Crypto Fraud & FTX Collapse vs HouseHack [My Startup].

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

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DocuSign before November 30th you have

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actually is the deadline for you to wire

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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