Our guest on the show this week is AdaPia D’Errico, Chief Marketing Officer for Patch of Land, a peer-to-peer real estate crowdfunding company. Patch of Land’s primary purpose is to match investors and lenders seeking alternative fixed income opportunities with borrowers seeking alternative sources of financing for their real estate investment needs. And due to recent legislation changes, Patch of Land is able to bring these opportunities to you directly through their online crowdfunding portal. With over 90 projects funded since their inception in October of 2013, they are quickly becoming one of the leading crowdfunding platforms in the marketplace.
What is crowdfunding?
Crowdfunding, or collaborative funding, is the solicitation of small amounts of capital from a large number of individuals in order to raise money for anything from personal medical bills, to financing a new business venture. If you’ve heard of Gofundme or Kickstarter then you are most likely already familiar with some of the more common ways crowdfunding is used today. Although crowdfunding has been around for many years as a way to raise capital, online crowdfunding portals are relatively new and more recently real estate investing has become the latest capital raising business sector to reap the benefits of crowd based financing.
What changes opened the door for real estate crowdfunding?
With banks tightening their belts and less likely to fund development projects, rehabs, and short-term loans within the real estate sector, financing for these types of projects have notoriously been hard to come by. In addition, investing typically required large amounts of capital and in-the-know access. However, recent changes in legislation have prompted a dramatic shift in real estate investing, providing an opportunity for real estate agents to grow their business by introducing their clients to real estate crowdfunding.
The Jump-start Our Business Start-Ups Act of 2012 (JOBS Act), designed to boost small business growth, lifted certain federal regulations making it possible for individuals to invest in development opportunities not previously available to them. Furthermore, in October of 2013, a piece of the legislation within the act made it possible for the public solicitation of private offerings, paving the way for online marketplace lending portals like Patch of Land. The ability to advertise investment offerings on real estate crowdfunding websites now provided a greater opportunity to reach investors.
Specializing in debt financing, Patch of Land’s focus is on single family, multifamily and small commercial lending. D’Errico says they have had the most success with rehabbers, individuals that purchase a distressed property and fix it up in order to resell it for a profit. D’Errico notes that Patch of Land works with experienced, accredited investors. Per specifications set out by the SEC, an “accredited investor” wishing to take part in real estate crowdfunding must make a minimum of $200,000 a year or have $1 million in net worth excluding primary residences. This is the requirement for all real estate crowdfunding platforms. D’Errico explains that only 8% of the population fits into this financial bracket, moreover only around 2% are familiar with real estate crowdfunding opportunities.
Integrating crowdfunding into your real estate business
For real estate agents, learning more about real estate crowdfunding as an invaluable resource for investors and borrowers can be most advantageous for you and your business. Do you work with rehabbers who have had trouble with financing their projects in the past? Do you have clients interested in low risk lending while still yielding a higher rate of return on their investments? What about members of your network looking to expand their investment portfolio by participating in the funding of real estate projects they were previously not eligible for? Perhaps you are in the fix-and-flip market yourself? If you answered yes to any of these questions, taking the time to learn about real estate crowdfunding as a viable option to alternative financing could provide more investment opportunities for your clients which translates into more business for you the real estate agent!
Real estate crowdfunding can be a unique opportunity for investors. For a minimum investment of $5,000, your clients have the chance to choose the type of loan to invest in, i.e. residential fix and flip, refinance, ground up construction, bridge, or commercial projects. They can spread their investment among different borrowers or asset classes or choose whether to invest locally or nationally. “That level of personalization is unprecedented,” D’Errico says. “Usually if you were going to be a private lender you would be funding the entire amount and that’s a huge risk to take. Not everyone has $100,000 to $200,000 to give to one developer doing a rehab,” explains D’Errico. “Crowdfunding allows you to reduce that risk while still offering a high yielding investment with yields anywhere from 11-13% annually,” says D’Errico.
Helping your clients get started
Prospective investors and lenders that are interested in taking part in a real estate crowdfunding project can begin their investment with Patch of Land using their online application system. Interested parties can go to patchofland.com and sign up to view their pre-vetted investment opportunities complete with full financials, photos, appraisals, and documents related to that project. There is even a mechanism for assessing the level of risk for each investment. Once a project has been chosen and funded, investors can view updates and the progression of their investment via real-time dashboards,” explains D’Errico.
For your borrowers that are looking to fund their next project, they can also use Patch of Land’s online portal system to initiate a loan application. D’Errico points out that Patch of Land always prefunds their borrower’s loans before syndicating the offering on their platform, recognizing the importance of expedited funding for the borrower. They offer 12 month loans with 6 month extensions and there is no prepayment penalty as well. You can visit patchofland.com to view more details regarding the borrowing process as well as their investor opportunities.
So if you have clients that are looking to invest in a real estate related project or borrowers that are looking to fund their next rehab, you might want to consider real estate crowdfunding as a viable option for their real estate needs.
Visit: Patch of Land