Why Peer-to-Peer Lending Can Be a Great Funding Resource for Investors

With the U.S. housing market on the mend, buying and flipping residential properties has become an attractive investment strategy again, and professional “flippers” or “rehabbers” may be eager to re-establish relationships with their local private money lenders. These rehabbers may, however, be overlooking another, potentially more attractive, source of investor mortgage funding: peer-to-peer lending (P2P). One of the fastest growing segments of the lending industry, P2P platforms can help rehab investors increase their odds of getting a mortgage approved, speeding up the loan closing process and keeping tabs on how their transaction is moving along— with potentially more attractive lending terms.

Advantages of Peer-to-Peer Lending: Consistent Access to Fast Capital and Established Loan Criteria

Getting an investor mortgage approved through a P2P platform can take just a few days, since the regulatory requirements are reduced for those loans and the P2P platform operators know how to better use technology to speed the process.

P2P platforms provide rehabbers with the consistency of institutional lending parameters; but without the stringent qualifying guidelines or the requirements necessary to cross-collateralize other projects and bank accounts, which are most often requirements of institutional investors. With P2P lenders, mortgage approval is largely based on straightforward, objective factors, such as the property’s existing and expected valuation and the borrower’s track record with previous flipping projects, rather than on more subjective factors like whether the borrower has an existing relationship with the lender.

Borrowers also don’t have to worry if a P2P platform is going to run out of money or change terms right before closing, which are common occurrences when borrowers seek to attain loans from private money lenders.

Taking the Guesswork Out of the Process

Speed is just one of several advantages that P2P platforms can offer residential rehabbers frustrated with local private money lenders. Loan terms offered by P2P lenders tend to be competitive with those offered by most banks, but there is far greater transparency, minimal paperwork and ease of use built into increasingly automated processes. Instead of trying to convince a bank officer that they are a good candidate for a loan, rehab investors can now enter their information into an online system in a matter of minutes, providing all the relevant details — the location and purchase price of the property, their rehab budget, how many flips they have completed in the past, and their credit score — directly to the P2P platform.

The system then uses an algorithm to calculate appropriate pricing and terms for loans for investors incorporating market area data and expertise. These platforms take advantage of big data capabilities to evaluate the property and the prospective borrower on any number of variables, minimizing potential risks.

P2P lending is a rapidly growing industry and a resource that investors in residential properties should be taking advantage of. Credit rating agency Fitch Ratings reports that the five largest global P2P lenders, including Funding Circle, Lending Club, Prosper, RateSetter and Zopa, saw their volume of outstanding loans increase by more than 191 percent between year-end 2012 and year-end 2013, to $3.5 billion. There are projections that by 2016, P2P lenders will be originating up to $20 billion in loans annually.[1] Residential rehab loans are sure to make up a substantial portion of that origination volume. By offering real estate investors a streamlined application process and shorter time frames for closing, P2P lenders can become a great alternative to banks.