Hey me Kevin With Househack here, we have a deadline coming up on November 30th and before we get into the video I Just want to make sure you know to go to Househack.com and sign up on that DocuSign Before November 30th, you have one full Business Week thereafter to wire your funds. Uh, which is December 9th actually is the deadline for you to wire your funds. If you sign that you're an accredited investor, buy the 30th at 11 59 PM So check out Houseife.com But for now, let's talk about FTX versus House Hack. Hey, everyone meet Kevin here I Was asked: is it possible possible that my real estate startup could be the next Sam Bankman freed of FTX which is obviously now A collapsed Crypto Brokerage in a pretty dang blunt question but I'm a big fan of complete transparency, honesty, and admitting to mistakes when you make them. And in this video, I'd like to go through with you my thoughts about the similarities and differences of an FTX Crypto Ponzi and House Hack. So let's get started by making this very simple: FTX was a website where people could deposit cash, crypto, or other assets like stable coins and then stake them to earn a yield. Well, obviously, if you earn money on something, the company has to earn that money from another source. otherwise they will go bankrupted and solve it as soon as funding dries up. Let's draw this comparison here. So to draw this out, if you are FTX and you tell your customers hey, we can offer you eight percent yields on crypto. Well, it has to come. It has to be fed by some kind of source. Maybe that source is really rich venture capitalist, but Adventure capitalists are throwing money at a business venture that's just paying out eight percent. And there's no like other black box over here that's actually generating money that can afford to pay that eight percent. Then it's a really bad business model. And it's a business model that for years I've been talking about the potential collapse of stable coins and I've interviewed the CEOs I Hate to say it, but I've interviewed the CEOs of both Blockfi and Wager Digital, both companies that went bankrupt and I asked both of them, how do you manage risk? How do you get these yields? It seems obscene and there is no Federal Reserve So if you have a problem, nobody's coming in to bail you out and that's literally what ended up happening with these companies. The CEOs like the CEO at Voyager Digital, lost like a third of their assets to three arrows Capital because they ended up lending out their money to somebody else to help them earn these yields. Then both Voyager and Block 5 were going to get bailed out by the Central Bank unofficial Central Bank of FTX which doesn't have a money printer and when FTX went bankrupt, they went complete. So how does this system generally work? Well, The idea is that FTX is supposed to pay eight percent to the customer. that was the idea, right? And if the money's coming from a VC that's fine it. But it's potentially bad unless there's another business model. And so the other business model in this case was, oh, let's just lend the money to companies like Alameda Sam Bankman Freed's uh, investing company or Voyager right? So you have Voyager these uh, or sorry, not uh. Voyager Ended up lending to 3ac and they did Risky bets and the hedge fund world and ended up failing and imploding. Which led, to, well, the implosion of these companies, right? Because basically FTX is saying: look, we're telling people we will pay them eight percent if they deposit their currency with us. Well, in order to earn that eight percent. We're going to go over here and we'll lend it to these guys for let's say, 10 over here and then we'll pay eight percent over here so we'll pocket a two percent difference. That's the idea of the Ponzi essentially right. But if trades over here go bad or Venture Capital Money stops coming in or customer deposits stop coming in because customer deposits fuel. uh, the trading. That's that's possible over here. If one of those three things breaks or Worse all of those three things breaks, the whole system collapses. The Venture Capital Money dries up because we're at a tight money era. Uh, the dollar liquidity is very, very very low. Venture Capital Funding is is very very difficult to do right now. We are honored that we are over. We're almost 30 million dollars of funding raised for house hack. Uh, which in in this terrible economy is amazing that lets us buy almost 100 million dollars of real estate? That's it. That's incredible. We'll talk about that in a moment. But anyway. VC Money coming in dries up, the whole cycle goes bust. Bad trades happen at Alameda or 3. AC the whole system goes bust. Uh, customer money stops coming in, the whole system goes bust. So you have three. and we could see this more clearly now. obviously in hindsight, which is very disappointing. but you have one critical failure point. Two critical failure points Three critical failure points Three strikes. you're out. And it's so sad that I even like I I felt this was so odd. but I didn't go far enough to say what I should have then which is this was this was a scam and a Ponzi that's why I end up getting caught up in it as well and I lost money investing in in Block five I invested as a venture capital person I was one of those people investing in blockfi and I'm just assuming that money's gone and it's so frustrating because my instinct was something doesn't smell right and that's why I begged to get these CEOs on my channel so I could drill them on it and I did. and and all they could tell me was how good their risk management was. But you can't go to these companies and actually see where the money is going and that is that actually interesting problem. I Am a big believer that in business you must follow the money. Okay, so let's follow the money. You should not, in my opinion, invest in a business unless you know where the money is going to be made and what it's being invested in. So where are those problems with the statement I just made? Where are those problems here? We know the customers supposed to get eight percent, but where is that money coming from? Oh, it's coming from Uh, Rvcs? Okay, but what if they stop paying then that a percent goes away right? Uh, uh. well, don't worry, we also have investing. Partners Okay, who are those people? Oh, we don't disclose that red flag. That in hindsight was a very big red flag. We did not know how much money was being concentrated onto these companies, these risky trading companies over here we did not yet know. And really, if you think about it, the hedge fund that collapsed the bill Huang Uh, hedge fund that collapsed where he was able to with his swaps and derivatives get to like 20 billion dollars and lose it all instantly. Uh, or within a few days by over leveraging from Banks was really crazy in a collapsed. That was almost like a warning. that stuff like this was coming. It ended up coming. It's hindsight's always 20 20. Right when you're in it, it's like ah man, I don't quite see it. but I feel something's off, right? So weird. So how is this different? Uh, and you know I know I know. Obviously, it's very disappointing that that people have lost money and I feel so terrible about it that people have lost money involved in like FTX or block fi or Voyage or whatever. I've lost money as well. And that doesn't mitigate the fact that at one point I was sponsored by a company like FTX right? It's terrible. and I've made videos Almost daily I feel like I've apologized for it and I am very sorry about it. but this, that's not what this video is about. This video is to say how is Househack different from this mess here, right? So the easy way to picture that is like this instead of FTX. Let's write House Hack here. What is House Hack promising to its investors? Well, it's not promising. eight percent. In fact, it's actually promising Zero percent. We're not promising a cash flow return. We're not offering cash flow. What we're saying is we are going to invest in at the best possible real estate that we can at the best possible discount we can get. And so the cool thing about that is our money doesn't come from VCS or Venture capitalists or whatever it comes from ordinary people like you and me. We invest to create a company like House Hack. House Hack is then going to invest in homes in homes where we can publicly we can know what this portfolio consists of. whether Auditors uh no, you know Big Four Auditors have the list of these properties or I Don't know because tenant privacy could be an issue, but we potentially publicly circulate these property addresses to our investors. We figure something like that out. but these properties are real properties. They have a Assessor's parcel number. They pay property taxes. They exist. You could drive by them, you could look at them. And the cool thing is these houses are not an Arcane product. see houses have always required tenants and when you look over here, the demand for whatever three AC in Alameda was doing was totally unknown. They were just trying to make money in the crazy space of crypto that's very uncertain and there it's very Arcane This is not very uncertain or Arcane in my opinion, it's not like I'm creating a product and we're like I really hope my new widget sells really well. We're renting homes. it's It's not like a a very surprising uh uh, a business model right? The big difference that I have that I believe I can I can accomplish is I believe I can buy these properties below market value, right? That's the big thing is is getting wedge deals. so I believe For example, if this house is in a six hundred thousand dollar neighborhood I believe I could be all in on it for five hundred thousand dollars with fix up and closing costs. Now all of a sudden I have a hundred thousand dollar wedge or an equity boost. Let me show that to you a little bit differently. Let's say we buy 100. Uh, that's that's roughly what was that about an 18 example there, right? Let's say we have a hundred million dollars of real estate that we buy with maybe 33 leverage in this example or 50 leverage Whatever we end up raising, we end up buying 100 million dollars real estate. And let's say that real estate after we buy it, fix it up and rent it out is worth 120 million dollars. Well, we just made 2 20 million dollars of money on paper. We haven't actually sold the properties yet which would incur selling costs and capital gains which we don't want to do. Uh, but that would actually represent a 20 return on the leveraged 100 Mill but would actually be uh if it was on 33 mil. Well, uh, you know, let's say 20 divided by 33 would represent about a 60 year one return. Now that return then gets buttered out and smoothed out into future years because we hold the portfolio and we only exchange or you know, slice off a portion of the portfolio after maybe five to six years when those returns start kind of rotating down and it's time for new wedge deals. Uh, and that's how you increase the returns. So the model is actually very, very transparent because every part of this makes sense. Every part of oh okay, you're gonna buy houses and rent them out. That makes sense. So renting a property out for long term a long-term rental is not Arcane It's not a secret, It's not like we have to, uh, like try a new formula here. I've been doing this for 12 years. My father-in-law is a board member has been doing this for 40 years. mother-in-law's been doing this for 40 years. My wife is like we had up to 28 rental properties and we sold them to create this company because we're like we got the model. We've got the formula to do this now. We also in the future really want to do medium-term rentals. These are like Flex rentals where you rent to like traveling nurses or business professionals who have to travel and be in an area for like three months at a time for training or whatever it might be. And of course there's always the short-term rental method. But you have to be careful here because I was just reading the Uh Vacasa earnings call and I Hate to say it, but the vacasa earnings call says there are big red flags coming for the short-term rental market and that a lot of people are seeing their bookings not just seasonally decline, but abnormally declined going into Q4 here. So I'm very, very aware of what's going on with the short-term rental space. and so for me, I'm like I can make househack work in my opinion, very profitably with just long-term rentals I don't even need short and medium term. That's just icing on the cake cake, right? So how is this different from FTX and this whole Alameda thing again? Well again, we don't rely on customer deposits coming and there's nobody who has to deposit money with us for us to do business. We have tenants, but that's just a normal income and expense thing that's not like customer deposits. It's not like we're relying on uh, investors in this company to constantly deposit money with us, right? It's not like that, which what you had here was you basically had this Ponzi where the the money that people were depositing uh and getting eight percent yields on was being sent to these Arcane trading firms in hopes of creating profits for FTX Uh, or or hopes of being able to pay those 10 yields. But as soon as those companies defaulted, not only is the eight percent go away, but the company goes bankrupt. We're not relying on customer deposits here, right? We're relying on a large rental portfolio. Now, if every tenant stopped paying rent, that would be a risk factor, but that's extremely unlikely. Knock on wood. I've never had an eviction in my career and we never intend to have an eviction. We expect to have very, very high quality tenants. And again, this, the tenants are over here. They're kind of like at the the hedge fund level of the Alameda example, right? And there is no customer depositing money over here. There's no requirement for a customer to deposit money to house hack. There's no requirement for Venture Capital Uh, people to continue to invest. Uh, money. We don't need that so you don't actually have Venture Capital That needs to keep coming in. We don't have customers depositing money. What you really have is just renting out properties and you don't have that Arcane Disaster of Alameda and 3ac. You have properties getting rented as long-term rentals and being bought at wedge deals. That's it. That's the model. It's really simple now. Some people are like, oh, but Kevin How is this different from fundrise? Well, this is extremely different from Fundrise. So Fundrise this is the vacasa. I Have a Vicasa Pdfp in here. Uh, okay. so uh. Fundrise I wrote Fundraise I'm so used to writing that now. So here's the thing. Fundrise: I'm not gonna ever bag on the competition. Uh, they're a very different product I Think they're good for some people, but what you have with Fundrise is what you're actually doing is you're investing in different, uh, syndications. So this is investing in a syndication and that is very important to know. So this here is a syndication. because the syndication. and you've got to read the PPM for those syndications. But it's complicated. But they could charge you anywhere between 20 to 35 percent Waterfalls? That's sort of how much profit they take at the end of the deal. Then you usually have a one to two percent expense ratio, and that's annually usually. Uh, now. One of the things that drives me nuts about Fundrise is when you look at their website and you're at their investor portal, they'll say something like oh, your fees this quarter or whatever were 0.25 of rents received. But what they're not telling you is that like what I believe is and I'm not 100 certain of this. but I think I think on their income and expense statements they actually charge the one to two percent fees here. and then they have a net income that comes out for the property. So then there's net and then they take the 0.25 off here. and so this is a darn iPad here. Uh, anyway, so this fee is already built into their income and expense sheet, but they're hiding that expense from you. You have to kind of dig deeper in the financials to see that. And then they're telling you, oh, the fees are only 0.25 So I'm not Again, I'm not trying to bag on them, it's just be aware that this is a syndication. It's very different from from what I'm doing. I'm not syndicating real estate If a house hack is not selling you ownership in real estate. I Want to be very clear about that? A syndication is like a partnership in owning real estate. Then you also have this company called Arrive. And Arrive is doing stuff where you basically like pick a property and you take a share of the cash flow of that property. Uh, and then there's also a Reit So uh, Arrive. I Believe this is a type of syndication, but I'm not 100 sure about that. So high fees you're You're having to pick individual properties and then a Reit uh is usually in my opinion. AUM Driven. That's assets under management driven. And really, what they're trying to do is they take in money and then they deploy it into real estate. They don't care about getting a wedge deal, they don't care about doing short-term rentals. usually. They just okay. we got this money. let's allocate it. Then let's take an asset management fee of you know, two percent, two and twenty, or or whatever they end up uh, taking depending on on the reach or the management structure. whatever. And they pay a lot of their money out in cash flow rather than reinvesting it. which I don't think is tax efficient. Although there are tax benefits of using a rate structure if you're going to pay out cash flow if we were going to pay out a lot of cash flow, I would call us a wedge deal Reit That's what I would call us if we were going to pay out cash flow. but we're not because we're not AUM driven. We are right now driven on actually doing something very different and that is building. Uh, this. We want to build the company. House Hack. So what is house hack? That's then so different from these companies. And and you know how, how do we reconcile these differences? Well, the easiest thing to do is just list the differences so you could see it. Benjamin Franklin Always said make a list. This is true. The Ben Franklin list it became known as so let's write it out. We're not a syndication. Which means this is not a partnership. This is a corporation. This is a corporation that in the future I want to take public So The plan is to IPO this company. Phase one is we're going to start with wedge deals we don't care about AUM or assets under management. We want to prove the wedge deal model at scale in a diversified way. Which means maybe in three four different areas around the country, right? Uh, then we are going to in the future where we'll expand from only long-term rentals to medium and short when the time is right. By the way, we also aren't going to buy real estate until probably the summer of 2023. Tentatively, though, that's still up in the air. we'll see how that goes. Uh, just because it depends on what the market does and what the FED does and what rates do. But we'll do that slowly. We won't go right into Airbnbs, especially because I think the time might not be perfect for that. But I Do think there's a big opportunity for getting below market value deals, especially in a depressed time like what we have now. Uh, so we're gonna start with wedge deals at scale. No, none of the other models do that. We're gonna do long-term and medium-term rentals in the future. None of the other companies do that. Then we expect in the future to really create a Hospitality This is long term, right? A Hospitality brand? Think about being like, uh, a Hyatt right? or or a Hilton or a Ritz Carlton But having that sort of brand for medium and short-term rentals where rather than you going on Airbnb going? Oh, I Hope this landlord is a good Airbnb host. You know, every time you go to a househack property, it's really, really a good quality product, right? Uh, and the same will be true for the long-term tenants we expect in the future to also have. potentially. We're not sure about this yet. maybe in the future after IPO Maybe some kind of like equity share for tenancy, right? And and what we can do here is even though that will come at a slight cost to the company, we actually think we'll be able to charge more rent for the properties and we'll keep tenants longer because they'll have a vested interest in the company, they'll have ownership, and Equity so they'll be able to build their wealth and they'll probably take care of properties more uh, than our tenants already do. Which is pretty darn well. Uh, but in this example, you have tenants who are like, well, I technically own a slice of this property right? Then we get into really exciting things In the future, you get into things like software which could be basically, uh, a a rental listing platform for short-term rentals. Uh, but that's only for our stuff. So we have our own product. So like you'd go to Marriott.com maybe? Uh, you go to Househack.com and you find your short-term rental or your medium-term rental right? Or your long-term rental, you're like, oh, I Move into Austin Texas Let me see if there are any House Hack properties because I know that's a great landlord. You create that brand and so what you're actually doing is this is very different from a Syndicate and a read because a read and Syndicate equals partner in cash flow with high fees, right? Uh, let's zoom out a little bit with uh, we'll just lower the font size a little bit. There We go with high fees. Okay with House Hack. What you're actually doing is you're partnering on a company on a brand and you're making a bet on my ability to create that House Hack company and brand. Uh, by doing wedge deals and proving to Wall Street that we can do this. So this is not a partnership, it's a company. Now the cool thing about Househack is right now we are only accepting investments from accredited, but we are going to be doing non-accredited investors as well. The cool thing about that is in order to accept non-accredited investors, everything has to be audited. We right now are going through a very thorough audit and then that audit is not something where I'm just like haha. We have an audit that goes to the SEC and the SEC reviews it. That's when we file for our reg. A, which we expect to do within the next, you know, a couple weeks here, probably hopefully next week, maybe the week after. Uh, and then we hope to be live with our Reggae fund. By January February it might fall into March we'll see. But reggae means anyone can invest whether or not you are accredited today. To invest, you have to be accredited and we have a deadline coming up at the end of every month you get less free options basically warrants. They're kind of like call options, but warrants that let you double down essentially by a certain percentage on the shares you bought in the company in the future. And what's also very, very cool about the way we're structuring House Hack is unlike a traditional raise where a company will say oh, we're raising money at a billion dollar valuation and we're raising 300 million dollars. You know? an example like this was flow Flow Just did this where they raised 300 million dollars at one billion dollars and they want to get into real estate as well. And don't worry about competition I'm not worried about that all there's There's plenty of real estate to go around, but but this really means they have 30 cents of Cash for every dollar valuation they have I Think that's crazy for a startup. So I'm doing something really unique to really reward the people who are believing in me and investing in me. and we're saying we're raising money at one dollar equals a dollar. So if you want to know, hey, what's the valuation of House Hack, well you know if this is all said and done and we raise a hundred million dollars, well then the valuation is a hundred million dollars. Uh, you know in the future they'll be uh, I'm not taking a salary Lauren's not taking a salary, we won't get paid until after IPO We'll have some kind of probably stock comp that'll be based on performance and it'll it hasn't been decided, it'll come after IPO or or like you know, it'll be probably clear before IPO as a condition of ipoing but then uh, will be subject to Long lockups. So I don't want anybody to think this is like some kind of get rich scheme like I'm gonna be spending money on house hack and investing and house hack my own money. Uh before I ever see a dime back for for years? Wait wait longer. Uh I think than than even my investors It to me it's like I'm the last one off the ship. Uh, this is my baby. I You know I want to take this thing for the next 50 years? Uh, like I'm very excited about what Househack is going to become in the long term, so you know it's an interesting comparison. But I mean again when you look at when you compare FTX to something like this. What's so sad about FTX is it's it's Arcane when you follow the money, you can't There are no properties to look at because it's all crypto and you don't have all the public wallet addresses. You can't even audit it. really if you try to because it's just a mess, there's no SEC there's no regulation. There's no, there are not I didn't even talk about this. Lenders want to make sure and we're not lending out money right? That's like FTX was lending out money. House Hack doesn't lend out money. That's another huge difference, right? But the other thing to keep in mind is when if we go qualify to buy real estate and we need to get loans, we have to prove that we're financially capable of of keeping the business operating by taking on the debt. you know FTX was the one doing the loans right to themselves. Basically it's it's so shady and so disgusting. Uh and uh. Honestly, I I I Appreciated this person's question. who brought it up? but uh, you know we've got. uh, we've got a very different business model. It's very different from anything else other product that exists. Hopefully this was insightful to you in a solid update. Thank you so much for for watching. Make sure you go to Househack.com to sign up. Sign your DocuSign by November 30th to get the best benefits for warrants. If you have any questions, feel free to email us at IR Househack.com This video is not a solicitation. The private placement memorandum at Househack.com is thank you so much! Goodbye.