AIPIS 70 - Scott Picken, Wealth Migrate: How Crowd-Funding Can Transform Your Investments

This show is produced by the Hartman Media Company.

For more information and links to all.

Our great podcasts, visit hartmanmedia.com. Welcome to the AIPIS show for accredited income property investment specialists and those who aspire to be if you're a real estate, mortgage or financial professional, the this is the place for you. We'll explore innovative investment analysis, sales, marketing and income generating strategies for the most historically proven wealth creator income property. Learn from the experts as they show you how to build a better business and a better life.

Welcome to the AIPIS show for accredited income property investment specialists and those who desire to be. This is your host, Jason Hartman where we talk about increasing your income, your productivity and just generally having a better life while serving your clients better with America's most historically proven asset class income property. We have a great interview for you today and we will be back with that in less than 60 seconds. It's my pleasure to welcome Scott Picken to the show. He is CEO of Wealth Migrate and he is helping investors migrate their money in different parts of the world in different jurisdictions. And you know, if you think of geese flying south for the winter, why stay up in the cold north when it makes more sense to be in the south? So that's kind of the theme of today's talk. Scott, welcome. How are you?

Excellent, Jason, and thanks very much for having me online. Your website and the podcasts you do are fascinating.

Well, thank you. And you're coming to us from South Africa, I assume?

Very much so. Ironically, the exact thing that I read about on your website is from an idyllic little town in the middle of South Africa where everyone else chooses to go on holiday. I choose to live.

And where are you located? I've been to Cape Town before and to to Johannesburg and I thought Cape Town was one of the five most beautiful places on earth and I've been a lot of places.

No, Cape Town. Cape town, ironically on TripAdvisor has been rated the number one city seven years in a row. But I live actually five hours drive north of Cape Town. It's a little holiday town in the middle of the Garden Route, which is called Knysna. It's kind of the heart of the Garden Route and that ironically for the last 10 years has been voted the number one holiday town in South Africa. So if you haven't been here, you wouldn't really know where it is, but it's effectively up the coast from Captive.

Fantastic. Good stuff. Well, tell us a little bit about how you got started in Wealth Migrate and what it is Look, Jason, I.

Can give you the long story, I can give you the short story. In very simple terms, I've only ever done real estate. I did my first project when I was 13. I persuaded my parents to renovate our house so that I didn't have to share a bedroom with my brother. And I did my first development when I was 19. And that's what I studied at university. But I've always been fascinated by how technology can evolve and adapt an industry. And I did my dissertation on it in 1998 on looking at how it was going to revolutionize the construction of property or real estate industry. And in simple terms, I flew over to London. I lived in London for nine years from the age of 21, primarily wanting to accumulate first world assets with a first world income, but yet to be able to live the lifestyle in an emerging economy. And over the years I realized a number of major problems. The most important problem for most people is they don't have access to enough capital to be able to access the right type of opportunities. Secondly, when particularly in the international markets, they don't know how to find the right partners. And so in the back end of 2008, when we had the Lehman Brothers crash and the whole global financial crisis, there was a massive opportunity for people to have collective buying power to come together and pick up really good quality assets around the world. And there was one opportunity in Wimbledon. London, everyone knows Wimbledon from the tennis. I needed £10 million pretty quickly and I ran around speaking to a number of people, but I just couldn't raise the capital quick enough. And that really was the catalyst. On top of the existing business I already had, where we had helped thousands of people invest internationally in direct property. But that was the catalyst to bring people together so that they could jointly benefit from the power of the crowd in investing in top quality assets around the world. And that's really where wealth, my great, was born.

So what types of assets are you talking about? I mean real estate assets, but what types?

So primarily we like to go deep on verticals. We believe very much. You know, I give people the analogy. There's in the crowdfunding space, there's a lot of kind of flea markets out there. And at a flea market you get good quality stuff, you also get sort of mediocre stuff. Whereas at Harrods or one of the Fifth Avenue stores, Macy's or something, you only get good quality. So our number one objective is quality and safety. When people invest overseas, the number one thing they want is wealth preservation. And then only after wealth preservation, do they look for wealth creation? And so to give you an example, some of the stuff we look at is quality residential assets where the fundamentals are right in cities. To give you an example, in America like Atlanta, where the population is growing, we're buying quality assets at below replacement cost with good rental income yields. Another example is the medical field. So we're very strong in medical and aged care around the world. Medical and aged care is tipped as one of the strongest commercial facets or the sectors to be fair to be in. And if you think about it, it's actually common sense. No matter what happens in the economy, people need doctors. Doctors tend to not move. So you get very good long term leases. They're very stable, strong tenants. The last thing is that doctors are very passionate about what they do, but they're not necessarily financially aware that if they move down the road they can get $20 less. Plus also the licenses tend to stay with buildings, not with doctors. So to give you an example, we build medical or biomedical portfolios around the world, but primarily in South Africa, Australia, the US and the UK because those first world markets have an aging population and medical and aged care are very much sought after and have a long term cycle. I noticed with the trends, it's all very much income based wealth preservation and long term focus that we're looking at.

Yeah, that's good. So in which country? I mean this gets complicated when it's international. I mean, in which. Well, first of all, maybe this is the right question first, who is the general partner or the syndicator of the deal and in which country are they based? And you know, how do you hold them accountable for the deal and, and make sure that they're following the right rules? Because these deals are crowdfunded. So are you acting as the platform only or are you also setting up the deals and being the general partner in the deals?

We operate under a hybrid model, so we only. To answer your first question, if for example the asset is in America, then it falls under American legislation and we have to comply with all SEC rules. If it's in Australia, we have to comply with all ASEC rules. If it's in the uk, it's the fsb, sorry, fsp, South Africa is the fsb. So every country has different rules and regulations and every country, wherever the asset is situated, will then make one compliant with regards to tax structuring and compliance. The second part to your question is that we as the portal and the platform provide the service where through we've got over three decades worth of experience, we've done over 10,800 international deals to a value of about one point billion US dollars. So we are relying on partners where we've got extensive track record already with projects, with partners, with their delivery. And now the only thing that's been able to be unlocked with the use of technology and legislation is for people through the crowdfunding channel to get access to those quality partners and those quality deals. But at the moment, we are still actively involved and engaged in every deal. Our entire business model is where we only as a platform, only generate revenue on the back end after the investor has got the return they were expecting, which keeps our interests aligned. We've got three values in our company. Trust, transparency, and our interest being aligned, which is exactly the same as the animals in nature and the whole principle of migration. In simple terms, to answer your question, we are tied as tightly to the investor through the duration of the deal. And therefore it's our responsibility to make sure that the partners on the ground deliver and provide the investors the return.

So I appreciate what you're saying. And you know, this is kind of a catch 22 in the world of investing, because on one side, you know, I love the idea of being a direct investor, and I recommend that our clients be direct investors because when they're directly investing in things and they own and control the asset, they don't leave themselves susceptible, Scott, to the three major problems when investing in somebody else's deal. First problem, you might be investing with a crook. Second problem, you might be investing with an idiot. And the third problem is assuming they're honest and competent, hopefully you're gonna get over those two hurdles. They tend to take huge management fees off the top for managing the deal. And your philosophy sounds much more aligned than many of the other promoters I talk to. But how does the investor really know that that's not just a saying? How do they make sure that really happens that way?

Jason, it's a fantastic question. You've clearly been around the block a few times. Because I love your analogy of the three problems.

And I'm clearly not letting you off easy, am I?

No, not at all. In fact, I actually have a stat out of South Africa that more than 80% of people that invest overseas actually lose money. That's not just in real estate, but in stocks, bonds, and everything else. Because generally people go in naively. They expect great things from their partners. They don't have most of the facts. They don't have the transparency. And generally it's the unknown Stuff that tends to catch them out. In terms of the crooks, we all know there's stories all over the world. There's plenty of idiots that parlay as brilliant salesmen and then make their money up front and then run away and you're left with the asset overseas. And as my chairman says, who's a billionaire himself and invested in multiple markets around the world, he says, you know, if you buy a bad asset at home, it's a lemon for life. If you buy bad assets internationally, it's a lemon for generations we're very, very conscious of. So one of the ways we stay away from idiots and crooks is in simple terms we make them put their money where their mouth is. Every partner on the ground has to invest capital, physical capital. Time is irrelevant to me. Physical capital in the deal, so that their interests are aligned with ours and our investors. We also invest capital so that our interests are aligned. So we like to protect our investors money as if it was own. But we've also got our own money in the deal. And the third one, and I think probably the most important one, is that if you look at the old model of syndication, where effectively all the money was taken up front, their interest is to raise as much money as possible and not really to look after the quality of the assets because they're getting the money on the front end. The traditional fund model, or REIT model, if you want to call it that, is to get as much money under management and then earn their 2% management fee. And their biggest number one driver is how much money is under management. Whether that money goes up or down in value is not so much to their problem, although it really affects the investor. But they just look at how much they've got under management, our interest and the entire way we created the business model and we've got full transparency as to every cost included in the deal, both in the beginning, the middle and the end. Is that I as an investor, just like you as an investor, Jason, it's no difference. If the two of us were doing this together and we go and buy a house, you don't expect me to earn all the money on the front end. You also don't expect me to literally milk the cow so badly through the five years of investing that there's nothing left by the end. And what you would appreciate generally, as most investors, is that we treat it exactly the same as investors and one only benefits once one outperforms the hurdle rate on the back end.

So tell us about, give us an example of maybe Some specific deals and just, you know, let's kind of walk through maybe one or two of those if we could real quickly.

Okay, perfect. So one of the ones that we, that we enjoyed at the end of last year was a medical portfolio in Atlanta. It was seven medical buildings. The total value of the portfolio was about $16 million. Now just to let you know, our sweet spot is where the equity required is north of a million dollars, but south of $10 million. Now to be fair, that's the same in the UK and the same in Australia. And the reason.

Okay, and let me interrupt you, Scott, for just a moment. By the way, these are accredited investors, I assume that can do these deals, right?

Correct. That's right, yes.

Okay, good. And accreditation, you know, that's a US phenomenon outlined by the securities and Exchange Commission. But what about around the world? I'm just curious because this project in Atlanta, you have investors worldwide, right? Or had.

I should say in simple terms, we, we needed $6 million in equity. We raised it on five different continents from 27 different investors and as far afield as the Middle East, Africa, Australasia, Europe and North America. But the thing that really differentiates us from virtually everyone else is that less than 10% of the capital actually came from North America. Whereas obviously most of the crowdfunding sites, the majority is coming from in house in America. Now in terms of the legislation, I mean, I could bore you to death for three days. One of the most important thing is to remain locally legal and to comply. And there's specific ways that you need to comply with each jurisdiction. And then ultimately if the assets in America to comply with the sec. But to give you simple terms with that deal in America, we were SEC compliant and have everything signed off by the sec.

Okay, good. So you took only accredited investors in that deal and tell us about the rest of the deal. What else happened?

There was about 6 million in equity required. We got 65% loan to value from a local American bank at 4.2% financing. The thing we liked most about the deal was that it was 89% occupied when we bought it. The 38% of the tenants were what they call blue chip or first grade tenants, which were actually government tenants on 10 year leases. And it was your VA, your Veterans association, so long term leases. And that really gave us sustainability and most importantly predictability going forward. But what we liked is that we've got partners on the ground. So we specialize in medical, but we've got partners on the ground that specialize in medical as well. And by the time the property had closed and was in our name, we'd actually filled up the remaining 11% with a 10 year lease which actually increased the value of the entire portfolio, the market cap by over a million dollars immediately. We didn't take one cent of that. Every single cent was passed on to the investors. And the nice thing from our perspective, we pay quarterly dividends out to the investors. They've already had their first quarterly dividend review. They were expecting the total amount just as their interest. And this is what I love about commercial, they were expecting due to all the financial reviews, $500,000. We ended up getting $600,000 because of that, being able to get that tenants in place quickly. I think the last thing I would say really which is of interest is that it was also the seller, it was a number of doctors that were looking to exit and we were able to come in with a lot of experience, we were able to move quite quickly, we were able to do our due diligence and we managed to pick up that asset at between 8 to 15% below market value. In terms of actual cap rates in the area. If you're looking like, for like.

Okay, good stuff, good stuff. So what about a non US based deal? Because most of your investors are North American, as you said, most of them aren't.

More than 90% of that deal was.

Not North American investors on that deal. But you did make the general statement then about crowdfunding around the world. It's most active in North America, right?

Well, yes and no. What is happening in North America is that the legislation is clearest. But there are a tremendous amount of international investors looking to invest around the world. I mean just last year $15 billion left China to invest in three markets, Australia, the UK and the USA. $7 billion, literally 7% of your entire market of residential property in the US was bought by foreign investors and 22% of them were just Chinese. Just to give you an example. Okay. And so what's happening with the crowdfunding space is that people that are investing in direct assets and to use your three things of crooks, idiots and management fees, they've had enough of having the wool pulled over their eyes. They're trying to get wealth preservation overseas. They don't have trust, they don't have transparency and a lot of them are taking hiding and that's why a lot of them are starting to move now towards technology where they can see what's going on. They do understand the transparency. And so in countries like Australia, where it's legal in the UK where it's legal in Malaysia. They're about to drop the legislation. There's going to be no accreditation for, there's no difference between accredited. You can invest $1 if you want to. And so around the world, different markets are having different aspects. But the most important thing I would say to you is that there's a huge movement for people in the emerging world, all over the world to be investing in first world assets and to get a first world income. And technology is starting to facilitate that more and more.

It's really opening up opportunities and democratizing the whole thing. And you know what I think is one of the most exciting things about this, Scott, is as much as I really like the idea of being a direct investor, I think it's really going to make a dent in the Wall street cartel where investors really will have some good other options where they can be much closer to deals. I mean, the Wall street thing, it's just obviously not working well. It only works for insiders, we'll put it that way. So it's flattening the world and it's democratizing the space, isn't it?

Well, Jason, there's two parts to that because if you look at The Wall Street REITs funds and everything else, generally they're buying assets with a 20% IRR. And north of that, by the time it's watered down with all the fees, you as the individual investor are walking away with 4, 5, 6%. You're lucky if you cover inflation, you remain in the middle class, you remain poor, you work all your life like my father did. You end up retiring with no money and life is really hard. And yet the top 1%, like my chairman Henry Beside, they get access to some of the best deals around the world. Now in the past I had no ability to partake in that. I don't have US$6 million to be able to put in an asset, but I did have US$100,000 to put in to participate with them, to be treated as exactly an equal partner, to have access to exactly the same opportunity, the same growth potential and most importantly, which most people don't understand, to also learn through the entire process so that I can get stronger and stronger at the age of 37.

That is a great thing, no question about it. So when we go to the huge management fees off the top idea, you know, in your deals, how do you vet them? How does the investor know that the people running the deal aren't using company credit cards and flying around the world first Class wining and dining other investors, which I've always thought was ridiculous. You know, that doesn't benefit the existing investors necessarily. That's just for them to raise more money, you know, paying themselves big salaries or things like that. I mean, they are on an equal platform in terms of the investment range, returns. But because they control the bank accounts and the credit cards, that's where it can become unequal. Right.

I tend to say this to a lot of people. Crowdfunding is an extremely exciting space, but people need to be careful in real estate, because as an example, we're real estate people that have embraced technology. What worries me a little bit is when technology people just embrace real estate because it's the next exciting thing.

I couldn't agree more. The tech people think that they can just dive into this business and build a software platform and make it all work. But know about real estate, it's amazing.

Jason, you spot on. So you see, to answer your question, we've been investing, and I told you, it's $1.34 billion, that had nothing to do with crowdfunding. That's what we've been doing for three decades. And so we bring that experience to the table. How do you manage partners? We've got a global investment due diligence system that every investor has complete transparency, which is actually 10 layers of due diligence that starts right from which country, which currency, which asset class, right through to the actual quality of the partner and everything else. And if I had more time, I could take you into that in a huge amount of detail. But what we've done through the life of hard knocks and experience is kept coming up with red flags and ways to test, test, test, test, test, test and measure, test and measure so that one is not having partners on the ground that are flying around the world with credit cards. And one very classic example is that on every deal, we have joint access to bank accounts. We do quarterly reviews of all financials. Everything is agreed up front in terms of management costs, in terms of managing the building, as I say, or putting in tenant installation or putting in a new tenant, or any of the actual tangible costs that are physically or easily to be audited. The last thing I would say to you is that we partnered with Grant Thornton, which is one of the top five accounting around the world accounting firms, to consistently be going in and doing those audits as an external partner to give that trust and transparency. Every single thing we've tried to create is based on those three values. I spoke of trust, transparency, and our Interests being aligned. And I'm sorry your interests are not aligned. If people are flying around the world whining and dining their partners, we don't take one cent out of deals. If I pay for the Skype call as an example, it's not coming out of any of our deals. It's an operating cost for our head office company which is funded, well, it's funded externally by our real estate dealers.

Right, right, good point, good point, Scott. Yeah, that's great. Well, you know what else? I know, I know we've got to wrap up, but what else do you want people to know and give out your website too.

So the website is wealthmigrate.com again depending on where you are around the world. And if you, you know, I'm sure a lot of people just not following you all over the world. But the.com is the main mothership and then in different countries it generally has the URL that's significant to that country. So Australia is.comau etc etc. But I think I'd like to say just very quickly from your perspective, what you're doing is phenomenal. I read the book the Four Hour Workweek by Tim Ferriss in 2012 and I live a magnificent life in a beautiful place now. And it really is possible. Everything that you teaching people is very, very possible because I'm doing it. Where this crowdfunding thing is going, the thing that excites me most is that this whole democratization you talk of is that if you went to Davos or heard what happened at Davos, which is the World Economic Forum, the biggest risk that faces is not terrorism, it's actually the wealth gap and it's this whole diversity between the haves and have nots and crowdfunding. Just like the printing press did in the 1400s. Well that's going to happen a lot quicker than it did in the 1400s is going to enable wealth to be democratized and it's going to be the solution to this wealth gap and just that alone will have a massive impact. So something we are a driver of and something we're very passionate about is the wealth movement, which is to enable people around the world to create wealth to benefit from the wealth effect. And our target by 2020 is to impact a billion people on this planet. Now we won't do that on our own. It'll be like minded people like yourself and others, but the benefit and the power of technology. When you think about where you have education and technology and you put it two together, it will change people's lives around the world. And it's the most positive benefit that we can make on this planet. So you know that that's very much the philosophy upon which we, which we operate.

What is speaking of which, if we're going to democratize this and we see this movement happening, what is your minimum investment in these deals?

$10,000.

Oh, it's pretty low. Most are $25,000 or $50,000. So. 10,000? Yeah. That's good.

Look, at the end of the day, I don't care what anyone says. I wish I could tell you that it's completely like buying a song on itunes. It's not. There's still human involvement. And so with time, as legislation changes, but more importantly, as technology improves, my aim is to get it down to a dollar per person per investment. But at the moment it's 10,000.

And by the way, I did misspeak about that. Some of the lower crowdfunding platforms go to like $1,000. But the typical funds or LLC type deals that you're looking at that are privately promoted and sometimes on crowdfunding those are usually 25 or 50,000. So that's good. It really opens up the door and creates a lot more opportunity for small individual investors. So Scott, it was great talking with you. I apologize for any background noise on my end and keep up the good work. It was good having you on the show, Jason.

Perfect. And if I can help you or anyone else, please let me know because I love jet setting around the world and living in the emerging world and owning first world assets with a first world income. It's magical.

You're engaging in geo arbitrage. It's a great thing.

That's exactly it, dude. Every time, every time my currency devalues, I laugh when everyone else panicking.

Yeah. Thanks for joining us, Scott.

You know, sometimes I think of Jason Hartman as a walking encyclopedia on the subject of creating wealth.

Well, you're probably not far off from the truth, Penny, because Jason actually has a three book set on creating wealth that comes with 60 digital download audios.

Yes, Jason has that unique ability to make you understand investing the way it should be. It's a world where Anything less than 26% annual return is disappointing.

I love how he actually shows us how we can be excited about these scary times and exploit the incredible opportunities this present economy has afforded us.

We can pick local markets untouched by the economic downturn, exploit packaged commodities investing and achieve exceptional returns safely and securely.

I also like how he teaches you to protect the equity in your home before it disappears and how to outsource your debt obligations to the government.

And the entire set of advanced strategies for wealth creation is being offered at a savings of $94.

That's right. And to get your Creating Wealth Encyclopedia series, complete with over 60 hours of audio and three books, just go to jasonhartman.com store if you want to be.

Able to sit back and collect checks every month, just like a banker, Jason's Creating Wealth Encyclopedia series is for you. This show is produced by the Hartman Media Company. All rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or email mediaartmanmedia.com Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network, Inc. Exclusively.