As a real estate investor what is your biggest challenge? The majority likely point out the very difficult world of financing. In a buy-fix-sell project a source of funds is needed for the acquisition and rehabilitation of the property. The financing is intended for the short-term with repayment through either a sale or refinancing in traditional long-term debt options. This type of funding is an area where traditional lenders have had limited appetite due to prohibitive internal guidelines. The lack of traditional lending for these projects have created the “direct” or “hard-money” lenders. These lenders cost for funds are significant because there are few other options available to the investor. A new option has appeared rooted in technology and traditional networking concepts. The option is called “crowdfunding” and you really should consider trying a platform for your next project.
Here are 3 reasons why you should consider crowdfunding for your next residential real estate investment project.
- Better access to funds– the nature of crowdfunding is that instead of looking to one hard-money lender for your project, the risk will be spread between several to many investor. The lower risk for a project allows for more parties to be interested and potentially become partners.
- Faster access to funds– Banks have run away fast from residential buy-rehab-sell (also know as flipping) projects. The crowdfunded platforms provide quicker responses with more flexible terms and underwriting. Once a borrower has been cleared in the platform, typically requests are made on a project by project basis with responses in hours and not days or weeks.
- Time savings for future projects– The platform you work with will capture and store a lot of information about you and your projects and present all of this information professionally. By developing this relationship with a platform’s online community, you are documenting your success for future investors to consider. With each deal your reputation and credibility will grow, making it easier to enlist new investors in your next project.
You don’t have to be an accredited investor to seek funding for your next project through a crowdfunding real estate platform. When choosing a crowdfunding platform for your project funding consider the platforms main strategy. If the platform seems to be loaded with commercial high-rise projects, it will likely not be loaded with investors looking for residential opportunities. Find the platforms that provide the best match to your investment strategy. You also want to be sure you understand their underwriting requirements and make sure your project will fit in the platform and what investors are expecting.
Crowdfunding platforms are not providing funds for no money down or below market interest rates. The benefit to crowdfunidng is in the efficiencies and access to funds. Most traditional lending rules still apply with regard to the borrower having skin in the game and receiving risk-based pricing for funds.
Crowdfunding is a new industry. You want to choose a platform where you can build your credentials and reputation. It is important to believe that not only is the platform committed to your project class, but also has the strength to stick around allowing your success to grow with the platform.
Companies that organize crowdfunding for real estate include RealtyMogul, RealtyShares, FundThatFlip, and Fundrise. Also here is a list of real estate crowdfunding companies specializing in different types of investment classes.