This document provides an overview of real estate crowdfunding (RECF). It explains that RECF connects real estate developers who need funding with online investors. There are typically two investment types - debt crowdfunding, where investors receive interest payments, and equity crowdfunding, where investors receive shares of property ownership. The RECF industry is growing due to regulations allowing more investors to participate and banks' inefficient lending processes. Major RECF platforms employ different strategies in how they fund deals and what minimums and fees they charge investors. The document concludes by introducing the Pyle Loans platform, currently focused on providing short-term real estate loans to borrowers.

1. THE ULTIMATE GUIDE:
REAL ESTATE
CROWDFUNDING
Steven Lo | Marketing Manager | www.pyleloans.com

2. 1. WHAT IS REAL ESTATE CROWDFUNDING?
2. HOW DOES REAL ESTATE CROWDFUNDING WORK?
3. INVESTMENTTYPES
4. WHY ISTHIS A GROWING INDUSTRY?
5. RULES AND REGULATIONS
6. PLAYERS
7. PYLE
OUTLINE

3. 1.WHAT IS REAL ESTATE
CROWDFUNDING?

4. PROBLEM #1
Developers/Borrowers don’t have access to quick/adequate capital.

5. PROBLEM #2
Most people have little/no access to real estate investments.

6. SOLUTION
Real Estate Crowdfunding (“RECF”)

7. RECF connects developers and investors online.
Developer/
Borrower
RECF platformInvestors

8. Through RECF platforms…

9. Developers/Borrowers get the funding they need…
…and the crowd gets to invest in real estate deals they
normally wouldn’t have access to.

10. 2. HOW DOES REAL ESTATE
CROWDFUNDING WORK?

11. Meet John. John fixes & flips houses for a living.

12. John finds a new home to fix and flip.
The purchase price is $5MM.

13. John puts up 10% of his own money.

14. The bank agrees to finance 60%.

15. Who will finance the remaining 30%?

16. ENTER RECF.

17. John is going to source the remaining 30% from
“the crowd” via a RECF platform.

18. Through a RECF platform, John offers investors the opportunity
to finance the remaining 30% ($1.5MM) of his project.*
*The picture above is taken from patchofland.com.

19. Who are these investors?

20. They’re people who want to make passive income but
who did not previously have the opportunity to
participate in real estate deals.
(Minimum investments typically start at $5000.)

21. Through the RECF platform, these investors create online
accounts and invest from the comfort of their homes.

22. After Day 1, investors collectively fund $800K of the $1.5MM.
0 $1.5MM

23. By Day 5, more investors have joined and $1.3MM of the
$1.5MM is funded.
0 $1.5MM

24. By Day 9, even more investors have joined and
the full $1.5MM is funded!
0 $1.5MM

25. John uses the proceeds to buy, fix, and flip the home.

26. The investors earn monthly interest.

27. 1 year later, John sells the house, and repays the bank.Then he
repays the RECF investors’ principal and accrued interest (if any).

28. Whatever’s left is John’s profit.

29. 3. INVESTMENTTYPES

30. DEBT EQUITY
Invest in exchange for shares
Invest in exchange for fixed
returns
INVESTMENT
TYPE
RISK
POTENTIAL
RETURN
RETURN
TYPE
Dividend
Upside when property sellsFixed interest income

31. Lending money to a borrower at a stated interest
rate.The investor gets monthly (or quarterly) interest
payments and a return of principal at maturity.
DEBT CROWDFUNDING

32. Investing in exchange for a stake in the subject property. Investors share
in the rental income that the property generates.Additionally, they share
in the upside if/when the property sells.
EQUITY CROWDFUNDING

33. CAPITAL STACK
Common Equity
Senior Debt
Risk
Level
H
L
Senior Debt - gets paid first. RECF debt deals usually
occur here (1st liens).
Mezzanine - gets paid second. Sometimes RECF
debt deals occur here (2nd liens), positionally
behind the bank.
Preferred Equity - gets paid third. RECF equity deals
usually occur here (gets paid before the Developer).
Common Equity - gets paid fourth. Sometimes
RECF deals occur here, but the risk is very high.
Mezzanine
Preferred Equity

34. The RECF platform funds a deal, then sells the
investment on its website for the crowd to buy into.
PRE-FUNDING

35. PRE-FUNDING (CONT’D)
STEP 1 STEP 2
1. RECF platform pre-funds
the Borrower $1MM.
2. RECF platform sells the $1MM
loan to the crowd.

36. PRE-FUNDING (CONT’D)
STEP 3
3.The crowd invests $1MM into
the deal, and the RECF platform
recoups its capital.
STEP 4
4. RECF platform pre-funds
another Borrower, and the
process starts over.

37. Pre-funding allows Borrower to get capital
immediately without having to wait for the crowd’s
investment.
PRE-FUNDING (CONT’D)

38. Pre-funding also allows Investor to feel safer because
RECF company has “skin in the game.” If the investment
isn’t fully fund by the crowd, the platform is stuck with
the loan, forcing it underwrite well in the beginning.
PRE-FUNDING (CONT’D)

39. The RECF platform acts only a conduit to connect
Borrower and Investor.
NON PRE-FUNDING

40. NON PRE-FUNDING (CONT’D)
STEP 1 STEP 2
1. Borrower asks for $1MM. RECF
platform puts $1MM investment
opportunity on website.
2.The crowd starts investing in
the deal.

41. NON PRE-FUNDING (CONT’D)
STEP 3
4. RECF platform releases the
$1MM to the Borrower.
0 $1MM
STEP 4
3. RECF platform waits for the
$1MM investment to be fully
funded.

42. Since the RECF platform puts up no money, they
bear no risk. Moreover, since there’s no pre-funding,
the Borrower must wait until the investment is fully
funded on the platform before obtaining the capital.
NON PRE-FUNDING (CONT’D)

43. RECF investments are illiquid. Once you’ve invested
into a RECF deal, you typically can’t pull your money
out until the stated term is up. Some RECF platforms
allow investors to redeem their capital, but at a
penalty.
LIQUIDITY

44. 4.WHY ISTHIS A
GROWING INDUSTRY?

45. 1.The Jumpstart Our Business Startups Act

46. In 2012, Obama signed into law the Jumpstart Our Business
Startups (JOBS) Act.

47. Part of the law essentially recognized investment
crowdfunding as a legitimate vehicle to sell securities
to the general public.

48. 2. Banking Inefficiencies

49. The banks are notoriously slow.
After the 2008 crash, they became even slower/more heavily
regulated.

50. People who should have no problem raising capital suddenly found
themselves left out in the cold.

51. RECF offers developers/borrowers speed and convenience at
reasonable rates. From the date of application, a developer/
borrower can get the capital he needs in 7-14 days.

52. From the investor side, more and more people are second-
guessing the necessity of banks beyond holding deposits—
all thanks to the internet.

53. <1% has become the new “norm” for investors.

54. RECF, on the other hand, offers investors 7 -16%
annual percentage rate (APR).

55. Add up the JOBS Act and bank inefficiencies on both sides,
and the result is this…

57. In 2016, over $3.5 billion was raised through RECF platforms.
That number is only projected to increase year by year.

58. 5. RULES AND REGULATIONS

59. When a RECF company offers a new security on its platform, it
does so through one of 3 SEC rules:
A) Rule 506(c): Crowdfunding to
accredited investors
B) RegA+: Crowdfunding up to
$50MM per year
C) Title III: Crowdfunding to
accredited and non-accredited investors

60. Allows a sponsor to offer debt or equity securities to
accredited investors.
506(C)

61. • If single, $200K annual income
• If married, $300K annual income (joint)
OR
• $1MM net worth excluding place of residence
ACCREDITED INVESTOR

62. Allows a sponsor to sell up to $50MM per year of a security
to both accredited and non-accredited investors. Before the
change, the limit was $5MM.
The sponsor must first file a formal prospectus with the SEC
and get approval before marketing takes place.
REG A+

63. Allows a sponsor to issue securities, up to $1MM per year, to
both accredited and non-accredited investors.
Sponsor does not need to file a prospectus with the SEC, but
must include certain disclosures about the company in its
offering memorandum.
TITLE III

64. 6. PLAYERS

65. Some players in the industry right now…

66. RealtyShares concentrates on smaller investments, like single-
family house flips, rather than on large apartment buildings
and commercial investments.

67. Realty Mogul recently introduced a REIT called
MogulREIT I. No accreditation is needed and the
investment minimum is lower ($2500) than that on
other RECF platforms.The REIT has an annual fee
of 3%.

68. Deals made on PeerStreet are all debt-based.The deals are put together
by “originators” who represent the principal party in the transaction.
Sometimes they invest alongside the crowd, which can make the crowd
feel safer knowing someone else has “skin in the game.”

69. Patch of Land’s pre-funds all deals
before offering them to investors. This
allows the Borrower (usually fix and
flippers) to move ahead with rehab
immediately. Moreover, investors feel
confident knowing POL bears risk if
the investment isn’t fully funded by the
crowd.

70. Fundrise offers eREITs only on its platform.The crowd is
investing into a group of real estate projects—a mix of
debt and equity offerings. Fundrise charges a 1% annual
asset management fee.

71. Realty
Shares
Realty
Mogul
Peer
Street
Patch of
Land
Fundrise
Property
Type
Res &
Com
Com &
REIT
Res Res Com & REIT
Investment
Type
Debt &
Equity
Debt &
Equity
Debt
Debt &
Equity
Debt & Equity
Investor
Type
Accredited Both Accredited Accredited Both
Minimum
Investment
$5000 $1000 $1000 $5000 $1000
Investor
Fees
1-2% of annual
investment
amount
1-2% of annual
return
0.25-1% spread per
investment; charged only
when investor gets paid
1-2% of interest
distributions
1% of annual investment
amount

72. 7. PYLE

73. Private Online
Lender
PYLE PHASES
RECF platform
Where We Are Now

74. PHASE 1: PYLELOANS.COM

75. Our niche is short-term, interest-only, real estate-backed loans.

76. In Phase 1, we’re focusing on 2 things:
1) Attracting qualified borrowers/developers
2) Transforming an inefficient lending system through a
streamlined application/common-sense underwriting approach

77. We’re now in the process of funding and closing a plethora of deals.

78. We plan to open our platform up to investors in the latter
half of 2017.

79. www.pyleloans.com
VISIT US!