Do you have borrowers who are interested in real estate but short on cash? In today’s property investment arena, there’s more than one way to get into the game
People crowdfund for everything these days: weddings, medical expenses, helping neighbors who have experienced a stroke of bad luck. Why should real estate be any different?
There are plenty of people who may have been interested in real estate investing, but their lack of liquidity or lack of access to capital has held them back. There is a way for brokers to tap into these would-be property investors, and hook them onto a modern method of financing: real estate crowdfunding (RECF).
The ins and outs of RECF
Allen Shayanfekr of Sharestates explains the two types of deals that investors can find on RECF platforms: equity and debt.
Equity deals allow investors to own a piece of real estate along with other investors. Appropriate properties for this type of deal can be ground-up construction, fix and flips, or rental properties. Rental properties pay out monthly dividends from the rental income, and upon the sale of the property, all investors get a portion of the proceeds.
Debt deals allow real estate investors to get in on a loan with other investors. Rather than get a loan for $100,000 to purchase and repair a property, an investor might just put in, say, $10,000, and become a partial owner of a loan product. This arrangement is also known as fractional ownership.
Both debt and equity deals allow property investors to have a stake in rental properties without bearing the entire burden themselves. This allows them to take advantage of the high demand for rentals.
Capitalizing on hot rental markets
Rental markets are booming for a number of reasons in many markets across the country, writes Shayanfekr. First, large companies are grabbing many of the available properties and holding onto them for the long haul in their portfolios. This is driving up prices and increasing the competition among would-be homeowners, keeping them out of the housing market and in their rentals for longer periods of time. People are also staying at jobs for a shorter period of time, and are more open to relocating for the right job opportunity. Because of this, they may be hesitant to buy real estate and find themselves locked into a mortgage, preventing them from having that flexibility.
The last reason why rental markets are hot is because the face of employment is changing. People are finding real value in becoming entrepreneurs, being self-employed, and/or engaging in the gig economy. This type of shift in someone’s employment may be out of desire, necessity, or a bit of both, but either way, many conventional lenders struggle to keep pace with the income sources of today’s buyers. When buyers aren’t able to qualify, and many don’t even know how much income they can expect to have over a period of time, they aren’t able to purchase property.
With more people renting single-family homes and there being no sign of decreasing demand, now is the time for real estate investors to cash in on this opportunity.
How to get started with RECF platforms
The best way to get involved in partial ownership of rental properties is the set up an account at a RECF platform and begin looking for suitable properties. Each deal includes information on the property as well as the borrower, and investors will be able to compare the risk associated with each deal based on specific underwriting criteria. Borrowers can choose the amount of money they’ll want to invest in each property.
“As with any type of investment, you’ll want to perform your own due diligence, but the benefit of real estate crowdfunding is you can invest in real properties without having high liquidity,” Shayanfekr writes.
Sharestates is an online marketplace lending and investing platform. To access investors, investors or borrowers can create an account and present their project for review. Using a 34-point underwriting process, the project will be vetted to see if it meets investor expectations, and can be funded from more than one source.
