Crowdfunding Now Fueling Real Estate Flips for Investors
Now that the housing market has finally turned around and prices are on the rise in most parts of the country, home flippers are re-emerging. Unlike before the housing crisis, today's investors are taking advantage of a full suite of new technological advances to increase their chances of success. Among those tools are crowdfunding sites that offer the opportunity to bring in cash for funding purchases and renovations.
As most flippers know, one of the most challenging aspects of flipping a property is often coming up with the capital to make the initial purchase and fund necessary improvements before quickly putting the property back on the market. Today, finding funding for purchases and improvements is even more difficult than it was during the heydays prior to the housing crisis, as lenders are showing more restraint and caution when it comes to offering financing for investors looking to rehab a property. In light of less available credit from lenders, many investors are now turning their sights to other options for financing their flips, including crowdfunding sites.
Crowdfunding Basics for Flippers
Among the number of online crowdfunding sites providing financing for housing flips is RealtyShares, a San Francisco-based crowdfunding platform. With sites like RealtyShares, investors are able to obtain funding from other investors, many of whom are often located around the country. Borrowers pay interest on the funds they receive, often at an average of about 9 percent. While this rate is much higher than that of conventional financing, in fact more than double, many flippers feel the extra cost is well worth it to be able to obtain funding so quickly. Additionally, since most investors plan to flip the properties they purchase within one to three months, they only need to pay the higher interest rate for a short time before they are able to pay off the loan, thus reducing the total amount of debt they must pay.
In this regard, crowdfunding sites are filling a significant gap left behind by many of the larger financial institutions when they tightened lending restrictions in the wake of the housing crisis and economic recession. Along with providing more readily available funding, crowdfunding sites are also offering access to faster capital. This can prove to be vital for investors who are searching for flexible, speedy lending options.
Stringent Requirements for Individual Investors
RealtyShares is not the only crowdfunding site getting in on the act. A number of other crowdfunding sites have opened their doors recently, including Groundbreaker, Fundrise, and Patch of Land. Although many such crowdfunding sites do specialize in providing commercial lending, the needs of the niche single-family flip market have not gone unrecognized.
In most cases, with crowdfunding sites like RealtyShares, individual investors are able to gain access to potential projects from around the country. Not just anyone can invest; however. Investors must be able to demonstrate a minimum of $5,000 for investing and must have a net worth of more than $1 million or an annual income in excess of $200,000.