With crowdfunding and marketplace lending platforms becoming more mainstream, there has been a lot of focus on the advantages of real estate developers and borrowers. However, for those accredited investors looking to get a piece of the action, determining how to get involved can seem intimidating.
According to a Massolution reportand a study commissioned by World Bank, crowdfunding platforms have raised some $2.7 billion and have successfully funded more than a million campaigns. By 2025, they expect the global crowdfunding market to reach between $90 and 96 billion! That’s not too surprising when you consider that the platforms themselves are garnering unprecedented interest from investors.
Why Crowd Financing?
Investors appreciate using peer-to-peer lending and crowd financing platforms because they offer many benefits and advantages over traditional lending methods. Cutting-edge technologies are used to streamline the sign-up process, to deliver an efficient and attractive user experience, to offer complete transparency, detailed risk assessment, and stringent due diligence, all while being a powerful underwriting engine.
In fact, a handful of these crowd financing platforms believe in their process so strongly that they prefund and fully back the investment opportunities before they syndicate them to their community of investors. This move further offers investors peace of mind and the security of knowing that they’ve committed to the due diligence and have done enough homework to take on 100% of the risk themselves. What’s more, investors love the transparency available through these platforms, which makes necessary documents available to ensure that investors can make their own evaluations and sound decisions.
By taking the middleman out of the equation, investors save valuable time and money, while gaining unprecedented access to real estate deals across the country. What’s more, for the price it would traditionally cost to invest in just one real estate project, investors can diversify and invest in several different projects – thus, diversification through location and project type is available in a completely new way.
Whether you’ve been sitting on the fence or you’re ready to jump into crowd financing as an investor, you’ll need to know how to get started. Patch of Land describes the investor sign-up process below.
How to Become a Lender (Investor) in Real Estate Crowd Financing
When you decide to become a lender, you essentially become a national real estate investor, earning anywhere between 10-18% return on your investments within 3-12 months. That’s not a bad return when compared to a savings account and is more secure than the stock market - and the process to become a lender in real estate crowd financing is relatively easy.
Sign Up: The process for sign up varies from platform to platform, yet many let you set up your account with just a few clicks of the mouse. Platforms typically provide instant access to real estate investment opportunities, portfolio management tools and professional resources once the initial signup is completed.
View and Choose Curated, Pre-Vetted Projects: Once you’ve completed the initial signup, you can immediately begin searching for projects to invest in. As we mentioned, a handful of platforms offer pre-vetted projects and access to view full financials, photos, appraisals, and other documents relating to the project all on one page. It’s an unprecedented level of transparency for investors to have all the documents necessary to make educated and sound decisions at their fingertips.
Invest and Digitally Sign Documents Securely Online: Once you’ve made your decision, it’s time to invest! While investors have to make a minimum investment on projects, usually $5,000, they can choose any amount they are comfortable with. In most cases, you’ll digitally sign an Investor Agreement to finalize your investment.
Transfer Funds: Once you’ve completed and signed your investor agreement, it’s time to transfer funds. The investment is transferred via wire or automatic bank draft. At Patch of Land, their accounts are secured by bank-level security measures to ensure their investors are protected, and investment information is stored on PCI-compliant, encrypted storage systems.
Earn 10-18% While Monitoring Monthly Distributions and Project Progress: After transferring funds, the “hard work” is done! It’s time for you to sit back and watch your investment grow. As you accumulate interest, the distributions will go directly into your account. You will receive updates on your investment and as the project continues to make progress. As an investor, you will also see real-time reports on any of the investments you’ve made, giving you access to see where your money is going!
Withdraw Funds and Re-Invest: Once the project is complete and the repayment of the loan plus interest is finalized, you’re free to withdraw any remaining funds in your account, or you can take those funds and immediately reinvest them into a new project! Most crowdfunding platforms will also provide you will all the tax documentation, investment agreements and any other pertinent data electronically, so you are able to store and access your information easily.
With so many advantages to investors, borrowers and developers, it’s easy to understand why crowd financing is becoming more mainstream every day. For savvy investors, there has never been an easier way to diversify your portfolio and earn quality returns. When you’re ready to jump in, be sure to explore the platforms available to you to ensure you’re partnering with the one that best suits your investment goals.
Jason Fritton is Co-Founder and CEO of Patch of Land, a leading alternative solution for real estate financing that brings borrowers and lenders together through a simple online interface. The Company's goal is to solve the problem of inefficient, fragmented, and opaque real estate lending by using human-powered technology and data-driven processes to create transparency and efficiently underwrite projects. Jason originally conceptualized Patch of Land in early 2011 as a means to help rescue parts of Chicago devastated by the real estate crash. He has been involved with crowdfunding legislation since the beginning and worked with Congressmen to advocate for the crowdfunding exemptions that were written into the 2012 JOBS Act.