You're listening to the REI marketing nerds podcast, the leading resource for real estate investors who want to dominate their market online. Dan Barrett is the founder of AdWords Nerds, a high-tech digital agency focusing exclusively on helping real estate investors like you get more leads and deals online, outsmart your competition and live a freer, more awesome life. And now, your host, Dan Barrett
(0:41) Alright, hello, and welcome to this week's episode of the REI marketing nerds podcast. As always, this is Daniel Barrett here from AdWords nerds.com. And look for over a decade now we've been helping real estate investors find more motivated seller leads and deals online. If you want to get into Google ads, you want to get into Facebook ads, you want to get into search engine optimization, there's one place to go AdWords nerds.com, we can teach it to you, we can do it for you, whatever you need. Look, when doing this longtime router, there's a long time whenever you got a guarantee, we've seen it before it if we can help you, we will refer you to someone who can. Alright, now without any further ado, I've got a wild conversation for you this week.
This is a ranging and at some time, sometimes it's a difficult conversation to wrap your head around. And this week, we are talking about the tokenization of real estate. And when I say tokenization basically saying how do you put real estate? How do you put real estate transactions on the blockchain the same technology that underlies things like cryptocurrency and Bitcoin and all that? What does it look like when that comes together with real estate, and for a long time now, this has been very difficult for me to wrap my head around. And that's why I knew I wanted to talk to this guy.
This week, we are talking to Michael flight Michael flight comes from the Liberty Real Estate Fund. He is at the forefront of people trying to bring tokenization and real estate together. He's got a real knack for explaining this very challenging technological space, very new technological space, explaining it in a way that's going to make sense. And he has written some really amazing materials, all about how blockchain and crypto technology is influencing real estate investing today.
So if you're going to listen to somebody to really try to wrap your head around this topic, you cannot find anybody better than Michael flight. So I am going to get right into it. So this week, do take a listen to my conversation with Michael flight from Liberty fund dot I O. Michael, welcome the show. Man. Thank you so much for being here.
(3:02) Hi, how you doing today, Dan? I am doing very well. It's I was just saying it's a beautiful snowy day here in Connecticut. That's my perfect time of year. So I am into it. I wanted to start with you. We're actually going to start all the way in the present and then we'll go back we'll talk about how we got here and everything but you guys just released a report and again if you're listening to this, the website is invest on Main like ma i n invest on main.com.
And you have released a report on how blockchain and we're gonna get into all this. So if you don't if you're like super familiar with these terms, you're going to talk about this but how blockchain is impacting real estate investing. Can you give people like a quick overview of the report, they can go grab it for free on the website, give people kind of an overview of what's going to be in there.
(3:52) Sure. It explains how blockchain real estate is not cryptocurrency and you don't have to worry about you know, some giant scam. I mean, you always need to worry about scam whenever you're investing. But, you know, it explains how blockchain real estate are ideal because it makes it faster, easier and cheaper to invest in cash flowing income producing real estate. Okay, so that is amazing. I'm super interested to dig into all this. So first of all, let's back up.
Let's give people a little bit of context. And again, go to invest on main.com You can go grab this report for free read it yourself. Let's give people a little bit of context on you and what invest on Main is so like, what's your current role and give people like the overview of what invest on Main is doing as a business?
(4:38) Sure, well invest on Bane is putting together a marketplace where tokenized real estate can be traded. And so if people are familiar with investing in real estate through real estate syndications, it's the tokenization of real estate that it's a nebulous kind of a word. But when you know I speak about It's it taking a legal regulated, you know, sec regulated investment in real estate, and it makes those shares tradable. And so the report explains that and invest on Main is putting together the largest marketplace in real estate for that. Wow. Okay, so let's, let's take a minute. And I want to define some of our terms.
Now, there's a fair amount of overlap, I think, between people are interested in real estate, people who maybe have some interest in cryptocurrencies, like you mentioned, or blockchain technologies. But for those who maybe aren't super aware, let's back up. And let's talk about the kind of, I think we can go to kind of the hierarchy of this sort of foundational to sort of, you know, let things that live sort of on the surface level of that. So let's start with Blockchain. What's could you give people your description of blockchain? Or like, if you meet someone who's not really familiar with that terms means how do you explain it like that underlying technology?
(5:58) Sure. And most of the time, I try not to even bring up blockchain, but you're using type of terms. But if you really want to know what blockchain is, the easiest way to think about it is just like the internet created instantaneous worldwide communication. So blockchain allows for instantaneous, almost instantaneous, worldwide value transfer, asset transfer or money transfer. So just think about blockchain is the internet of value. Okay.
And I think, you know, part of what often comes up when people talk about blockchain is this idea of decentralization or this idea that you're sort of cutting out, you know, sort of middlemen and transactions that have to sort of keep track of what is going where can you explain like, what the connection is there? Like, how does blockchain enable a kind of transaction? That's not possible now, right? Because someone might say, like, well, I can go to my bank and send somebody money, or I can sell somebody money or whatever the deal is. So what's the difference there?
(7:02) Exactly. So blockchain is, you know, there's a few different components to it. Number one, there's cryptography, which allows for, you know, people can't hack into your stuff. But the most important part of it is the distributed ledger. So a lot of times they call a distributed ledger, you know, technology or DLT. And basically, a ledger is like a spreadsheet. And a distributed ledger is like a giant spreadsheet. And so if you think of Excel, as the Excel file lives on your computer, but then if you think of Google Sheets, the Google Sheets is up somewhere in the cloud, and people could change it.
One of the great things about distributed ledger technology and blockchain is you can only make one change at a time. And those changes all show up so that I can't do the same thing. So the easiest way to explain it is if I was going to send you money to your Chase bank account, and I was going to send it through PayPal, it would probably take three days for that transaction to clear because Pay Pal maintains their own ledger, their own, you know, you know, for lack of a better term, their own Excel sheet. And then Chase Bank maintains their own ledger. And so they have to like do their own Ledger's versus the blockchain, which is out there in the public, people can see the transactions instantaneously, you can see that you got your money in your wallet, you know, within at the most if you're sending Bitcoin, like 10 minutes.
(8:36) Yeah, I think one of the things that I I often think is so interesting about kind of blockchain based technologies, right, you you hit on this, it's like that sort of existing financial infrastructure where I send you money, you know, but what really happened, you know, even though I just said, I send you money, what really happens is like, I send money to a bank, and then the bank turns around, sends it to another bank, and then that bank turns around and sends it to you. And at each step of that process, they've got to make sure like, did you send the money?
Yes. Okay, I've confirmed that okay, now I'm going to turn around I like to sort of like doing this relay race with Blockchain. Once you record that change, it automatically goes everywhere and is sort of dynamically updated across everybody that participates in that sort of network right? So it's distributed we all see it, we don't have to have a referee in the middle, making sure that everybody plays fair. It's just shows up in everybody's spreadsheet like you said, sort of, you know, not a literal spreadsheet or metaphorical spreadsheet or one right it
(9:37) shows up in what is called your wallet and if you have an iPhone you have a you know, Apple wallet, if you have a Google phone you have a Google Wallet, but you know for example, Dan, you might be in Connecticut now so I can send you the money in your a Connecticut, it's way trickier if you suddenly decide you're going to live for six months in Italy or even you know crazier, you're going to Live six months somewhere in Africa. Yeah, how do I send you that money. And I can, you know, tell people on exact thing, I had to wire money to Dubai. And the people that were receiving the wire said, we need to make sure we see the bank receipt, because it takes seven days.
Well, it turns out that the banks lost the wire, I mean, who would think this but the banks lost the wire, so we had to go back to our bank and say, they never got the wire, the bank had to verify. And it literally took 21 days to wire the money versus if I would have sent it by a stable coin, let's say a US dollar stable coin. Or if I would have sent it by Bitcoin, you would have known that the money was there, and you would have had it verified that it was there, right. And that would have happened in minutes, rather than a month, or three, three.
(10:45) And the great thing about real estate is, and I just want to say I don't sell houses, and what we're talking about here is nothing to do with selling real estate titles or, you know, selling actual physical real estate, what I primarily work with is real estate securities, and investments. But let's say I had money in an apartment building. And so I had, you know, like 10 tokens, and you said, I like to, you know, invest in like, five of those tokens.
And so I say, okay, you know, let's agree that it's $5,000. If you agree that, you know, $5,000, you put the $5,000 up, I put the tokens up, boom, the trade goes through, so it gets rid of a lot of middlemen and stuff. And what's really great about this, and a lot of people say, Well, aren't you just, you know, isn't this like just a hammer looking for a nail? But what if you were living in Turkey, where the lira just crashed, and you know, it keeps losing like 50% of its value every six months? Or what if you are legit living in Argentina, or Venezuela, or even let's take a look at the US dollar, I mean, the US dollar has lost 90% of its value since 1913. And inflation is if inflation is running at 8%.
That means that, you know you're losing a percent a year just keeping your money in the dollar. So instead of keeping your money in the dollar, or in cash or in the lira, or even in a money market account, we've seen that a lot of you know non US citizens are putting their money into us real estate because these tokens can trade. And you know, they're just storing value there. And then when they need it they can you know solve let's find motivated seller leads online but don't know where to start. Download our FREE motivated seller keyword report today, AdWords nerds have spent over $5 million this year researching the most profitable keywords for finding motivated seller leads. And you can grab these exact keywords when you download our report at www dot AdWords nerds.com/keywords.
(13:02) So let's talk a little bit you mentioned earlier, you talked about tokenized real estate and we just talked about kind of, you know, your your sort of example here of hey, I've got a token you're gonna give me 5000. Again, this is hypothetical, I'll put up some money, you send me the tokens, this transaction occurs.
So let's talk about what that means. We've talked about the blockchain, right? That's the underlying sort of technological innovation that allows for a distributed ledger that tracks all kinds of transactions, it could be anything, right? I could send you a picture of my dog or whatever, right, whatever I want. So what does tokenized real estate mean? Is that simply we put real estate in one way or another on the blockchain? Like what does that mean? And how does it generally work?
(13:46) Sure, well, there's a few different ways you can tokenize real estate. What hasn't happened today, but there's people working on it right now is the most logical thing to do would be to put real estate titles on the blockchain so that people could keep track of title people could and then it would make it much easier to transfer title and to a certain extent, it would like reduce the need for title insurance. And you can see this right now because there's several secretaries of states in different states that are messing or I shouldn't say messing around with but experimenting with putting, you know car titles on blockchain. So that you can see you know, where the car titles are.
And at some point it you know, might even include like Carfax so you could see if the car was, you know, in an accident or some of those things, but at the very minimum, what blockchains are very good for is keeping track of who owns what and what I particularly am interested in and what we work with is investment real estate. And with that people pool their money together in a syndication and invested real estate.
There's also P People that are pooling loans together so that you don't have to go to a bank, but you could go to people directly. And you can invest in somebody's law, like let's say, you know, Dan's office there, he wants to get a loan on his office building. And you can go and say, I'm going to loan Dan $10, you know, and at some point, you know, you put enough of those $10 together in a crowd funds, you know, the loan for Dan's building, what we specifically work with is investment, real estate investment funds, so that you are buying shares in a real estate investment.
And those shares are tradable private real estate shares. And then the next question you're going to ask me is, why don't people just invest in a real estate investment trusts? Because doesn't that handle it? That's what you're gonna ask me. Right, didn't we that was exactly what I was going to ask
(15:52) that, well, with real estate investment trusts, it does allow you as a small investor to invest in real estate, but real estate investment trusts are taxed. And again, I don't give tax advice and don't give any legal advice. But real estate investment trusts are taxed at regular income. Versus if you're investing in private real estate, you get the benefits of depreciation, you get the other benefits.
The other thing is, is that you really can't develop a relationship with the, you know, CEO, most of the time Are those real estate investment trusts, they're, they're pretty big real estate investment trust, but you can meet somebody like Dan or somebody, when it Dan introduces to one of his friends that's buying an apartment building or even flipping houses or something. And so you can get to know that person, you could say, I'd much rather give life, I'd much rather invest with this person, and invest in this person, because I know this person, versus I'm not sure if the CEO of this real estate investment trust out in New York is going to do something or he really even cares about what's gonna go on, and most of them do care. But it's like, you have a lot more knowledge, you have a lot more friendship. And you can see that that person, what their exact business plan is for that particular building, or that particular group of buildings.
(17:20) So does the sort of tokenization of this kind of investment mean that I as let's say an investor, let's say I invested in a fund, you know, via something like this, and I received sort of my shares of that investment as some tokenized asset, can I then turn around and send that to another person or sell it to another person? Is that like mine, in that sense? Like, how does that piece of Sure, well, this is the great thing.
So with a regular real estate, syndication, let's say me and you get together, we're going to buy an apartment building, and we're going to call it Dan and Mike, you know, LLC, right. So we would typically go out and invest in the apartment building, and then maybe raise $1,000,000.02 million dollars, and people would invest in shares of the equity of that apartment building, and then they get the cash flow, they get the appreciation, if, let's say we fixed up the apartment building in an increase in value even more, so they get all those benefits, along with everything else that they get with a normal investment, that with those and a paper syndication, you're pretty much locked into whatever the timeframe of that investment is, let's say, mean, you got together, we said, we're going to do all this, and we're gonna execute our business plan, we're going to refurbish these apartments and all the rest of it. And it's going to take us three years, maybe five years, so your money is tied up in that investment for three to five years with tokenization. If you issue those as security tokens, the shares are exactly the same.
It's all the exact same legal regulations, the paperwork is even the same. However, those tokens are now tradable. And in the United States, after a one year lockup period, those tokens can trade. Now the great thing is most private real estate investment right now is only for accredited investors. So you need to have a high net worth. It's really difficult to get into some of these things. And sometimes you don't even know if the person has a track record. But with security tokens after the one year lockup period, those tokens can trade to accredited or non accredited investors, which is really great because the non accredited investors can now see a one year track record with that investment and say, you know, do I really want to invest in this or not? So it's a really great thing, but it also allows for some liquidity for the investors.
And what we found out through our research is about 33% of investors that invest in syndications would invest a lot faster if they knew that Even if there wasn't, you know, complete liquidity, they knew that there was an accident in case they had to do something. And then the other thing that's great about security tokens is you can do estate planning and things with a normal paper syndication. But with security tokens, it makes it much easier.
So for example, I've got, you know, two boys. So my wife and I, let's say, I've got $100,000. And each token is worth $10,000, I can give one boy 30,000, and other boys 30,000. And then my wife, and I could keep the 40,000 It gets even better, though, at some point, the you could potentially borrow against your tokens. So you wouldn't even have to sell your tokens, you could potentially say, go to a lender and say, This investment is worth this, this is what the track record is, this is what the history is, I'd like to borrow against these tokens, because I've got this other great investment opportunity, and I like to invest it. So it just gives investors a lot more investor flexibility
(20:56) is a token like that, in the sense that it represents like, like you said, like an investment in particular fund or, you know, whatever, whatever the hypothetical we're using is, is it divisible? I know, there's like it's some cryptocurrencies, right. That's the the kind of appeal is that you can have one Bitcoin, for example. But you can also divide that Bitcoin, many different ways, depending on how you want to apportion it. Is that the case with a sort of tokenized real estate investment in the same way?
(21:26) Yeah, and we've seen it where there are people out there doing tokenization, and they, you can invest in real estate for as little as $10. Yeah, the divisibility would all depend on the issuer or sponsor. So let's say that I am doing $100 million dollar capital raise, I might want larger investments, because it's a lot harder to raise money. Everybody's investing $10. That's a lot, you know, $10 investments to get to 100 million.
Yeah, and the other thing, but the nice thing about the tokenization part of it in the blockchain, part of it, is it does a lot of the record keeping for you. So it's easier to have more investors. So we believe that this is going to open up real estate to more investors that aren't investing in real estate right now. Because if I'm doing a syndication right now, and I do shopping centers, so in most of the things that we buy, are above $10 million, and most of the time, much more than $10 million.
And so it doesn't make a lot of sense for me to go out and say our minimum investments are or 1000. Most of the time, our minimum investments are 50,000 or 100,000. But with tokenization, you could potentially have much smaller shares. And the as I said, It assists the sponsors in record keeping, so it reduces their bookkeeping expenses. It reduced his other overhead expenses for that. Yeah, and it should reduce legal fees to.
Hey guys, hope you enjoyed part one of this episode. It's just too good to limit one show. Join us next week to hear the rest
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