Interview with Nicolas Diaz, CEO of Besafe
The Chilean company Besafe* has a hotel rental product that is unique on the market. Their idea is to consolidate all of the lines of business and begin internationalisation. Nicolás Díaz Devoto, founder and CEO of Besafe, views real estate crowdfunding as a revolution where people can access the 'best opportunities, which, on their own, would be impossible to reach.'
In one sentence, how would you define crowdfunding?
Collaborative investments in properties.
What opportunities does it offer?
Accessing the best opportunities that individuals on their own would be unable to reach.
Do you think that real estate crowdfunding is a revolution on the real estate market?
Personally, I do think so. There are four different types of real estate crowdfunding. Some of them aren't revolutionary, but are more traditional, while we do consider other newer ones to be.
The four of them are:
• The one they do in Spain, and the one we like the most: real estate crowdfunding for properties already in existence. This means you can show your investors a property that already exist. The property is registered in the real estate registry, so the property can be inhabited from the very first day when one invests. We like the business model of remodelling it, the rental and capital gain business... But things get difficult along the way, due to regulations in each country. We have researched several different markets, and in Chile, this business isn't very attractive from a profitability perspective.
• We call the second kind of crowdfunding real estate development, where things went very well for us. The idea is to build real estate projects from scratch (Prodigy or Real Crowd). Capital is raised from scratch with investors, the real estate project is developed, and then the profit and capital is distributed once the project matures. These investments are between two and four years (their problem is that they are long and do not generate monthly or quarterly liquidity, like with the first category).
• New crowdfunding category: hotel rental. We are the first ones in Chile to do this, and it went very well for us. Taking advantage of the new trend, which is also collaborative economy (known as OTAs), today nobody books on hotel pages. Everyone uses Booking. With this in mind, we developed a hotel rental fund. Initially, it purchased real estate in the best tourist and business locations in large cities (they must be cities with tourists year-round, not just seasonally). We started, but profitability wasn't great, because here in Chile properties are very expensive and rent is very inexpensive. So our next step was to create a hotel rental fund, but instead of purchasing the real estate, we leased it, and this is when profitability took off. We have 22% accumulated returns on the beginning of this annualised fund. The return is great, because we take care of the owners' debt capacity.
• And the last kind of real estate renting for elderly individuals who need to live in a hotel-type dwelling.
What is our business model?
Our business model is to provide a real estate investor's entire chain of value. We have five business areas with different teams, under a general manager, one leader, who is partner, per area with their team, and they all report to me.
How is this market viewed in Chile?
In Chile, the market is highly smeared, because there were many pyramid schemes and cases of corruption. This means that people tend to be very cautious with investment companies that are not traditional banks.
Briefly, what would you say is your differential value?
Our hotel rental product is unique on the market.
How did you decide to get involved in this?
I was always associated with the entrepreneurial world. I had an investment company that I sold last year. I saw a great opportunity with crowdfunding, and the idea had been taking shape for quite some time. That company was heavily focused on clients with very high capital, and I wanted to do something more accessible, more dedicated to people who don't have as much capital, as much money, to invest. The minimum amount to invest with that company 20,000 dollars, and now it is 150.
That's quite a change in investor profile!
Yes, we say that the richest 1% in the world invests, but now everyone can invest just like Warren Buffet. We're creating a brand specialised in hotel rental... The idea is to consolidate all the lines of business and begin internationalisation 2017. Very organically, we don't burn through much capital. We spend a lot of resources on people, and our technological platform is very basic. We don't think it is necessary to spend a lot of money on developing a platform. Gradually, we're moving in that direction, but for the time being, we don't use much capital and we use resources on people, especially on sales force, backoffice and real estate consultants.
How long does it take to finance a real estate opportunity?
The opportunity is financed in between 48 and 72 hours, and we even have waiting lists. We don't want to go crazy with growth, but we are under full, yet controlled expansion. We are attempting to create an ecosystem, a community.
How is crowdfunding regulated in Chile?
There is no law regulating crowdfunding. We are creating an investment regulation that must be authorised with local regulators and signed by each investor, regulating all of the aspects that the law has yet to update. We are self-regulated, creating a quality standard for procedures and ethical practises that companies who want to form part of the collaborative economy company group must have.
We might say you're ahead of the law. You're blazing the trail.
Exactly. We are defining what happens if an investor wants out, pro-property maximum rates, capital investment increase clauses, what happens when the business doesn't work, etc. This regulation governs many situations that could arise, and now we are working on a code of action. This provides us with a legal framework while waiting for the regulator to make a law, and we are helping this regulator.
What do you think led to such a favourable environment for business ventures in Chile?
We have the Startup Chile programme, where we created an ecosystem with a well-regarded entrepreneurial culture, where there are funds and projects have been developed, etc. The ecosystem is favourable to business ventures and the collaborative economy is in style. I don't hook anyone if I talk about investments, but if I mentioned collaboration, I quickly get their attention. That helped us a lot. Technology plays a fundamental role; today, it is opening up a world of possibilities for us.
Do you think this can help to reduce inequality?
More than inequality, if you analyse capital inequality, you realise that people with high amounts of capital can lease it at 10%, and people with under 10,000 dollars in savings can only do so at 3%. What Fintech do is provide the possibility of obtaining higher returns for people with low capital amounts. In other words: democratising investments.
What are the steps to invest in Besafe?
For international investors, we have alliances with attorneys who, in turn, have the entire procedure prepared to receive investors from Europe. We assess them to transfer the funds, and once the funds are here, shares are subscribed in the investor's name, and the certified documents are sent to the investor in the country. We also take care of the tax and legal aspects. The investor can do it, and the alliance and procedures are already prepared to receive him or her. However, given that there is more work to do, we ask for a minimum of 20,000 from a foreign investor.
How do you organise collection and payment with investors?
The investments for each opportunity are separated, and shares in the company created are issued. Each opportunity has a different structure. They sign a contract with the administrator, the mother company, which is the company providing service to each one of these companies. We maintain the real estate and collect fees for doing so. We collect a commission for success.
And now the easiest question of all... Do you invest in real estate crowdfunding?
We invest our capital, our time and our reputation. We are a team who is dedicated to this business. We're all the way in!
* IMPORTANT UPDATE: Besafe has ceased operations and its website is no longer operational. Nicolás Díaz continues in the real estate sector.