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Real Estate Investors Using More Online Financing

04/14/2015 10:09 am ET | Updated Jun 13, 2015

Online loans aren't new to most people. We go online all the time and apply for credit cards or fill out loan applications to credit unions, banks, department stores and more. People can even do a large portion of the mortgage loan process online, cutting the time necessary across the desk from the lender.

However, real estate investors who seek funding in the short term for fix & flip and other property buy-sell transactions are really just beginning to get real access to online funding. I'm talking mostly about P2P, Peer-to-Peer lending. New laws and American enterprise are responding to make it easier for small investors to provide funds and other small to large investors to access them through online P2P lending platforms.

Who needs this type of funding? Any project that adds value to real property through renovation, rehabilitation or modification can benefit from this type of funding. The fix & flip or value-add investor needs funding to get over the hump between the purchase of the property and the eventual sale or placement into service for income. There are very different underwriting considerations for these higher risk and cost intensive projects, and it's just more of a hassle and more expensive to deal with traditional lenders and banks.

Win-Win-Win at the Front End

There are millions of small investors out there who can benefit from P2P lending, or crowd-funding. They aren't rich enough to invest directly into major projects, but they would love to enjoy double-digit returns as passive investors in real estate development and renovation. These P2P online lending platforms allow them to invest smaller sums and receive the same benefits as the mega-rich investor who funds entire deals.

By gathering together these small investor funds and packaging them into short term funding for fix & flip and development projects, the small investors get the management expertise they need and excellent returns in a passive role.

Win-Win-Win in the Middle

The fix & flip investor or commercial developer now has access to lenders with the knowledge and experience necessary to safely fund value-add and rehab real estate projects of any size. The single family fix & flip investor can apply for financing and get pre-approvals to help them to lock up properties with a certainty of funding through the fix & flip process. The commercial developer can access funding faster and with less paperwork and time involved than necessary with more traditional lenders.

The fix & flip investor is particularly interested in this type of funding. They are out there constantly searching for deals, and the competition is fierce. When a distressed home is located, it can be a race to the contract. Having a relationship with an online short term lender allows the investor to get speedy approval so they can safely sign a purchase contract. They know their financing through the process is in place, and they know the cost.

Win-Win-Win at the End

The ultimate owner of the rehabbed property also wins in this situation. They are more secure in signing a purchase deal knowing that there is funding in place to get the project through to completion. The lenders frequently only pay the construction funds out as the proof of milestone completions comes through. The buyer is more secure in the knowledge that there will actually be a closing on the property they expect in the condition they want.

It's All in the Technology

The Internet has changed so much in the business world, and definitely in the real estate business. Now thousands of small passive investors can connect with real estate rehab and fix & flip investors in an efficient and profitable way. Everybody wins.

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