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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

September 26, 2018 | Crowd Teasing

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

This was probably inevitable.

So what do you get when you combine a moister thirst for real estate with a cool phone-based app, blockchain technology, human greed, crafty marketers and investor illiteracy? Well, in Van it’s called “IMBY”, which means In My Back Yard.

Here’s the idea: crowdfunding. That’s it. People get the chance to use their phones to acquire shares in a company which buys properties they could never afford. Initially these “investors” will end up with a tiny piece (think one drywall sheet or three asphalt shingles) of a 100-year-old YVR house being redeveloped into a few condo units, and perhaps in the future a share in homes people are refinancing.

“We believe everyone should have the opportunity to invest in property in the communities they love,” say founders Michael Stephenson and Stephen Jagger. “That’s why we’re reinventing real estate investment.” This makes IMBY into Millennial clickbait, given the fact nobody can afford a house there anymore and because of the fabulous promise of “returns of 35%” that the founders are dangling.

The first project (and maybe the last) is a gut-house being bought for $1.6 million with almost all of that land value. Stephenson & Jagger think it can be rebuilt and expanded for $1.2 million, with strata units being completed in 2022, making it worth $3.75 million (seriously). Of course, with lots of approvals required, the cost of building, rising mortgage rates and a slumping Van market, risks abound. This is a purely speculative real estate play being made at a time when lots of professionals are pulling in their horns after a fabulous 9-year bull run.

But the hype is intense, since S&J are very good at selling.

“Our first development property on the IMBYx platform is sold out — there are 200 investors in this house,” Stephenson said in a recent media piece. “Bar none, real estate has been the world’s best investment over the last 150 years,” Stephenson says. “It’s an amazing investment class that most of the public doesn’t have access to because the barriers to entry are so high.”

Young, property-less investors may find the reality a little different.

In documents filed with the BC Securities commission, IMBY discloses that as of a couple of weeks ago (Sept.13)  only 86 locals had signed on, committing just $107,000 to the project. They also reveal the first allocation of funds raised will be to pay back IMBY’s founders for a loan of $688,634 – not to build out this little strata project.

Other things the app-flipping, smartphone, blockchain-struck, crowdfunding young ones should know: The shares they’re buying are illiquid. There’s no way to sell, trade or cash them in without the consent and approval of the directors. The total capitalization of the company is less than $1 million, and it has no revenues other than potentially renting this old property for $3,000 a month until enough cash is raised to raze it. In other words, if crowdfunding fails, so may IMBY. And no refunds.

 

There’s more. The money being brought online will be used to buy this property, not build it out. That will take a further crowdfunding of $1.2 million (expected soon). Naturally that will dilute the equity position of those who bought in early.

Additionally, the founders have zero experience as buyers, developers or builders, according to the Securities Commission filing. S&J are tech guys and real estate marketers. They spent most of the last decade together in the Philippines building out a successful web site that provides virtual assistants to realtors, plus an HR app and an instant messenger/AI platform. Clever boys. But hands-on, two-by-four guys they are not.

And what of this big plan to let homeowners go online, list their properties then have people nibble away at their equity by buying pieces of it for as little as $1? Yikes. A legal quagmire. Just imagine selling off 17% of your house to 231 “investors” and then trying to sell it. I understand having a shared economy and communal assets is all the rage these days, but is this not a perversion of what residential real estate is meant to be?

So while IMBY is a bold idea, a sexy app and perhaps a dodgy investment, it sure turns a corner on home ownership. This is the final admission houses in Van have become investment assets, not places to raise your family. By integrating crowdfunding into neighbourhoods these guys remove one of the last lines of defence against runaway, speculative pricing – the fact that when average families cannot afford average house, markets inevitably correct.

As an investment, this is unproven and illiquid. As social policy, it sucks. As an accelerator of prices, it’s genius. And for those who own 51% of the company that others finance, well, you know.

Let’s hope the moisters are not this naïve.

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September 26th, 2018

Posted In: The Greater Fool

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