we want to make smart investing available to everyone and putting you know ultimately getting in a dollar per person per investment. You'd be surprised how many partners come on board because they love the purpose and want to be part of it. And that's that's been a real you know a real eye opener for me you know as people you know in the old days that traditionally just dealt with the Big Read sort of you know New York or something.
And I actually that can be on a personal journey in that you'll be amazed how many people that resonates with those what are your key daily habits your personal habits that make you productive and your business successful.
So that's a fascinating one because I've just updated that updated software for you on a call that I went to India for a month for a month to teach myself to meditate because every successful personal book that I read you know meditation and somewhere in that plan. So in simple terms what I do in the morning. And again because of India I don't look at my phone for the first hour to an hour and a half. So you can't get all of. No e-mails no WhatsApp snowy chats nothing. It's my time. That's the first thing. The second thing is I'd like to go and do sports. So go for a run. I love to run in nature and I will listen to an audio book. And at the moment I'm listening for blitz scaling by the founder of Reid Hoffman the founder of Lincoln just as an example and I can do two things at once and I can run and listen which I love it's suspending the brain and the third thing is that I every morning do a I presume most triple Americano Tony Robbins. But he taught me something two years ago called a daily crime that's 20 minutes long.
It's three minutes of a breathing exercise. It's then three minutes of gratitude it's three minutes of an energy again if you're religious it can be a religious thing a few if you spiritual it can be energy through your body and then it's three minutes of your goals your top three goals visualizing them. So that's twelve minutes And then there's about another seven or eight minutes of like face you're quite funny it's Scottish bagpipe music which is a bit like Braveheart and it's a wonderful wonderful way to start the day. And then I actually do 10 minutes I use headspace and I do a 10 minute meditation and only at that point for my large to switch on my phone and stop worrying about what's up so you know the world getting hold of me. I really kind of inspires the people helmets are valuable that is take control of your day before you know Trowbridge you proactive not reactive. But that would be my law. What I do is my daily habits. In the morning during the day during the day. You want me to keep going I don't know.
Yeah sure. Yeah. That's what I've got two more questions. Go for it.
Yeah just quickly on the day that I've read the book and I'm sure many of your listeners have read it lots of times it's one of the books you should have to read every year. When I was in India I listened to that book again. The one thing so I block out my mornings I don't allow anyone to set up meetings etc for meetings only up in the north noon so that in the mornings I can get productive. If you haven't read the book the one thing I can buy Gary Clark on recommended body and then something else that's quite interesting which I've had the privilege going to make island with Richard Branson twice and quite a few of the very wealthy people they actually gave me quite kudos to this but because I build it multiple timezones from 5 to 8 p.m. I block out what I call family farm that is farm that I'm with my my my son my wife and so I like tonight we're talking out of it's 8 p.m. or nearly 9 p.m. Now I wasn't available from 5 p.m. 8 p.m. and why you have to do that is that I'm dealing with a company on five continents. There's always an excuse to have a meeting and so I'm absolutely rigid family time and then on a Thursday night date night with my wife Cleo.
That's the structure of pretty much every night so I tell you I'm very impressed by your morning routine and I hate to confess that my morning routine is slightly different. I wake up look at my phone but look at my emails before I turn the light on and then go straight to pounding coffee so hate me. Maybe that's why I did it.
Maybe you need to go to India a day so completely different that anyway. So yes I'm fascinated to hear that though it's very consistent with a lot of people I've spoken to Scott. Second clatters And what why.
The one thing also that was quickly before he goes the gristle that are wanting from the guy. I did that that day with death in front of robins in December 2016 and he said about doing this crime and how important it is and I've done it every single day since then. So you know that's that's nearly coming up to two years now. I've never missed one single day. And you know for me it's the little trick that actually give you the self belief to deliver. You know there's no excuses. Seven days a week I do it every single day. I've never missed a day. And I find those little habits breed big results. Because if you can trust yourself then the world can trust you.
Very nice. That's going completely different from my perspective which is really going from a point of total panic and fear and trying to stay ahead of that curve at all times. Let me ask you the second question. What has been the hardest lesson that you have learned in real estate or in business if you prefer that the lie.
Yeah so I guess what I learned was that in 2000 and a 2000 bond you know we had. I had mortgages and plasma a whole bunch of other things. Basically like what you think just reneges on the deal for when the economy changes you know whatever they said they would do a year ago but I just changed you know that that was extremely extremely hard period 2009 2010. Not you know not only for myself but for my clients as we had to come to together with economic cycles. The second the second lesson I learned which I'm very much attuned to at the moment is that in 2007 2008 there was a lot of smoke about the fact that there was an economic correction coming and I didn't believe it.
And I was the one standing on stage you know selling London property you know based on supply and demand and fundamentals. The day Lehman Brothers went bankrupt the very day I was on a book I thought this you know this time you know with Paulson and Ray Dalio and whatever talking about the impending economic I'm not going to use the word crisis for let's say economic correction I'm not I'm not so naive as fuck. And you know again the fundamentals change and they change every eight to 10 years. You know it's betting on how good your math is minus 2018 from 2008.
That's fast approaching right isn't it. Exactly. Well let me ask you the last question particularly in the United States with the change in regulations a lot of people as you know and now invest in real estate who have never really had access to real estate investments before they can invest online but they don't have any experience and they don't have any background having never invested before in this way so if you could give one piece of advice to somebody who has not yet invested in real estate online but who is considering investing what would that advice be Could I give you a three piece of advice. Yes.
The first one is no one ever learned to walk by reading a book so you can go on as many courses as you want to but you are going to make a mistake for some boring life like you.
So. So the beauty with technology is you can start small and know that you're going to make some mistakes. And just like when you learn to walk you're going to fall over a few times but unless you start you're never going to learn. And again you're not going to learn by reading a book so that's the first thing. The second thing I would say is that. You know the beauty with technology is that you can try different things so you can try a bit of medical like I discussed today you can try multi-family you can try also some different industrial etc. and start to learn while doing which I think is critical. And third one and this is for the more sophisticated ness of the first two were probably aimed at the beginners but for the more sophisticated people you know even people with real estate experience but ones that haven't done it online is the technology doesn't fix and the fundamentals of real estate you know stay the same. Just like the fundamentals of business and the dot com boom bust stayed the same. And what tends to happen is the fads you know technology creates fad and people get excited like IPO is a good example. And yet the fundamentals don't change. And people you know if they're going to study anything it's studied the fundamentals and then really what I've learned over 20 years is that you are only as good as your past so don't get too fixated on the quality of the deal. Spend all your time on the quality of the parties because the quality of the partner will determine your success not to be a.
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Leaders of The Crowd
Conversations with Crowdfunding Visionaries and How Real Estate Stole the Show
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