Jimmy Woodard and Bryan Marks are co-founders of Cloud Castles, a mobile app that lets users buy and own shares in vacation home real estate. Their company helps people jump into the real estate game even without any experience and allows them to get good returns. In today’s episode, we find out about how this innovative idea enables people to become real estate investors with very little cash-out.
There’s usually one of three things stopping people from investing in real estate. Either they don’t have enough time. Or they don’t know what they’re doing. Or they don’t have enough money.
Cloud Castles seeks to become the answer to people facing those hurdles.
Jimmy and Ryan met in a student-led discussion group at UC Berkeley. They went together to a house in Tahoe and kept going there for years. Later, they decided they wanted to own the house in Tahoe and just rent it out and make money.
With Jimmy working in tech sales and Bryan growing up with a father who worked in construction, they decided to get together and start Cloud Castles and apply what they know about technology into the space.
The vacation homes they buy are put into an LLC. Users who buy a share will own a portion of the LLC. There’ll still be a mortgage on the house.
The Cloud Castles team does the curation. They’ll find the perfect home that would give the best returns. They’ll also put in the amenities.
Then a percentage of the equity of the home is converted into shares. Users can buy shares of that property, and they will get a percentage of the profit based on the shares they own. If the property is later sold, they’ll also benefit from the appreciation from it.
There’s a lot of work involved with the idea. Renovations are needed to stand out in Airbnb. And legal requirements need to be met to run in a city of your choice.
Cloud Castles is very different from timeshare because timeshare has no revenue generation, the properties are hard to sell, and there’s no appreciation.
When you buy a raw home like how Cloud Castles does, there’ll be appreciation with your money. Cloud Castles was built to democratize access to real estate. As more people bring in money, they can use the funds for the next investment and then just repeat.
Both accredited and non-accredited investors are allowed to buy shares. Other wealth-building strategies require you to have a certain income or net worth. But that’s not the case with Cloud Castles.
In 2021, Jimmy and Bryan plan to own 10 homes. They had just closed on a second home in Miami. By 2022, they want to have 100 Cloud Castles both domestically and internationally with more multifamilies than single families.
In the future, they aim to have 1,000 homes. Though it’s difficult to buy homes right now, it’s still a great way to generate wealth. Later, they might pivot to the 3D printing space and funnel more into construction.
It starts with the acquisition after doing some research. Jimmy and Bryan already developed machine learning to scrape the data. They’ll then take the data and acquire the property through traditional financing.
After closing, they’ll figure out what amenities are needed to get maximum returns. They’ll do the renovations before the property is listed on Airbnb.
Later, they’ll bring in the investors. So by the time investors come in, they already know it’s an income-producing property. The money they get is rolled into acquiring the next property.
Properties are initially bought in their names then later the deed is transferred into an LLC. The plan in the future is to buy upfront through an LLC.
Financing is done through lenders who cater to short-term renters.
With the Tahoe property, they put out around $75,000. This covered the down payment and closing costs. It was a turnkey property with 3 bedrooms and 3 baths.
It had a $500,000 purchase price and the value is appraised at $1.5-1.6M. After adding up all their initial upfront cost plus a small markup, they came up with $150,000. Divided by 10,000 shares, each share was sold for $15.
They initially had trouble bidding for a property because of all the cash offers they had to compete with. Luckily, they found Flyhomes which offers a service to make an all-cash offer on your behalf for a fee.
People who buy shares will have their name put on the LLC, and they get paid out a portion of the property’s income.
In the future, they plan to put in a bid feature where people can sell their shares to those who will bid. Cloud Castles will just charge a processing fee in that event.
One of their biggest challenges is in the acquisition. They need funding to be able to acquire the properties, and they also need to scale up their customer acquisition side.
But from their initial success where they generated over $75,000 in booked revenue in over 5 months, they now have actual investors who put money in their platform.
Because the market is crazy hot, they’re waiting for it to slow down. But they will need to build up their portfolio because they know that things will turn, and it can switch to a buyer’s market as opposed to a seller’s market.
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Can't seem to get more than you're 30 second promo. Where's the link Sean?