New Loan Alternatives via CrowdFunding
The growth of the CrowdFunding sector in the last 2-3 years has been dramatic, and is likely to accelerate through 2018. Numerous websites and articles have been written to describe what this means for individual investors, but what about for real estate operators?
For operators, CrowdFunding provides a new set of alternatives for financing their projects – covering both the debt and equity portions of their capital stack. On the debt-side of the equation, generally speaking, CrowdFunding is best suited to short-term bridge debt (crowd investors generally prefer to have their capital returned in a short period of time), though some longer-term options do exist.
Each CrowdFunding platform is different and it’s important to review not only the debt terms each platform offers but also their process for funding a transaction. How long does it take to fund? How much sponsor capital is required? Are transactions funded from the platform’s balance sheet or does the crowd have to completely fund the loan before the closing can take place?
The table below provides a brief summary of some of the more popular platforms, but numerous other options exist. Make sure to call your financing advisor for a more in-depth review of your needs.
| Platform | Bridge Debt | Mezz Debt | Term Debt |
|---|---|---|---|
| RealtyShares | $1mm-$20mm Up to 80 LTV 1-3 year term |
$5mm-$20mm Up to 80 LTV 5-10 year term |
|
| RealtyMogul | Up to 75 LTV/85 LTC 1-3 year term |
Up to 80 LTC 1-10 year term |
|
| Patch of Land | $100k-$10mm Up to 80 LTV 1-3 year term Interest Only No Prepayment Penalty |
||
| FundRise | $1.5mm-$25mm Up to 80 LTV 1-3 year term |
$1.5mm-$25mm Up to 90 LTV 2-6 year term |
It remains to be seen how resilient the CrowdFunding sector will be during times of economic stress. For example, will crowd investors retreat from the market during the next recession or credit crisis? Hopefully, the democratization of this sector of finance will provide real competition to the banks and other traditional lenders and be a boon to real estate entrepreneurs. In the mean-time, don’t forget to include these platforms in your search for financing for your next project.