FG Expo speaker reveals key wealth factors

Dolf de RoosNew York Times best-selling author Dolf de Roos is a featured speaker at this week’s Fintech Global Expo, which takes place on May 28 and 29 in San Diego.

Mr. de Roos is speaking on the global potential of crowdfunding and how platforms can grow from national entities into more global platforms that enjoy the benefits of geographical diversification.

Dolf de Roos’ entry into real estate was the culmination of a deliberate process he began at 17 to identify the common traits shared by the wealthy.

“I remember thinking somewhat naively that if I could identify 30 or 40 things I had a shot at being wealthy,” Mr. de Roos recalled.

He looked at common demographic characteristics such as age, gender, religion and socioeconomic factors and nothing stood out.

Eventually his search revealed two factors.

“Almost without exception the rich had integrity,” Mr. de Roos said. “Their word was their honor.”

“If you have no integrity you will have a tough time generating wealth. The good news is it is not a genetic trait. You can decide to get more, and as you do, more wealth will come your way.”

The second commonality was the rich tended to either generate their initial wealth or held it in real estate.

Mr. de Roos bought his first property at 17, a wooden villa consisting of two units with two additional flats in the back.

“The first rent check was more than the mortgage, insurance and maintenance,” he said. “I made money and I hadn’t worked for it.

Mr. de Roos stayed in university and earned his PhD in engineering. He went on two interviews and received a job offer from one at what was a decent salary at the time, $32,000.

The problem was he had sold a property the previous week and netted $35,000. So long engineering.

Mr. de Roos was at the same time both surprised and understanding of why more people do not invest in real estate. Most people have financial planners who tell them to diversify and not put all of their resources into real estate.

“Most financial planners haven’t figured out how to generate commissions from real estate,” Mr. de Roos said. “They channel investments into areas that pay fees.”

“Most retirees discover their biggest asset is their house. So many say later they should have bought another one.”

Mr. De Roos believes crowdfunding can have a rapid and dramatic effect on wealth generation but that its true effect has been delayed by laws in most countries that essentially worked against the concept. Most had limits on how many people one could recruit into an opportunity.

“There was a limited number that could join forces on investment that ranged between 25 and 50 in most countries,” he said. “That’s the antithesis of crowdfunding.”

Then came rewards-based crowdfunding sites like Kickstarter and Indiegogo and things began to change. Previously companies had to engage in venture capital where they often had to give up control of a large portion of their company in exchange for badly needed capital. Now they could get the same total by collecting smaller amounts from a larger number of people while retaining control over their company

Governments around the world have been learning from crowdfunding and are beginning to reassess the restrictions placed on real estate investments, Mr. de Roos said.

That is good because government’s history of legislating real estate issues is suspect, Mr. de Roos said.

“Often government laws have the reverse effect from their intention,” Mr. de Roos said.

He cited rent control, which is employed in both San Francisco and New York City, two cities with the highest rental fees in the country.

“It sounded fair at the time,” Mr. de Roos said. “Plus there are more tenant voters.”

The problem starts when values increase substantially. Rents limited to the CPI rate cannot and yields fall. Investors are not renting and developers are not building as they are also impacted by the rising cost of building materials.

“Even existing investors get out,” Mr. de Roos said.

The solution is to get rid of rent controls entirely. Yes, they will soar in the short term, but in time they will drop as more developers enter the sphere and supply increases.

Mr. de Roos said on Feb. 12 Malaysia became the first country to remove the accredited investor stipulation for investing. More will follow, with the smart ones doing it sooner than later for risk of being left behind or playing catch up.

The real estate crowdfunding platforms that ultimately succeed will realize the pervasive power of crowdfunding, Mr. de Roos said.

Like many he cites Uber, which does not own a single cab but what most clients believe is a better service at a cheaper price. There will be resistance from established industries, like companies in New York City that pay $1.2 million to put a cab on the road, he said.

“The smart ones realize this is the way of the future,” Mr. de Roos said. “With Uber you know the route, driver, and you don’t need cash.”

“Instead of asking for government protection they should give up the cab and become an Uber driver.”

Dolf de Roos said a similar transformation will happen in real estate. Previous common entry points like $50,000 excluded many from real estate. Now more can people can get involved. Those fortunate enough to be able to invest $50,000 also benefit from being able to diversify risk.

Even now, roughly 12 percent of the world can invest in real estate, but crowdfunding should substantially increase that percentage.

Crowdfunding also benefits from being peer-reviewed much like eBay vendors. Those with poor ratings will not be as profitable.

There will be an eventual thinning of the real estate crowdfunding platform herd, and Mr. de Roos has some thoughts on who will survive.

“Many platforms are run by technological whiz kids,” he explained. “They are lacking knowledge of and the background in real estate. They are just finding a deal to fit into a platform.”

“We are at our core and fundamentally real estate investors.”

Technology currently in use has the power to allow entire countries to leapfrog generations of development and close the wealth gap faster than ever, Mr. de Roos believes.

“We went from cell phones to feature phones to smartphones. ‘Smartphone’ is almost a misnomer. They are supercomputers.”

“If you take the number of transistors in each iPhone 6 and multiply it by the number of iPhone 6s sold on the first weekend it exceeds the number of transistors on the planet in 1995.”

Within a year there are expected to be one billion smart phones in use in Africa and they will empower people in developing areas. While they may not have many western necessities, they will have smart phones. This will enable them to access information and micro investment opportunities outside their borders. Social media and text marketing will be used to reach them with opportunities, he said.

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