In this episode of The Real Estate Podcast, Kevin Vandenboss speaks with Adam Kaufman, COO of ArborCrowd

Kevin and Adam talk about:

• The Capital Investment into Single Family Homes
• Multiple Family Real Estate Appraisals
• Investing in real estate funds versus multi-family properties
• Build to rent properties
• How multi-family properties are valued

Guest:

Adam Kaufman, COO of ArborCrowd

Host:

Kevin Vandenboss

Real Estate Expert at Benzinga

Twitter: https://twitter.com/KevinVandenboss

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Disclaimer: All of the information, material, and/or content contained in this program is for informational purposes only. Investing in stocks, options, and futures is risky and not suitable for all investors. Please consult your own independent financial adviser before making any investment decisions.

Welcome to the Lazy Landlord podcast here on Benzinga today, we have Adam Kaufman, who's the co-founder and COO of the real estate crowdfunding platform ArborCrowd.

Kevin Vandenboss: I would love to hear a little bit about that and how that turned into actually starting ArborCrowd.

Adam Kaufman: Thank you for having me here today, Kevin I'm I'm excited to be here.

I have been around real estate, my entire life. Some could argue that it's in my blood. My father, he's a serial entrepreneur in the commercial real estate space. He is the chairman and CEO of a publicly-traded real estate investment trust our Realty Trust. They offer financing solutions, and mortgage solutions for sponsors and borrowers in the multi-family space.

In particular, my family members work in real-estate. It was always talked about around the dinner table almost every night growing up. So it was just a part of me.

Kevin Vandenboss: What really inspired you to get ArborCrowd going?

Adam Kaufman: I think it's really the entrepreneurial nature that I grew up in and around that, that my father has been really exhibiting.

Something called the jobs act was passed in 2012 and 2013 that jumpstarted the business startups act, and it had a lot of different effects on the world. But what it did for real estate and crowdfunding in general, was eliminate the prohibition of general solicitation to invest in opportunities.

So prior to that, you had to have somebody in your role at X before you could reach out to them to solicit investment. For the first time now you did not, you could go more broadly online and through the access of technology and the reach of technology you could actually solicit people to make investors.

At that time, I was, watching this very closely as it was happening. I was actually working in DC at the time and was very aware of it. And our entrepreneurial background led to the understanding that all of a sudden, there was going to be a whole new investor class that was going to come online to access real estate investment opportunities.

And we wanted to take advantage of that and provide that opportunity. Knowing that we have so much experience in the market and so much access and partnership.

Kevin Vandenboss: What makes ArborCrowd stand out from others?

Adam Kaufman: Firstly, I think it's important to note that anybody could be a commercial real estate crowdfunding platform. What does that mean? You can create an investment, and create a website to find the investment and post it online. It's really as simple as that. And at the end of the day, I think that the environment in which we operate and live in needs a lot more structure and regulation.

And that's something that I've been talking about since the inception, but more specifically to your question, there are a lot of different models out there. There are a lot of more serious players out there. But with that said, we all operate very differently. One of the things that we do first and foremost is identifying ourselves as a real estate company, not a technology company. We have expertise in single family real estate.

We believe the underlying product is real estate. You have to exhibit and have the expertise in the product before you can offer that to the crowd or offer investments up on your platform.

And there are a lot of platforms out there offering a lot of different asset classes, and deal types to investors. And with our experience, we understand how difficult it is to be an expert in so many verticals, so many asset classes, especially when you're not even identifying as a real estate company, you're a technology company.

So it's important that investors really look and analyze the platforms that they're investing in. The underlying expertise and the underlying business plans of the individual properties.We focus so much on quality. We front the equity.We write the check upfront, which is great for the sponsors, because it de-risks the deal from the investment standpoint and because the deal is closed so we can present all the materials finalized to invest in. We're in it, we're taking that risk and that's an important nuance.

Kevin Vandenboss: The offerings that you guys have: Are these like direct deals where somebody investing in multifamily property or are they funds where you invest in several properties across a portfolio?

Adam Kaufman: You ask a great question, because there are three types of models that you can invest in: there are marketplaces, which just present other people's deals and act as the middleman. There are companies that offer funds where they raise the money in advance and then identify the deals that they want to invest in. Then there's our model, which we call the direct real estate investment model, which we've identified the deal, we have closed on it, we've written the check and you have the opportunity to choose which individual deal you would like to own.

And the fund model is something that sounds appealing.I inherently think that there's a tremendous amount of risk in that model when you're dealing with a retail investor or somebody who has not invested in real estate or invested in frankly, anything before, right? Some of these platforms have minimums of $500, $1000 dollars. If you were to go to their investors and ask them and say, Hey, what other types of investments do you make? They might say, I own some Nike stock, or I was gifted some Apple stock, right? That's a scary concept that they're reading a tear sheet saying, "Hey, broad investment strategy: retail, Northeast" that's it, no properties identified. If things go wrong, that's exactly who the SEC comes in and targets.

So I think there's a lot of risks there and that's why we don't offer that model. We also think that our model offers people to truly diversify in their port.folio and pick what they want to invest in.

We definitely have a lot of local investors who say, "this is in my backyard.I love this. I get to drive by seeing how the project is doing and be a part of it"

And that being a part of it is such an instrumental drive in the crowdfunding space.

Kevin Vandenboss: Why the big bet on single-family rentals right now?

Adam Kaufman: It's been my belief for about a year now. And I've been talking about it very actively in the market that you're seeing a rise in housing prices because of where the interest rate environment exists existed, exists today.

And is the amount of money that was printed and put into the economy by the government through stimulus really dates back to 2008, 2009. We've just been on an upward trajectory. I think that more specifically you have the institutional play coming in and that is contributing as well.

I think it's not as major as some of the other factors, but it is there. When you drill down on it. And what's important to note is there's a difference between single-family rentals, scattered-site communities that are being bought up by institutions. And what we're doing, which is build to rent communities. We are finding land and we are looking at the environment and we are building new homes for rental, from scratch. That's adding housing supply. That's helping, that's feeling a demand. We have a shortage of housing. There's a problem with affordability across the board. People want to rent,they want the amenities of what a home offers but they can't afford it. They're being priced out. They want to rent. We provide that for them.

The scattered-site concept that institutions are buying is dangerous. They are affecting the market while be it, most of the market more than 75% is still owned by mom&pops around the country but they are having a big play in it. And more specifically, this asset class has only 5% of the overall multifamily market. So it's important to also know the specifics there, but it is having a play.

And at the end of the day, the way that I look at it for investors, these larger institutions come in and when they buy these homes and they establish these funds and they go out there and they buy these portfolios. They're relying on a couple of different things, they're relying on increasing rents, but they're also relying on appreciation and the market that we exist in today, appreciation may no longer be there.

So these funds will take a hit. But with that said the immediate effect right now is affordability and homeownership. And we're in a bad place.

Kevin Vandenboss:These this build to rent communities: Are they valued on, each individual home and what that might be worth collectively?

Adam Kaufman: They're valued like a multifamily property in that they are the aggregate. You could always break down and we do in our analysis, what each home could sell for. We never have it in our business plan to individually flip a home or sell it. We are solely out there to do build for rent. They're looked at really as a multifamily asset and, we're looking at the local markets and what are the desires of people and what will they pay? So we're analyzing, we're looking at our square footage for each building and what we're offering, and the rents. And obviously, we put a lot of work into making sure that the fundamentals are supported by that local market.

Kevin Vandenboss: Are people renting because they can't afford to own or are they renting because there are a lot of benefits to renting instead of owning a home, especially in a community with amenities or, is it a mix of the two?

Adam Kaufman: It's a pretty good mix. You had, COVID accelerate a lot of trends, right? With millennials, you had people moving from urban areas into suburban areas who couldn't afford the down payment of homes. And weren't sure where they also wanted to end up permanently.

People want more space to work from home. All of those factors contributed greatly to the rise in the demand for this specific asset class. A lot of those trends are here to stay for the long-term and people are getting used to space and people are okay now living in the major urban areas anymore, just outside them to trade that off because even look at the millennial population, they're a huge population that's coming of age, family formations happening.

COVID accelerated their demand or their shift into housing out of the urban areas. This is the perfect product for them, and we're seeing a lot of that across.

Kevin Vandenboss: A lot of our, our listeners here are actually new to real estate and, they're starting to look for things outside of stocks or crypto that they can start investing in.

I'd really love to hear from you, what your reason is for investing in real estate, and what it is about this asset class that, that has attracted you and that you still love?

Adam Kaufman: It's a tangible asset. And specifically, what we focus on is the bread and butter of housing, right? It's workforce communities, and multifamily communities the demand for that will never change. It might go rent might go up and down, but there will always be a demand.

In fact, there's a shortage across the board. I really like the fact that it's tangible. I like the fact that it's always in demand, so it's more safe and more secure. It traditionally acts as a hedge against inflation. You have the ability to move around rents, which is a really big deal. And you're not tied to the public markets.

So sort of diversification for investors is huge. Those are all the factors that I've always liked. I think that they're incredibly and strongly supported Right now the investment interest in multifamily has only grown from that. And with everything going on in the world today, I think that'll continue to happen.

Kevin Vandenboss: Any final piece of advice you want to give investors in terms of navigating the market right now?

Adam Kaufman: My advice would be: know who you're partnering with, know their experience.Look at where they're projecting to exit. Is it realistically in line with where the market is heading right now? It's important to do your diligence, take a lot of things into consideration and ask questions. If you don't get answers to those questions, then there is a problem.

Kevin Vandenboss: Thank you so much, Adam. It was great speaking with you.