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Real estate investors who actively renovate single-family residences, or larger investors involved with more sizable commercial properties, are increasingly turning to online lenders – specifically, peer-to-peer (P2P) marketplaces – for their financing needs. These P2P lenders are changing the way that active real estate investors apply for, and obtain, financing for their projects.

Investors involved with foreclosed or other distressed properties – which might be obtained via auctions or under similar high-pressure situations circumstances -- need access to money fast, and don’t want to have to worry about the condition of the property disqualifying them.  Commercial real estate investors also often find themselves in situations requiring bridge financing, especially where the property is under-performing and needs to be “stabilized” prior to obtaining conventional bank financing.

The better P2P marketplaces specialize in rehab loans or commercial bridge loans – and know how to lend against the property’s asset value.

What Kind of Properties can be Financed with P2P Lenders?

Most peer-to-peer marketplaces focus on short-term “bridge” loans for rehab or value-add projects – financing that gets investors over the “hump” until the rehab work is done and the property can either be sold or refinanced with a longer-term loan. 

Part of the fun of peer-to-peer borrowing is knowing that, oftentimes, there are individual real estate investors that are helping to finance the investment.  Even though borrowers are not dealing with such investors directly, both borrowers and investors are often pleased with the idea that they are using a marketplace where individual investors and borrowers can indirectly work with each other.

Why Do Borrowers Use an Online Lender?

Major banks and financial institutions are usually just not a good alternative for house flippers.  These traditional lenders often follow rigid guidelines in their underwriting, rejecting properties in disrepair or that require more than a minimal amount of renovation.  They can also be slow-moving; good deals go a lot faster than a commercial bank can approve a mortgage.  Traditional loans also typically fund only the property’s purchase, so that renovation money would still need to come out of your own pocket. 

Rehab loans are a different animal – they are meant for purchasing and renovating properties.  They’re great for fix and flip homes, and can also be useful to long-term investors who need financing quickly before turning to a more traditional source later on.  Rehab loans generally cover rehab costs as well the property’s purchase, although they sometimes disburse the rehab amounts through draws while the rehab is being completed, when the lender has evidence of some of the completed repairs.

P2P Lending is About Closing Loans Fast – to Meet Investors’ Needs

The better online real estate lenders use technology to make fix-and-flip rehab loans simple and FAST.  The application process is straightforward and simple.  Borrowers can simply provide a few key parameters – the location of the property, the purchase price, the rehab budget, their own income & net worth, and a few other items – and technology generally helps take care of the rest. 

The proprietary algorithms used at the company where I work, for example, will take the inputs that borrowers provide and immediately generate a letter of intent.  Underwriters then promptly review the application and work with the rehab investor to speedily get any additional needed information.  The aim is to have loans close within 10 days.

It’s All About Technology

Technology is changing many facets of our lives, and the mission or peer-to-peer marketplaces is to use technology to simplify the lives of both borrowers -- real estate investors actually doing the value-add work – and passive investors who just want to participate in the project’s financing.   These marketplaces can have capital ready for rehab projects nationally, using technology that provides not only competitive pricing and great leverage but fast and consistent answers – so that active investors can get on to that next project!