In Part 1 of Crowfinancing for Real Estate Investors we discussed how the core concepts of crowdfunding and peer to peer lending have begun to gain popularity in the mainstream by creating new opportunities for raising capital online. While many industries are adopting this new technology, we focused primarily on the real estate industry, and how professional developers are utilizing this new form of alternative lending to finance their projects. In Part 2 we're going to shift our attention to the other side of the crowdfinancing equation, the financiers, and explain what benefits crowdfinancing real estate projects can offer investors looking to take advantage of this great new peer to peer lending opportunity.
Intelligent Investing Through Real Estate
Portfolio Diversification & Control
There are a host of benefits for investors who decide to crowdfinance real estate loans. One of the biggest is the ability to diversify your portfolio by tapping into a multi-trillion dollar industry. In the past, investing in real estate was typically done through Real Estate Investment Trusts (REIT), which allows investors to own shares of stock in a company whose primary business is purchasing and managing real estate. However, a REIT leaves investors with little control over what they're actually investing in, while charging high fees for low potential returns. Crowdfinancing on the other hand, offers a high-yield passive income investment opportunity in which you can pick the type of property you'd like to invest in as well as the geographic location.
In general, online lending sites will offer certain types of investment opportunities. For example, Patch of Land specializes in short-term debt-based loans for residential and commercial investment properties. These properties are located throughout the country and only require a minimum investment amount of $5,000. Overall, investors looking to diversify their portfolio with real estate can look towards crowdfinancing for greater control than a REIT, higher returns than a savings account, and less volatility than playing the stock market.
Ease, Efficiency, & Transparency
If you take a look at the top crowdfinancing platforms you'll notice they utilize technology to provide users with a higher level of ease, efficiency, and transparency. One of the ways Patch of Land creates ease of use is by making our website design 100% mobile responsive. Essentially, we make sure that our users have full functionality when browsing our platform, whether you're reading our blog, investing in a property, or managing your account.
An increased focus on technology also results in more efficiency when it comes to performing due diligence and vetting potential crowdfinancing opportunities. To help streamline the process, Patch of Land uses technology-enhanced due diligence combined with a hands-on 'Makes Sense' underwriting approach. Implementing technology on the front-end helps prevent bad loans from getting to our underwriting team on the back-end, helping Patch of Land ensure that we're offering only the best investment opportunities for our network of accredited investors.
Furthermore, you will notice that most of the industry-leading crowdfinancing platforms promote complete transparency. The implementation of technology allows sites like Patch of Land to provide as much information on our investments as possible, that way you can perform your own due diligence and not have to rely solely on someone else's analysis. For example, Patch of Land allows access to our underwriting criteria, supporting documentation, analysis of risks, as well as updates to each deal during the lifetime of the loan. By allowing individuals to pull our data, each potential investor is given the due diligence information and portfolio management tools needed to analyze each investment to arrive at a decision, based on their own personal risk profile. That way in the end they feel confident and believe they are always making a secure investment whenever they invest in a Patch of Land project.
“Our goal is to solve the problem of inefficient, fragmented real estate private lending by using data driven processes to create transparency and to efficiently underwrite projects for borrowers.” - Brian Fritton (Patch of Land Co-Founder & CTO)
Become a National Real Estate Investor
Real estate crowdfinancing platforms give investors a nationwide reach and the ability to participate in development projects across the United States, regardless of where they may reside. Essentially, an investor can register with a platform and help finance a project on the other side of the country that they may have otherwise never known about. This is a huge benefit for investors looking to diversify their portfolio on a deeper level beyond choosing debt or equity investments.
Investing in a Good Cause
Making an investment with a solid return is always great. However, making a lucrative investment that has a positive contribution to society at the same time is even better. Crowdfinancing real estate projects contributes to the rehabilitation of distressed properties and goes a long way towards the revitalization of communities throughout America. Facilitating these development projects may also stimulate the local economy by putting laborers in the real estate industry back to work. Furthermore, improved housing conditions helps to increase surrounding property values.
Patch of Land's motto of Building Wealth and Growing Communities is a testament to our efforts of doing social good. This is the trend, this is the future. Building one’s wealth and helping the community are not mutually exclusive, and at Patch of Land we reiterate this message again and again to show the world how they can complement each other seamlessly.
If you're an accredited investor looking to diversify your portfolio with short-term investment properties, click here to find out how you can start crowdfinancing real estate loans with Patch of Land today.
This entry was originally published on August 27, 2015.