Hard Money vs Crowd Funding for flipping houses in and around the Boston area

    The internet has been transforming industries!

Last night we had Manolis Sfinarolakis, Community Manager for Patch of Land come to Boston AREIA to discuss how the internet is transforming real estate, lending and borrowing money.  UBER is transforming taxis service, Airbnb –  accomodations, WhatsApp – Communications, Square – Payments and LendingClub – Consumer Financing.  Patch of Land wants to transform how real estate investors borrow and become the “LendingClub” of the real estate investing world. 

There were some interesting conversation last night regarding what a local hard money lender offers vs what a crowd funding source offers.  I think it really depends on how you prefer to do business, with both you are submitting a deal to a lender, you have to have skin in the game and the points and interest rates are similar and also dependent on the relationship with the lender and your experience. 

Crowdfunding is an approach to raising capital for new projects and businesses by soliciting contributions, online, from a large number of unrelated, individual stakeholders.  It is made possible through new SEC regulations (Reg D, 506c) and the JOBS Act.  JOBS = Jumpstart Our Business Startups.  It is taking the real estate industry by storm and is raising either debt or equity for short and long term real estate financing projects.  Per Manolis, this platform, at this time is not for newbies, unless they have a JV partner who has 3 or more deals under their belt.  They also require the higher of 20% or $50k be your skin in the game.  They do have some interesting rates for investors, those with a long standing record and many deals under their belt could get money at as low as 7.99 % and rates go up to 15% with 3-5 points up front with most loans falling around the 10% mark. 

Sounds similar to your local hard money lender, maybe not the 7.99%, but, points, skin in the game, percentages.  There are 2 big differences that I see, the first is real handshakes vs virtual.  How do YOU want to do business?  If you prefer a real handshake vs virtual, go with your local lender.  If you don’t care about a real handshake and you have at least $50k or more to get pre-approved with Patch of Land, then get pre-approved, they do offer Proof of Funds letters to use when you are putting properties under agreement.  The second big difference is for newbies, your local lender cares about your experience, but is more forgiving, they are lending money on the merits of the deal and honestly won’t lend if the deal is no good.  They are a great local extra set of eyes for your deals.  You know if they won’t lend to you, then the deal is NO GOOD.  This is the main reason, we are following up this month’s crowd funding meeting with Sept 17th we are having local Real Estate experts Matt and Peter McLoughlin come to speak about funding your deals!  Check it out here! 

How do you see yourself funding your deals?  Let me know!

Bernadette Trafton, Chief Connector, Boston AREIA

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