Online Lending - a Next Step for Real Estate Investors
While market analysts may say that "now is a great time to buy real estate," investors often struggle to come up with the capital necessary to purchase "fix-and-flip" homes or other unconventional properties. Many investors are turning to online real estate lending, sometimes referred to as peer-to-peer (P2P) lending. Online lending is relatively new to real estate, but it has seen rapid growth in other financial sectors -- and demand for the service in real estate is now booming.
Here are four reasons why real estate investors are turning to online lending as their source of capital.
Investors in "fix-and-flip" single-family residences and other unconventional properties often get turned down or are offered unfavorable loan terms by banks or more traditional sources of funding. These traditional institutions may, for example, want the roof to be fully installed before they lend -- and yet the investor needs the financing precisely in order to be able to repair the roof!
Properties that conventional funding sources might find too unusual can be embraced by online lenders, which are typically more focused on commercial, asset-based lending. This flexibility can be a real advantage for real estate investors looking at "different" property types or structures.
By the time investors send the documentation and paperwork needed by banks to be approved for financing, certain real estate investment opportunities may already be gone. By contrast, getting an investor mortgage approved with a P2P platform is done in a fraction of the time -sometimes within a few days.
The automated processes used by the better online lending platforms can cut down the time spent on filling out paperwork, meeting with loan officers and waiting for underwriting to be completed -- leading to faster closings. The risk modeling technology used by these P2P lenders provides them with data on properties nationwide. Realty Mogul, for example, has developed an extensively automated system for delivering IMMEDIATE letters of intent. That means that investors can receive instant quotes on loan terms, giving them an ability to move more quickly than other potential buyers of a property.
The more established online real estate lenders, like Realty Mogul, are direct originators, and have committed sources of capital to assure that the money is really there to get the loan funded. The capital sources can come from both the “crowd” of individual investors – the true P2P component – as well as larger institutions with whom these platforms may have partnered. Investors thus have the assurance that financing will really “be there” on a timely basis.
With online lenders, there are a lot fewer hoops to jump through to acquire financing for an investment property. Indeed, the whole process is relatively transparent. Realty Mogul borrowers can access information on each loan they've applied for. Since our site is largely data-driven, it's quick and easy for lending decisions to be made -- creating a sense of clarity for investors.
Online lending is fast evolving into a valuable new source of funding for single family residential fix-and-flip borrowers and other commercial real estate transactions. Streamlined processing and accelerated underwriting schedules can help investors close loans in a short period of time, while access to property data and risk modeling technology expand the scope of possible transactions. At the same time, a transparent origination process creates a better experience for everyone involved.
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