It was big in 2016 – and will be even bigger in 2017.  What is “IT”? CROWDFUNDING, of course… and I’ve brought in a special expert to discuss this whole CROWDFUNDING PHENOMEMON with us… and his opinion is… shall I say… something DIFFERENT than the conventional wisdom.  I think you’ll love it.  I’m Bryan Ellis.  This is Episode #235.

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Hello, SDI Nation!  Welcome to the broadcast of record for savvy self-directed investors like you where each day, we help you DECLARE INDEPENDENCE FROM WALL STREET.

Today is show #235 so that means you can get the links, resources and transcripts from today’s show at SDITalk.com/235.  And if you’d like to participate in the discussion about this with us online, you can do that on Twitter or Facebook where you can find us at – of course – SDITalk.

Today I’m sharing a special interview with you I did with Sal Buscemi of Dandrew Partners LLC, a New York-based commercial real estate advisory boutique firm that helps institutional investors place capital into distressed commercial real estate assets.

He’s also a Goldman Sachs alum, having spent 5 years there as an investment banker, so he’s got the big-capital perspective of Wall Street, but the heart of a real estate man.  I’ve known Sal a long time, and while I don’t agree with everything he says.  I absolutely, positively respect his opinion.  I bet you will, too.  But first –

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Bryan Ellis:                       Sal, this whole thing called crowdfunding, there’s a lot of interest out there in this topic but from my vantage point, there’s a lot of confusion as well. It looks like from my humble but incredibly prescient viewpoint, this looks like amateur hour to me. How is crowdfunding playing out from your point of view?

Sal Buscemi:                    I’ll tell you, I think it’s going to be one of the largest vehicles for wealth destruction in this country. I’ll tell you why, because you’re getting less sophisticated people coming in with the bare minimum investment of $500, $1000. They’re able to get involved in deals but are they really getting good deals and what’s really the driver behind this? Are there interests … In the industry we say, “How are my interests aligned with the operator?”

Bryan Ellis:                       Right.

Sal Buscemi:                    The operator is the person who’s pulling the money, who’s going to buy the investment. You always want to ask the hard questions and a lot of people are just not sophisticated enough going into this knowing the hard questions to ask.

Bryan Ellis:                       Yeah, it looks like basically what’s happened is that crowdfunding’s made it to some degree possible for inexperienced investors to build pools of capital where before they would have at least had to go through maybe the Regulation D type offering at the very least. Now it’s much, much simpler for everybody so the bar’s lower and the dirt is thicker.

Sal Buscemi:                    Yeah, there’s a lower bar to entry, right? The cheapest capital support is the biggest losers. Now you’re going to have people who don’t understand the asset class, they think they’re buying one thing, are they really buying it and really, what is the operator’s experience? My saying in the industry is, “Good operators turn bad deals into good ones and bad operators turn good deals into bad deals.” That’s just the way it goes and I think when the … Especially now where we are in the market right now Bryan, things are capped out. What I mean by that, prices are at the top and interest rates have changed and nobody was doing anything until we saw a change in the election. Now we see interest rates creeping a little bit, it has to do with China, they’re dumping some of the treasuries, I don’t think it’s going to last but that’s going to affect a lot of …

                                         I don’t think somebody getting in it at a price today are going to be able to exit at the same price or more later on if that makes sense. It is no different than buying a house in Phoenix in 2007. It only was really worth at one point $200,000 but people are bidding as high as 350, 400,000 dollars. The only reason why they were able to do that is because there was so much cash readily available through subprime. The same thing is happening here and now you have one guy who decided to wake up one day, he’s tired of his corporate job, he’s a software engineer and he’s going to decide to buy an apartment complex two states away or two time zones away and I’m speaking from experience here. He has no one on the ground to manage it and he’s treating it like it’s a bond or a stock and it’s absolutely not.

Bryan Ellis:                       Right. Sal let’s back up just a little bit, what is crowdfunding?

Sal Buscemi:                    Crowdfunding in its simplest form is you’re able to crowdsource money from people using something that is passed during 2013 during the Obama administration called the JOBS Act, I think it’s title four if I recall correctly. It allows people to go out and raise smaller increments of money whereas before they would have to do something more meaningful using a Reg D. It would be more cost prohibitive, there would be a higher barrier to entry. Now, those barriers to entry have been removed as a direct result of the Jumpstart Our Businesses Act or I think that’s what the acronym is, the JOBS Act. That has made people able to go out there and crowdsource things as it relates to in simplest forms maybe new widgets, maybe new technology but it’s moving over to real estate and that’s really where the scary part is for me as someone who has grown up and been professionally trained as a classical distressed real estate investor his whole life.

My friends, there's a whole lot more of that interview you'll get right here on tomorrow's show.  If you'd like to hear it right now, you're welcomed to do that by going over to SDITalk.com/235 where you'll find the transcript and entire interview if you'd like to get it right now.

In the mean time, invest wisely today and live well forever... throughout ALL of this great new year of 2017!

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