Real estate crowdfunding platform receives major financial boost

by Rachel.Norvell24 Sep 2014
Another online real estate crowdfunding platform has announced it will receive a significant amount of funding, giving more clout to the growing alternative financing source. 

Realty Mogul, which pulls money from multiple investors to fund large real estate projects, said it plans to funnel $73 million in loans from Direct Lending Investments to fund its newest venture -- residential rehabilitation loans.

The partnership marks Realty Mogul’s first institutional partnership and Direct Lending’s foray into funding residential rehab loans. The investor is known for funding peer-to-peer small business loans, and has invested $100 million worth of online small business loans in total. Direct Lending hopes that the high-yield, short-term investments will lead to strong returns for its fund’s investors.

Realty Mogul stated it is accepting applicants now for borrowers seeking rehab capital. The crowdfunding platform includes more than 12,000 accredited investors. In March, Realty Mogul raised $9 million in financing from Canaan Partners.

Realty Mogul joins other real estate crowdfunders, such as Fundrise, Prodigy and RealtyShare, which are targeting the residential real estate market.  In May, Fundrise received $31 million in financing from tech and real estate investors led by Chinese social media giant Renren and executives from New York-based developer Silverstein Properties.

Unlike REITs, investors do not have ownership of the property in a crowd funded project. Instead, they receive access to the income generated from the property according to the terms of a governing document called an Operating Agreement.

Some industry experts say loose regulations within the crowdfunding world have drawn skepticism over the solvency of such investments. Landlords and developers might turn to crowdfunding because they have failed to acquire financing from banks or other traditional sources, while investors might lack the knowledge necessary to scrutinize potential investments, according to the Wall Street Journal

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