How To Make Passive Income Through Real Estate Crowdfunding

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Today s guest is Jamison Manwaring Jamison is the co-founder and CEO of Neighborhood Ventures a crowdfunding platform for real estate investments He shares his background in real estate investing and the challenges of crowdfunding including the minimum investment required and managing a large number of investors Join Sam and Jamison in today s show ————————————————————– Starting Neighborhood Ventures 00 04 31 Challenges of Crowdfunding 00 05 36 Restructuring the Offering 00 07 52 Challenges of Crowdfunding 00 08 43 The Importance of a Simple Model 00 13 05 Investor Management Software 00 15 16 Challenges of Crowdfunding 00 18 18 Marketing in Real Estate 00 20 54 Launch of a REIT 00 22 44 Challenges of Crowdfunding 00 00 00 Minimum Investment Required 00 00 00 Neighborhood Ventures Online Presence 00 26 13 ————————————————————– Connect with Jamison Website www neighborhood ventures Instagram https www instagram com neighborhoodventures Facebook https www facebook com neighborhoodventures Linkedin https www linkedin com company neighborhoodventures Youtube https www youtube com channel UCbglON5k8i-bRS6fSsSno A Connect with Sam I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns Facebook https www facebook com HowtoscaleCRE LinkedIn https www linkedin com in samwilsonhowtoscalecre Email me sam brickeninvestmentgroup com SUBSCRIBE and LEAVE A RATING Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts https podcasts apple com us podcast how-to-scale-commercial-real-estate id1539979234 Spotify https open spotify com show 4m0NWYzSvznEIjRBFtCgEL si e10d8e039b99475f ————————————————————– Want to read the full show notes of the episode Check it out below Jamison Manwaring 00 00 00 – And someone in the front raised their hand and said well I got about 5 000 I d like to invest Could I do that in the preferred equity And me and my partner John we looked at each other and we re like well that s not really how we re structuring this We re you you know if it does well maybe you d get 15 If it doesn t do so well maybe you d get three or 4 right And then somebody in the back of the room raised their hand and they said well actually I would like to just do the preferred equity too Can I do that And it was kind of a light bulb moment Intro 00 00 29 – Welcome to the How to Scale commercial real Estate show Whether you are an active or passive investor we ll teach you how to scale your real estate investing business into something big Sam Wilson 00 00 42 – Jamon Man Wearing is the co-founder managing partner and c e o of Neighborhood Ventures Jameson welcome to the show Jamison Manwaring 00 00 48 – Hey thanks for having me Good to be here Sam Wilson 00 00 50 – Absolutely Jamon The pleasure is mine There are three questions I ask every guest who comes to the show and 90 seconds are last Can you tell me where did you start Where are you now and how did you get there Jamison Manwaring 00 01 01 – Started at Goldman Sachs Equity Analyst So I covered software and that s when I started investing uh in in real estate Um I I bought a building on the side that my dad s a real estate broker He found a good a good first deal for me 10 unit building multi-family building Needed a lot of work But I uh I wanted the experiment and I wanted the wanted to see if I liked it So so did that for my first project And where we re at now is now we we ve launched a company about five years ago a a real estate developer uh is my my partner He s the real real estate guy I m the finance guy We ve done 15 projects so far And then we also launched our fund our reit uh earlier this year Sam Wilson 00 01 48 – That is a lot of moving pieces I want to get into the history of some of that At what point in time did you decide to go out on your own and do your own thing Jamison Manwaring 00 01 58 – Yeah so I worked at Wall Street uh outta college I wanted to be a a trader on uh on the the trading floor at a big investment bank I did that didn t like it Uh I did it for quite a while ended up transitioning within the bank to a little bit of a different role that was more uh uh research and and valuation and really looking at uh companies and seeing what they were worth But I don t like the roller coaster of equities And I covered stocks that one day they would report earnings and they were up 30 Next quarter they re down 40 when they report earnings And it was just up and down So our our clients in those in at at that bank were large institutions pension funds mutual funds They re more used to that volatility But for me personally it it did not match my my temperament Jamison Manwaring 00 02 49 – And I started saving some money and uh was looking for a piece of real estate I knew I wanted to to own something I could see and touch So uh when I m working at uh Goldman Sachs I ended up my dad found me this uh building near my hometown that was 2000 miles away from New York where I was working But I ended up buying it And um and that s really what gave me the the first start I mean it took six months to get it up and running so it made no money for a while But I I viewed it as more of a learning experience And then you know the money started coming in the checks started coming in and paying all the expenses That was the first thing paying the mortgage And then beyond that started generating some some cash flow for myself Sam Wilson 00 03 33 – That s really cool I love I love that And then when did you when did you launch neighborhood Ventures Cause it sounds like you guys you ve been pretty busy here in the last Jamison Manwaring 00 03 42 – Few years Yeah so that was what got my feet wet And I knew I liked it but I stayed in the uh investment side uh corporate investment side for about another three years I I moved to a company in in Arizona LifeLock and I I had worked on their I P O when I was in New York Uh and I ran their investor relations I had got to know the the founder there and and uh I was ready to get outta New York So he they offered me a job to run their investor relations And um and then about 18 months later we got bought out and I I had the opportunity to kind of decide what would be next And uh having that first experience that I really enjoyed I I like seeing kind of the transformation about a building that needed needed work but I could see the potential Jamison Manwaring 00 04 31 – And I guess I m just one of those people that I enjoy seeing something come to life that uh that you you you see it you see the potential you make it happen After I had done that and then my company got bought out I really wanted to do something in I wanted to do more of those projects and I knew I would need to start raising capital And uh I met a guy who s now my my business partner and both of us were really intrigued around crowdfunding We thought it could be a great way to bring in more people who have never been able to invest in apartments before that that you know aren t wealthy Um people people who were like ourselves and and the families we grew up in where we didn t have a lot but we worked hard and and tried to save some And with with crowdfunding it really opens it up to everybody You could start with a few thousand dollars and invested in projects and follow those projects all the way through So um we launched the company in 2017 and uh we ve done 15 uh crowdfunding projects so far Sam Wilson 00 05 36 – That crowdfunding is uh I mean not many people I think in the larger larger transaction commercial real estate space they re not willing to go there Not willing to go there both from just I think the the the lack of understanding of completely how it works and then also from a complexity standpoint And also I mean uh what s what s your guys minimum What s your minimum investment Jamison Manwaring 00 06 03 – You know we were thinking about maybe we do 10 000 maybe 5 000 We end up settling at a thousand So we have a lot of people who just met invested at the minimum uh on one of our projects we have like 400 investors So I can totally understand why someone would shy away from that because that s it s it s kind of a whole different business when you have that many investors right That you have to really take care of them We ve we ve we ve made a big investment in our own software platform to manage all of that right And um you know it it after we did our first project I thought this is not gonna work Why why why uh why would we do this It took us six months to raise a half a million Um and and we identified our first project and we thought okay let s use this as kind of our beta test and let s see see if there s a market here for uh smaller investors to to raise uh you know half a million dollars Jamison Manwaring 00 07 05 – So we thought maybe that would be you know 50 people or a a hundred people And it took us um at three months in we had raised 200 000 And we thought okay this is this is gonna be really difficult because the seller was getting antsy They wanted us to close We we were friends with the seller So he said he d give us a few months but at that point he said you know this you can raise this money a lot easier Why why are you doing it this way Right Um and my my co-founder and I we we set a a rule We said we re not gonna call our our friends and fund this We wanted to really see if we could do it with new smaller investors And so we wanted to see if there was a market here And we ended up having to restructure our our our uh offering Jamison Manwaring 00 07 52 – You know initially we were gonna do a waterfall I don t know if some of the the listeners and your yourself I m sure you re familiar with waterfalls how they work with preferred equity and then you get upside and and they re very confusing to the average person Mm-hmm And that s what we found Sure And after we tried to to do that for three months and couldn t get any traction we ended up we were actually sitting in a meeting with um a bunch of potential investors And we had one larger investor who had said that they they would fund you know a couple hundred thousand with a 10 preferred equity and they would get preferred equity And what preferred equity means is you get paid first So it s a lower risk because the preferred equity holder gets that money uh before everyone else Before after that it it s the next thing that gets paid Jamison Manwaring 00 08 43 – And we said we had a big investor who was going to do that and then we re trying to explain to this group of it was about a hundred people that after that person got paid now then if the project did this they might get this return If it did this get this return all in waterfall And we re looking out and someone in the front raised their hand and said well I got about 5 000 I d like to invest Could I do that in the preferred equity And me and my partner John we looked at each other and we re like well that s not really how we re structuring this We re you you know if it does well maybe you d get 15 If it doesn t do so well maybe you d get three or 4 Right Jamison Manwaring 00 09 18 – And then somebody in the back of the room raised their hand and they said well actually I would like to just do the preferred equity too Can I do that And it was kind of a light bulb moment where we looked at each other said well let let s let us get back to you Because we had been we d had a hard time raising our capital at that point Yeah So we ended up going and restructuring it and paying a 12 preferred return to our investors Once we restructured it we ended up selling it out in about a month We raised half a million And now the the 14 projects we ve done since then all of our investors receive a 12 preferred return And then if we can achieve more than that then that s where our profit comes in Uh they re capped at 12 but they re very comfortable with that They re happy to get their 12 return Sam Wilson 00 10 07 – That s it It s there s 12 you get 12 Now it s it s it s preferred Not guaranteed but so it s a 12 preferred return And after that they re done Jamison Manwaring 00 10 20 – And it s it s um simple Yeah Because our investors don t do this They they re working their day job They re we have firemen we have doctors we have uh school teachers and they they wanna start puts money away so they can just know 12 makes more sense and it s a good return And they get a lot of it along the way As we start generating cash flow they they start getting that you know five 6 a year and then the other portion of the other 6 that they aren t getting they get paid at the end when we sell So they accrue that And our projects are two or three years each and then they get a big payout at the end Um we ve had six of em go full cycle and then the investors come back and reinvest But yeah that that preferred really changed the game for us Jamison Manwaring 00 11 05 – But it was it was a slog You know anytime you re trying to have somebody write a check whether it s a thousand dollars or a hundred thousand dollars or a million it s a process You it s a you know you re not and and for us we have to do that with two or 300 times with each investment but it s gotten a lot easier Now we re starting to get some momentum behind it because we have a track record But uh there was a lot of times where I said yeah we need to there s a lot of easier ways to do this Sam Wilson 00 11 33 – There are man there are and hearing hearing your story of a six month slog to a half a million dollar raise uh boy that that s that s painful Um but I I think obviously you knew this you re onto something You just you just had to figure out how to make it work I I I didn t ever hear any like all right we re gonna throw in the towel and just just quit Jamison Manwaring 00 11 53 – We we knew going in that we were we were really doing the first one to learn Yeah And uh and we had a long-term view you know if if you re hustling and you gotta make a lot of money on this first deal it it makes it tough It adds a lot of stress So we just had a long-term view We said we wanna we wanna see if there s a market here The second deal we did two or three months later it took us two months to raise 600 000 Cuz a lot of those investors had gone through the educational process and now they invested Right Our last deal we just launched uh what three weeks ago we hit our target raise in 10 hours Right Um and and now we have a base of investors that we re growing um who who continue to come back and invest with us And now now we we can kind of see the the beauty of the of the business model Sam Wilson 00 12 41 – Right And that I mean that s that s a uh just a encouragement I think to anybody that s out there raising capital especially newer um newer sponsors raising capital and just how difficult it can be in the beginning like getting that momentum It is like you said you know you sold out in 10 hours Like that s a very different experience than let s raise a half a million dollars in six months Jamison Manwaring 00 13 05 – Yeah And and uh you know it takes seeing a few deals go full cycle Yeah You it it is a a uh you gotta have a long term view You have have to have some patience some delayed gratification Mm-hmm but you know doing what you say uh and investors have a great experience with it and they get to know you They they wanna keep doing it and and and coming back So it is a uh that s the barrier to entry in the business is that first you know five deal five four or five deals in for several years to to get it going But there is light at the at the tunnel uh as you get through it Right Sam Wilson 00 13 44 – I like also the way you ve simplified things that you said It s very confusing for the average investor the waterfall uh I get it at this point cause I ve seen enough of the deals but but we ve moved even to a model like that in our syndications where it s a preferred and we re we re still not given just a straight you know 12 or whatever it is We re still doing a split but it s it is a base split It s like here s the number and we re splitting this and we re done And there s just no more like okay if then that statements that we re working through on a series of you know five pages long I mean I I literally saw a deal deck came to me The split profiles were like three pages of if we hit 18 then by that and with the X happens then I was just like this is Jamison Manwaring 00 14 28 – Like and and and you know as an investor because I was a uh an investor before I started doing it on the site I was starting to look at deals and I couldn t even calculate it And I m a I m a Goldman Sachs equity analyst calculating all kinds of crazy stuff And I I was like boy how can I really get confidence around what my return s gonna be Yeah Cause it was so complicated right Sam Wilson 00 14 53 – Oh man And the confused mind says no Right Jamison Manwaring 00 14 56 – Right That s the that s the default If I can t understand this then it s a no Sam Wilson 00 15 00 – Then it s a no then it s a no Tell me this you you mentioned uh software managing this many this many investors for a smaller sum of money How does that become cost effective Jamison Manwaring 00 15 16 – Yeah it s a you you ll find out quick if you get over I don t know 20 investors that you you have to get off of Excel and uh you know and and uh whatever you re doing at your desktop uh software to manage that And you have to figure out a better way to to uh uh work with them And and most investors you know it adds some credibility to if they can log into something and see what it all looks like Yep So we initially used a uh a software as a service uh a kind of out of the box software the white label Yep And then we were able to put our name on it and and that cost us a couple grand a month And uh and then we realized uh that that got us off the ground And that s great because it wasn t a big investment for us Jamison Manwaring 00 16 06 – Right And there s those platforms out there This one was called Crowd Engine cuz we were doing crowdfunding But there s others for uh sponsors that might have more like 30 or 30 to a hundred investors or or that that can work real well Um uh Juniper Square I think is another one Mm-hmm Um uh but I I think that s an important thing today is is allowing people to log in to see see what they do And then we last year we ended up building out our own platform which was a significant investment And now we have a full-time programmer on our staff that to manage it to keep pushing it But that that s our business model We re a we re a part tech company because we re crowdfunding We do a ton of marketing we do a ton of content because we gotta talk to a lot of people We gotta keep broadening our audience We want we wanna hit you know um a hundred thousand investors in five years mm-hmm So we re we re growing that way Um uh and and so we ve put a lot of resources behind it So it s a little different uh for than than the traditional syndicator But I do think that software is important Sam Wilson 00 17 13 – Yeah No absolutely Absolutely It sounds like you have a pension for not I m not gonna say difficult things but but figuring out going places that most people probably just don t want to go I mean does that kind of get you going where it s like okay this is really complicated I gotta figure out how to do it Jamison Manwaring 00 17 31 – I you you re reading you know me too well and my business partner it s the same way Sometimes it gets us in trouble It s like we should have just done the easy way Uh but um you do learn a lot through the hard way Right And then you can default you can say okay that wasn t worth it Right But you know it does make it kind of fun And and we actually when we started the business both he and I we didn t we didn t need to start the business We we could have done other things but we wanted to go try something new We wanted do something novel um unique And that s kind of driven everything else we ve done because we re not afraid to shy or sh we re not sh shy at jumping into something that seems difficult Um if if no one else is doing it it might be an opportunity And that s that s kind of how we ve approached it Sam Wilson 00 18 18 – I would imagine you mentioned the um marketing side of crowdfunding I mean there s got to be there s got to be uh a robust uh plan and budget probably in place if you re thinking about crowdfunding which I am not But if any any listeners are thinking about this I m just guessing here maybe you can fill in the blanks cause I ve never done it but a robust uh marketing plan and then marketing budget in order to launch a crowdfunding investment Yeah Jamison Manwaring 00 18 49 – If um you you I don t know if anyone s heard or or you ve heard about stories on Kickstarter where you know they they have a a new invention they re gonna they re gonna put on Kickstarter and that that was really what crowdfunding came from And you think you know the old adage if you build it they will come um if I put my this new widget on Kickstarter all of a sudden everyone s gonna flood the gates and invest And the reality is that um you have to do a ton of marketing behind behind that Uh and you know if you re gonna get uh if you need to get a hundred investors at 5 000 each you you have to talk to uh several thousand people that actually listen to you and go through the whole thing You you can t you know not just I m not just saying put a an ad out on Facebook or Instagram or something but it you really have to engage several thousand people Wow Jamison Manwaring 00 19 45 – To get that many investors uh whether that s Kickstarter and a widget or whether it s a real estate project And one platform I would recommend is small change Uh it s a company out of uh Pittsburgh but they re basically Kickstarter for real estate projects So you could put a project on there You don t have to have the software They have all of it right Uh they they charge a a you know a fee 6 something like that of of what you raise But they but you could put it on there And they work with the s e c they re rig CF platform And uh and it s and you can put your offering there there but the problem is once it s there they do have an audience you know several thousand people who follow them But you basically have to do a lot of the heavy lifting to get people there and invest But I think it s a great place to start Um and and uh small change dot uh co is their their website Um and uh and then you have to decide okay how are we gonna market this How are we going to find people to invest in it and get creative about how to do that And you have to be a marketer on that side of it Sam Wilson 00 20 54 – Right Yeah And that s uh that s the other half of this business And I love the way you ve partnered up there with your apartment developer side of the business that handles that And I think that s that s an often overlooked aspect is that Yeah this is a lot of what we do is marketing I mean this podcast is marketing It really is And it s it s just it s just the the part of it that s oftentimes overlooked as we in real estate want to be real estate people doing a b buying apartment complex as well Half of the business is marketing So Jamison Manwaring 00 21 26 – Yeah And because there s a lot to that business in and of itself Yeah I mean you gotta you gotta be good at a lot of things here for me I know I m not that good at multiple things Right Um so I have a business partner who s really the construction guy the real estate guy Our property managers report to him our construction crew reports to him he finds our deals Um and then he says I don t really wanna talk to investors You got that right And you know I and I he he he s not looking at the month in books uh to send out to investor I m doing all of that So we ve we ve split that up because there s a there s a lot to it There really is Sam Wilson 00 22 04 – There sure is And we are almost out of time here I want to I do want to get one Since since since you love complicated things You ve done crowdfunding you ve built your owned uh backend portal for all of your your now thousands of probably investors on a crowdfunding side of things You just launched a reit Tell me the kind of in maybe 60 seconds if you can uh the thought process behind it and much like you found with the 12 preferred return to your investors what what was it that was in the market that people were saying Hey we want a REIT that does X So you decide to create that What was that kind of uh inspiration for that Jamison Manwaring 00 22 44 – As our projects went full cycle and we sold them we had a lot of investors that said whoa whoa why are you selling that building We really like that location We would ve loved to stayed in it but we structured it to be a two or three year hold period so everyone would get liquidity including us So we had to do that for a while But we realized that we had built up an a base of investors that would love to be invested with us more long term And so now uh with with the launch of the re part of the reason was that we can take some of these projects that we renovate and we reposition and instead of sell them to a a third party we the REIT buys out the equity almost like uh it s called a like an upreit So folks that are in the project can convert and roll their their proceeds over to the reit Jamison Manwaring 00 23 36 – And now the REIT holds that project And we knew that we had a lot of investors who would be interested in doing that cuz they like our project they like the returns Um and then uh the the second thing for us is it provides a bit more stable business longer term because now you know we re not just doing deals but we re we re building a fund The REIT doesn t have a an end date It s gonna work in perpetuity And so you know we collect a management fee on that and then we we we get 80 of our upside to the investors as those assets held in the re go up in value Investors get 80 of that and we re only gonna take 20 So for an investor that s actually really attractive that they can invest in stabilize cash money assets and as those things go up in value they re gonna get a a a good p piece of that Jamison Manwaring 00 24 29 – Um so there was it was kind of the maturation of our business It just kind of took us to that place where that was the next right thing and it s you know it s we re doing it as crowdfunding as well So we we re gonna need about 10 000 investors in our reit Wow Um and we have uh three four years to do that So the REIT will be open fundraise for that period of time And uh and it took us about nine months to to create the reit We had to work with our legal team and the s e C had to qualify it before we could launch it So it was kind of its own own thing When you work with non-accredited investors like we do through crowdfunding it is much more compliant uh compliance route uh is involved because the there s all these protections for those folks so they don t lose their money If you re working with accredited investors wealthy investors it is a lot easier to do a re to do a fund right To to li to raise money But we we uh with the non-accredited folks that there s a lot of complaints involved Sam Wilson 00 25 34 – Boy I can only imagine that there is there I I like the way you re thinking about that It s almost like an internal recap uh with with the REIT as opposed to maybe doing an an institutional recap on your projects You re recapping it with your own investor base which I think is brilliant Cause I think on the institutional side they re those splits on those recaps are often 90 10 So I mean it s kind of a it s an even better deal maybe for you guys but also for your investors cuz they they already know and like the deals that you re involved in So it s very very cool We are absolutely out of time which is a disappointment cuz I ve enjoyed this conversation thoroughly I ve got about 500 more questions for you but we don t have time for it either way Jameson of our listeners wanna get in touch with you and learn more about you What is the best way to do that Jamison Manwaring 00 26 13 – Uh go to our YouTube channel If you just type in Neighborhood Ventures and YouTube we put out a lot of content there Our website is Easy neighborhood ventures and uh I d I d invite you to follow our content If you never plan on investing that s fine I think you ll learn learn from what we do We go do a lot of behind the scenes stuff and I and we have fun with it We uh uh also have a podcast kiss my assets uh try to have fun with it So uh follow our stuff We d love to have anyone uh uh follow along Sam Wilson 00 26 43 – Awesome Jameson thank you so much Enjoy the rest of your day Hey thanks for having me It s been fun Hey thanks for listening to the How to Scale Commercial Real Estate podcast If you can do me a favor and subscribe and leave us a review on Apple Podcast Spotify Google Podcast whatever platform it is you use to listen If you can do that for us that would be a fantastic help to the show It helps us both attract new listeners as well as rank higher on those directories So appreciate you listening Thanks so much and hope to catch you on the next episode Click here to visit this podcast episode