RentalStarter - A Midwest Real Estate Investment Company

[Branny]

This is the fourth, and final revision of our BTCtalk thread.

As of Q3 2016, it was decided among our advisory board to both no longer seek listing on any public or semi public exchange, and to no longer seek outside equity funding. This is partially due to the low liquidity we have been seeing on various bitcoin exchanges, and also a change in the way we wish our company to operate.

Starting out, it was our expectation for rapid growth by leveraging the bitcoin funds we had received with traditional bank loans. Over the past 3 years we have made multiple attempts at this and fallen short of both exterior and interior funding goals between both equity and bank leverage. As of today, we have only achieved a 1:1.25 rate of leverage. Our original goal was to reach 1:3 within the first 2 years of operation, thus slowing down rental acquisitions considerably.

Although slow, the company continues to grow due to new partnerships that I have worked out with investors outside of bitcoin and internet exchanges.

Because of these dealings, we as a company have decided that it no longer serves our investors a useful purpose to continue on as a company offering 'virtual shares', and have made the decision to convert all investment and structure to a traditional company. Part of this process will involve buying out all low-unit shareholders, and converting the remaining to direct stakeholders in our US registered entity. We believe that this strategy will help the company grow as it should, and to hit our longer term goals, which up till now have been very slow to achieve.

If you are a RentalStarter investor, please check your email regularly, as we have sent out multiple rounds of emails to all our investors, and received very minimal response. Additionally you can access the real-time RS  slack at rentalstarter.slack.com by using your registered shareholder email address. If you have not done this, you may have to go through a password recovery due to inactivity and not accessing your account since we set it up.

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[ffcitatos]

Did you consider the high volatility of BTC/USD? How will you protect yourself again fluctuations, or will the shares be denominated in USD?

[MikeMark]

Have you considered what will happen to your share value in BTCitcoin with a constant NAV or a NAV rising slower than the rate of increase in USD exchange rate?

Most investors want a return that increases their holdings of BTCitcoin. Just increasing in USD often isn't enough.

[fently]

One reason fiat denominated assets are useful is if you wish to hold some of your investment in fiat and some in BTC. This way the fiat portion of your portfolio doesn't just sit there in cash. So as long as the fundamentals are sound, and the risk is acceptable, I could see it being a very attractive alternative to just holding USD. Less so for the BTC portion of your portfolio, assuming you are bullish on BTC. I probably won't invest, because I have other strategies in place for the fiat portion of my portfolio, but I can see it performing quite well, and I can see it being a welcome addition/alternative to some of the other fiat denominated assets.

Best of luck to you!

[furuknap]

I see real estate as a good investment in traditional markets, but you'll find that a BTC-denominated asset that yields USD revenue will effectively be a USD asset and investors will be massively exposed to USD exchange rate, meaning that an increase in BTC price reduces the BTC value of the shares.

This can be good or bad, depending on the exchange rate. Perhaps a BTC-denominated bond might be a safer option for investors as it reduces some of the exchange rate exposure.

However, what about offering this to renters in BTC? You could reduce the exposure somewhat by offering parts of the rent in BTC only (10%-50% payable by BTC, with a quarterly adjustment for exchange rate, for example). This would be good for Bitcoin, split the risk of exchange rate exposure somewhat, and be good for marketing.

It is an interesting proposition, however, so I encourage you to move forward. Please provide estimated financial projections at the very least, as well as more background on the people involved (asset managers, property managers, partners, and so on).

.b

[MSantori]

Branny, I think this is a great idea, but aren't you just publicly soliciting equity investment in your company? You might want to consider a PPM before you do something like this.

[MSantori]

Branny, before you raise money (USD or BTC) I would suggest you speak to a competent securities law attorney in your jurisdiction.  

A PPM is a private placement memorandum that meets one of the disclosure requirements for a Regulation D private placement under the Securities Act.  Publicly soliciting investment in a business without a private placement memorandum will likely expose you to liability under the Act.

[Branny]

From my understanding, the benefit of using a virtual exchange was the ability not to have such a document prepared (We looked at Canadian shelf corps, ect prior to considering the 'virtual' method) due to the extreme cost of such services. I am not aware that any of the businesses operating on the exchanges we're looking at have had such documents prepared.

Edit - I'm looking more into one and it doesn't seem as high as what I was quoted last year for document prep in Canada (I was quoted between $5k-$25k).

I'll see if it's possible to get done easily.

[alxs]

I think this is a great idea and could be a model. 

[mvidetto]

What trading exchange will the shares be for sale on?  Also .1 BTC is ~$13 not $5.

[Branny]

What trading exchange will the shares be for sale on?  Also .1 BTC is ~$13 not $5.

Actually i've sort of changed my mind after talking to some guys about it, they wanted to make the share price even lower at .01 so I could get investors who are skiddish at even .1btc (So around $1.25/share).

I'm leaning towards BitFunder right now, however my brother has a offering on LitecoinGlobal and has nothing but good things to say about it. I have even considered listing it on both websites, but still leaning towards bitfunder at the moment.

[mvidetto]

Personally, I would consider exchanging on btct.co as well, I know a lot of traders that use that website because it's difficult to get funds to bitfunder.  Also, I like the .01 B share rate as that will attract more investors.

[Kushedout]

+1 for .01B

[kodo]

this sounds like a very interesting idea.

[Branny]

Just to let everyone know, we're in the final stages of being listed on Bitfunder. Just waiting on a few things from ukto before we go live.

[cusdog]

A couple of things:

1) Having any portion of the rent denominated in BTC is a bad idea. First, your typical renter does not have the sophistication (even if you manage everything and explain it to them, you will confuse/scare them). Second, unless you are dealing with commercial renters, the client is just going to up and leave if BTC shoots up (you collect nothing then) and if it falls you will lose on the FX. You can't denominate payment in a currency outside of what all the alternative options for the renter are (i.e. the rest of the apartments in your area which are strictly USD) no matter which way BTC moves, you lose.

2) You need to provide details with respect to your current asset base, what the IPO funds will be used for, etc. Unless your are dealing with micro-MBSes, there is no way to really diversify in RE without millions. Therefore, prospective investors need to know the exact details about what you are buying because the quality of each individual asset becomes so important. Your site indicates 3 new properties will be purchased and rehabbed. We would need to know more about these prospective purchases (i.e. what is your leverage going to be, estimated financing costs, what type of apartments, number of apartments, etc).  

3) You need to do a better job with respect to clarifying what % management fees and retained earnings (for growth) are going to be. Your current calculation is weak in that maintenance (different than growth) should be included in what you call "Net income" (as an aside for Real-estate the term is not really applicable, you should be using something like AFFO) and you should not be lumping management fee in with maintenance  and growth. If you plan to do some of the maintenance in-house then you should bill the company at FMV rates and count that as maintenance expense rather than management fees.

This is just the tip of the iceberg. There are alot more question that I think you need to be able to answer. The first step is hashing out your business (i.e. prior operations, use of IPO funds, etc).

None of what I wrote is meant to besmirch this offering or insult you. I am just trying to provide some guidance. I apologize in advance if I am being too harsh. I have a fair amount of experience with Real Estate companies (at the REIT level) in both reporting and finance, if you have any questions just ask.

[MSantori]

Branny, out of curiosity, how much are you looking to raise?

[Branny]

Branny, out of curiosity, how much are you looking to raise?

Around $100k.

A couple of things:

1) Having any portion of the rent denominated in BTC is a bad idea. First, your typical renter does not have the sophistication (even if you manage everything and explain it to them, you will confuse/scare them). Second, unless you are dealing with commercial renters, the client is just going to up and leave if BTC shoots up (you collect nothing then) and if it falls you will lose on the FX. You can't denominate payment in a currency outside of what all the alternative options for the renter are (i.e. the rest of the apartments in your area which are strictly USD) no matter which way BTC moves, you lose.

2) You need to provide details with respect to your current asset base, what the IPO funds will be used for, etc. Unless your are dealing with micro-MBSes, there is no way to really diversify in RE without millions. Therefore, prospective investors need to know the exact details about what you are buying because the quality of each individual asset becomes so important. Your site indicates 3 new properties will be purchased and rehabbed. We would need to know more about these prospective purchases (i.e. what is your leverage going to be, estimated financing costs, what type of apartments, number of apartments, etc). 

3) You need to do a better job with respect to clarifying what % management fees and retained earnings (for growth) are going to be. Your current calculation is weak in that maintenance (different than growth) should be included in what you call "Net income" (as an aside for Real-estate the term is not really applicable, you should be using something like AFFO) and you should not be lumping management fee in with maintenance  and growth. If you plan to do some of the maintenance in-house then you should bill the company at FMV rates and count that as maintenance expense rather than management fees.

This is just the tip of the iceberg. There are alot more question that I think you need to be able to answer. The first step is hashing out your business (i.e. prior operations, use of IPO funds, etc).

None of what I wrote is meant to besmirch this offering or insult you. I am just trying to provide some guidance. I apologize in advance if I am being too harsh. I have a fair amount of experience with Real Estate companies (at the REIT level) in both reporting and finance, if you have any questions just ask.

#1 - The option to rent in BTC is just a option, no one will be forced to utilize BTC to make a rental payment. Having said that we are talking to a mining company who may be interested in a commercial facility if/when we can find one for rehab & rental. In that case it would be a mixed BTC+USD type rent between multiple tenants.

#2 - We're not looking to diversify heavily early on, strictly SFD and duplex rentals with high cap rates. We're looking at 70%-80% LTV on most of the projects, leverage will be used after the properties have been rehabbed and rented out so we can show the bank(s) that there's already cashflow to hit the LTV values we're looking at. I can get into more of the details, those sample properties on the site are just samples because the market moves too quick to do a full disclosure on a wide range of properties because each has unique rehab costs, closing costs and the like. Median DOM in my area for flips/rehab properties that will meet our purchase criteria is around 45 days or so, great properties are 1 week. I'm trying to walk the line between gory details that won't make sense to most investors and providing enough information. I can get sample hud-1s and the like prepped by a local title company, but even those will only do me so good on figuring out closing/finance costs.

#3 - The way we stated the management/rehab %s is what we looked at with other listed companies and was suggested, I can break it down further without much of a issue.

Hopefully i can answer any questions that pop up.

[cusdog]

"#1 - The option to rent in BTC is just a option, no one will be forced to utilize BTC to make a rental payment. Having said that we are talking to a mining company who may be interested in a commercial facility if/when we can find one for rehab & rental. In that case it would be a mixed BTC+USD type rent between multiple tenants."

Yes, mining companies would be the only lessee for whom it makes sense to offer hybrid payment. The potential for a mining tenant raises an additional issue: Are you planning of have it be triple net? Exposure to energy costs should probably be mitigated.

"#2 - We're not looking to diversify heavily early on, strictly SFD and duplex rentals with high cap rates. We're looking at 70%-80% LTV on most of the projects, leverage will be used after the properties have been rehabbed and rented out so we can show the bank(s) that there's already cashflow to hit the LTV values we're looking at. I can get into more of the details, those sample properties on the site are just samples because the market moves too quick to do a full disclosure on a wide range of properties because each has unique rehab costs, closing costs and the like. Median DOM in my area for flips/rehab properties that will meet our purchase criteria is around 45 days or so, great properties are 1 week. I'm trying to walk the line between gory details that won't make sense to most investors and providing enough information. I can get sample hud-1s and the like prepped by a local title company, but even those will only do me so good on figuring out closing/finance costs. "

Yea, I can appreciate the need to balance disclosure with confusing laypersons and revealing operationally sensitive information. Maybe some background on prior transactions? The value-add numbers for rehab on the site look far "juicer" than I would expect (although that may be a function of the area and your management skillset), cap rates look reasonable. The property cost in your area looks cheaper than what I am used to, the $100K will go far it looks if you can indeed get something close to 80% LTV.


"#3 - The way we stated the management/rehab %s is what we looked at with other listed companies and was suggested, I can break it down further without much of a issue. "

Yea thats not really standard practice (nor does it make alot of sense). Management fee should be a fixed % of straight rents and then a "bonus" based on a normalized cashflow number (i.e. 5% of normalized FFO in excess of X). There is additional complexity here if you guys are doing the rehab yourself (i.e. what part of that work is covered by your mgmt fee vs. additional payments as maintenance/rehab expense).  

[Branny]

"#1 - The option to rent in BTC is just a option, no one will be forced to utilize BTC to make a rental payment. Having said that we are talking to a mining company who may be interested in a commercial facility if/when we can find one for rehab & rental. In that case it would be a mixed BTC+USD type rent between multiple tenants."

Yes, mining companies would be the only lessee for whom it makes sense to offer hybrid payment. The potential for a mining tenant raises an additional issue: Are you planning of have it be triple net? Exposure to energy costs should probably be mitigated.

"#2 - We're not looking to diversify heavily early on, strictly SFD and duplex rentals with high cap rates. We're looking at 70%-80% LTV on most of the projects, leverage will be used after the properties have been rehabbed and rented out so we can show the bank(s) that there's already cashflow to hit the LTV values we're looking at. I can get into more of the details, those sample properties on the site are just samples because the market moves too quick to do a full disclosure on a wide range of properties because each has unique rehab costs, closing costs and the like. Median DOM in my area for flips/rehab properties that will meet our purchase criteria is around 45 days or so, great properties are 1 week. I'm trying to walk the line between gory details that won't make sense to most investors and providing enough information. I can get sample hud-1s and the like prepped by a local title company, but even those will only do me so good on figuring out closing/finance costs. "

Yea, I can appreciate the need to balance disclosure with confusing laypersons and revealing operationally sensitive information. Maybe some background on prior transactions? The value-add numbers for rehab on the site look far "juicer" than I would expect (although that may be a function of the area and your management skillset), cap rates look reasonable. The property cost in your area looks cheaper than what I am used to, the $100K will go far it looks if you can indeed get something close to 80% LTV.


"#3 - The way we stated the management/rehab %s is what we looked at with other listed companies and was suggested, I can break it down further without much of a issue. "

Yea thats not really standard practice (nor does it make alot of sense). Management fee should be a fixed % of straight rents and then a "bonus" based on a normalized cashflow number (i.e. 5% of normalized FFO in excess of X). There is additional complexity here if you guys are doing the rehab yourself (i.e. what part of that work is covered by your mgmt fee vs. additional payments as maintenance/rehab expense). 

I'm not sure if we would do a NNN lease or not with the mining client, it would be a very odd hybrid situation (Mining company in part of the building paying USD+BTC, then traditional companies in other parts of the building paying USD). I mention the possibility because I have had over a dozen people ask about getting payment from a tenant in BTC and it represents just about the only way to do it.

I am in an area with very low investor activity. Partially because of the location (Rural area) also because of the median age - Most rehabbers/landlords are in their 60s or 70s. The only active investors who are taking up the low end properties good for rentals can only adsorb 2-3 new properties a year. The overflow sits around and drops till it's too sweet to buy. We already have a few contractors as well as private individuals who are able to rehab the properties.

We are in a very unique situation - There is a location I know of right now that has a very stable job market, almost no rental vacancy, yet the average 3br/2ba sells for $25,000 and rents for $750/mo. Appraisal value is pretty good overall, good enough to cashout refi the property and get what we put in it back. As I said earlier, a guy wrote a book called '1 minute to rental property riches' who is in my geographic area. He used similar techniques/methods (With traditional funding) to acquire 30-40 rentals and maintains them all himself.

I'll have to work on a disclosure for this, I am planning on doing some rehab myself but don't know a good way to quantify the value to make it as transparent as possible to the investors (If I go in and use my patented painting method, I can paint a rental in 1-2 hours at a cost of $100 or less, while a traditional company would take 10+ hours and charge around $1500).