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Money360 may revolutionize "hard money" lending

66 posts by 30 users

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Chris Martin

Real Estate Investor from Holly Springs, North Carolina

Jul 10 '11, 08:19 AM
2 votes


On this other BP topic we discussed various ways an individual invest in real estate PASSIVELY, with minimal risk, and get 5-15% ROI. A post by Dionte G. came up (see the bottom of this post) that I think needed to be reintroduced in this forum as its own topic.

Money360, like prosper.com, provides a peer-to-peer lending platform to allow people to lend money to other people in an open transparent marketplace. As a prosper.com lender* for many years, my biggest disappointment with the P2P concept is that their lending has been unsecured lending. I still have a bunch of uncollected money that I'll probably never see. And I only lent to top tier borrowers (over 70% AA rated, the rest A rated)! With secured lending, at least there is collateral to go after.

Now from a business standpoint, a lot of people probably think man, they get a percentage (although small) of each payment and payment up front for 'originating' the loan. They must be making a killing!" Unfortunately, this is not the case. As a company, prosper has lost over $50M since inception and the losses continue. They originated (for their borrowing members) about $27M in loans last fiscal year and their net loss was $10M. With the cash they have, they won't survive long. Their plan calls for increasing transaction volume to increase revenue until they reach profitability and become cash-flow positive. They need a capital infusion.

Enter Money360. Different model. Different lender base (accredited investors vs. casual social lenders). Different borrowers (profit seeking RE projects vs. debt consolidation on declining value assets). And, key IMO, Money360 loan sizes will be 50 to 100 times bigger and I believe more profitable than prosper or lendingClub. Also Money360 doesn't have to educate the world on the concept of P2P lending, prosper and LendingCLub did that.

As I posted on 7/4/11 (I didn't know Money360 existed at that time) I think secured P2P real estate lending will change/revolutionize hard money lending. I also think this type of lending will be widely available in a year to 18 months. Money360 claims to be the first focused on real estate. I've not seen any others and I have looked... though not recently... so I believe this is true.

So I for one am highly encouraged. Outside CA, I believe the minimum investment ($50K in CA) and loan sizes ($200K in CA) will be a lot smaller. I'd like to hear what BP nation has to say. Would you be a lender? Borrower? Does anyone have experience with them already?

From the other post:

[i]I encourage all who have participated in this thread to visit WWW.MONEY360.COM

I want you guy's opinion since this seems to be like a good opportunity although not quite good enough.

I feel as though with their 50k minimum investment they price out a large number of those interested in investing on their platform.

Anyone know of any other similar opportunities being offered now?

Whats your take on this company's opportunity?[/i]

(*Prosper now allows lending in 28 states, NC is not one of them.)



Douglas Wolf

Real Estate Investor from allentown, Pennsylvania

Jul 10 '11, 09:19 AM


Chris, i never heard of that site.. I will check it out.. Thanks



Cheryl C.

Residential Landlord from Washington, DC

Jul 10 '11, 09:51 AM


It appears that a Lender must be a CA resident. Also, I wonder if they handle a foreclosure if that situation arises.

Looks like a good system and worth further investigation.



Chris Martin

Real Estate Investor from Holly Springs, North Carolina

Jul 10 '11, 10:07 AM
1 vote


Originally posted by Cheryl C.:
It appears that a Lender must be a CA resident. Also, I wonder if they handle a foreclosure if that situation arises.

Looks like a good system and worth further investigation.

As of right now, yes, CA residents who are accredited investors only. Regarding defaults, Money360 is appointed to handle the servicing of the loan "as well as any actions that need to take place if the borrower fails to perform as agreed."

Side bar: I sent them an email that their security certificate is expired. (They need to renew it.) Ironically, they say "Safety is our #1 Priority. Your Data is Secured and Encrypted" yet let their certificate lapse. Not a big deal, but it looks bad when you get that IE warning message....



Joel Owens Moderator

Commercial Real Estate Broker from Canton, Georgia

Jul 10 '11, 10:10 AM
2 votes


The private Lenders registered on Money360 have indicated the types of loans they will make and what terms they are expecting. Loans are typically due in 1 to 5 years, with payments calculated on a 30 year amortization. Interest rates typically range between 8 - 12 %. Loans are for California properties only and must be in a first trust deed position.

"So California only"

Well that cuts out a ton of investors as California has a high entry price point barrier.Investors are more active in other states because of price points.

8-12 percent isn't bad but they take 2 points for doing the loan rolled in at closing. If it's 12 and 2 points that isn't much off from Hard Money rates.



Medium_allworldrealtyJoel Owens, All World Realty
E-Mail: [email protected]
Telephone: 678-779-2798
Website: http://www.AWcommercial.com
www.AWcommercial.com 678-779-2798 [email protected]


Dionte G.

Property Manager from Cleveland, Ohio

Jul 10 '11, 03:49 PM


Chris
Good idea starting this thread!

Ive searched all over the net, there are no other opportunities that exist that resemble this.

Ive discovered several other p2p lending companies but none for REI.

I believe this has massive potential with the right business model in place.



Kyle Meyers

Residential Landlord from Indianapolis, Indiana

Jul 10 '11, 04:27 PM
1 vote


If it was available in my state and with lower loan amounts, I would already have my application in. I'm going to keep an eye on this company, it says they are planning to be nationwide, but doesn't give a timeline for that.



Mitch Kronowit Donor

SFR Investor from Orange County, California

Jul 10 '11, 05:24 PM
1 vote


Very interesting offer, but one big problem for me... the $200k minimum loan amount. I'm not sure what the LTV is, but I gather it's around 50-55% based on a couple of "recently closed" loans. That means in order to take advantage, as a borrower, I would have to purchase something in the neighborhood of $400,000. Those don't make great rentals. The "sweet spot" I look for in the SoCal market are homes just under $100k to $200k max. That means I'm looking for loans in the $50-100k range.



Jeff S

Private Money Lender from Los Angeles, California

Jul 10 '11, 11:00 PM
3 votes


A big worry most flippers have is lenders that are reliable and can follow through. At 12% plus 2 points, Money360’s rates are in the ballpark of private money in southern California, so these guys probably have a shot at some business if they can reliably follow through in a timely manner and acquire their needed cash from investors.

My concern as a lender would be the due diligence they do on the borrower and how well they evaluate the property, comps, and rehab budget if it’s a flip. I assume you’d get to read the note, DOT, assignment agreement, and lender instructions in advance, and that everything happens thru escrow. There’s really no way to know from their website.

One red flag for me is a response in their lender FAQ’s:

Can I meet the borrower and inspect the property myself?

Not usually. Because multiple lenders may be funding the transaction collectively, it would not create a conducive experience for Borrowers if up to ten different lenders wanted to meet them personally and inspect their property. Money360 will underwrite the loan and be the primary point of contact for all Lenders and Borrowers…Certainly, you are welcome to drive past properties and/or complete your own due diligence regarding the neighborhood, valuations, etc….

Huh?? Loan tens or hundreds of thousands of dollars to strangers without the opportunity to meet them or personally inspect the property, through an anonymous internet website where you don’t know the brokers? This is not an investment like Prosper where you can subtract relatively small loses from relatively small gains. One loss here could truly wipe you or your profits out.

A cardinal rule of private lending is to know and trust your borrower. There seems to be no opportunity here for that with Money360. Nor do I know the skill and quality of their appraisers. I’ll add too that currently, the going return for performing 1st trust deeds in the southern California area is around 12%. For this, you can invasively check the property, the borrower, and the payment history of the note. Money360’s maximum rate is the same but for less information and thus, more risk. Discounted notes, available nationwide, will return in the tens of percents.

I can see borrowers adding Money360 to their lender list since their rates are competitive -- assuming of course, they prove they can perform. Performing TD and discounted note investors have lower risk alternatives for the same or greater returns. Private money lenders, who can keep the points, wouldn’t think of investing with them. Those that don’t know better might actually invest, which would make the site a winner. Of course, you can’t build a business from those that don’t know any better.

Jeff


Edited Jul 10 2011, 23:08 by Jeff S


Chris Martin

Real Estate Investor from Holly Springs, North Carolina

Jul 11 '11, 04:54 AM
1 vote


I agree with your concerns, but without a lot more detail or actually being 'inside' as a member, it is hard to know how well they perform due diligence. I saw the "Can I meet the borrower" answer in the FAQ but wanted someone else to point this eyebrow lifting answer out. But I think we are only in the second inning. It's too early to know what the interaction between borrowers and lenders will be. In the FAQ, it looks like Money360 will be the go-between in some term negotiations, and it's hard for me to believe that lenders wouldn't be "allowed" to perform their own due diligence.

Regarding "Private money lenders, who can keep the points, wouldn’t think of investing with them." The site says 2 points goes to Money360, which may or may not be too high a price for parties to pay. The lender could still request whatever they want... say 5 points... meaning the cost to the the borrower is now 7 points. I suppose the bottom line is that supply and demand will drive the terms.

if you believe the first paragraph of this BP blog entry (80% of Self Directed IRA accounts close within 2 years), and Money360 targets that untapped capital, it's easy to envision this market taking off. BTW, prosper marketing is virtually nothing. For the years ended December 31, 2010 and 2009, they spent approximately $635K and $789K, respectively, on marketing.



Dionte G.

Property Manager from Cleveland, Ohio

Jul 11 '11, 02:14 PM


if you believe the first paragraph of this BP blog entry (80% of Self Directed IRA accounts close within 2 years), and Money360 targets that untapped capital, it's easy to envision this market taking off. BTW, prosper marketing is virtually nothing. For the years ended December 31, 2010 and 2009, they spent approximately $635K and $789K, respectively, on marketing.

Interesting information I can see that with some modification this opportunity could have some serious potential if they can clearly communicate what measures they use specifically to minimize risk during their DD process then they'll become a bit more trustworthy.

If they lower the minimum investment amount and put a 10% or 5% maximum leverage requirement amount on loans funded, they will help investors minimize exposure and reduce the "eggs in one basket" fear that some my have...

After all it is an investment so will win some will lose no matter what preventative measures are taken...



James Hamling

Rehabber from Twin City metro area& Central MN markets, Minnesota

Jul 11 '11, 04:50 PM


Chris,

In reading this I right away had a thought, this could be a "next gen" platform well beyond real estate investing alone itself, and a potential picture of mortgage generation itself.

In the traditional system (soon to expire) a bank or broker originates a mortgage. That mortgage thru what ever channel is sold to Fannie, Freddie, and so on. Who then in turn repackage, and resell again to a private investment holding, like a REIT.

I think you have truly hit upon a great point, and I personally feel this just may be our glimps at a fully privatized, tech savy next gen system.

Now, just for someone to build it. I believe a platform very similar to the types Max Kiser has built would be on line to this. If I had a few mill growing dust, I may have to jump on it, lol.



Don Konipol

Hard Money Lender from Houston, Texas

Jul 15 '11, 08:07 PM
3 votes


As soon as a few lenders experience defaults/loses, they will complain to state authorities who will charge MONEY360 with selling securities, solicitation of investors violations, etc. If it gets past California only stage and is roled out nationwide, the SEC will end up charging MONEY360. While most "money matching websites" claim to be only advertising media, this one charges points on a loan, so that particular argument is rendered mute.

The Federal and state securities regulators have little tolerence for any companies that advertise investments. Hedge funds have so far escaped the regulators wrath specifically because they do not use general solicitation and advertising. Accredited investors is no longer a totally safe haven, one must deal with "exempt" investors only to have a chance of escaping SEC scrutiny. Exempt investors have $5million or more of investable assets if individuals, and $20 million or more if institutions.

It's no wonder that small - medium sized companies raise funds in Europe and Asia and bypass U.S. markets. the cost of compliance in the U.S. is just too high.

I am afraid a concept such as MONEY360 will not be able to stay under the securities regulators radar. Unfortunately, for almost everyone the risk is too high and the penalities too great to challenge the SEC.



Vikram C. Donor

Real Estate Investor from Phoenix, Arizona

Jul 15 '11, 08:45 PM
2 votes


Don, a note secured by a 1st position mortgage / deed of trust is not considered a security, so if the web site only does such notes, they may be subject to other types of regulations but probably not securities regulations.

I do agree with your larger point that the securities regulations in the U.S. are ridiculous and are causing us to lose market share.

I think money360, based on the discussions earlier in this thread, is a very interesting idea if executed well. Some problems that I can see include the one that Jeff mentioned about not being able to evaluate the borrower.

From a borrower's perspective, I see one other problem. Well-run companies with a good track record find it quite easy to obtain loans at attractive LTVs and rates. If money360 loans have a low LTV, such as 50% or 55% of cost, then the only people who will borrow from them are those who are inexperienced and unable to obtain a regular hard money loan. This would make the loans issued by money360 subject to a higher default rate than average. And if they try to combat the higher default rate by increasing the interest rate, they will end up with an even lower quality of borrower and end up in a vicious cycle.

The only way to make their business viable would be to do thorough due diligence on each borrower and offer customized loan terms for each account. I am not sure if that fits within the business model of an online nationwide or statewide site.



Chris Martin

Real Estate Investor from Holly Springs, North Carolina

Jul 16 '11, 05:10 AM
2 votes


Regarding "As soon as a few lenders experience defaults/loses, they will complain to state authorities who will charge MONEY360 with selling securities, solicitation of investors violations, etc." Money360 isn't prosper.com. The above happened to prosper with a cease and desist on the federal level as well as multiple states. See also this BP topic related to prosper.

Money360 isn't prosper.com and the SEC isn't an issue. If the SEC rules that accredited investors can't invest directly in notes without an explicit filing, then Money360 will do just like prosper does and file multiple Rule 424(b)(3) documents every day, representing the entire content of their website within their SEC filings.

"While most "money matching websites" claim to be only advertising media, this one charges points on a loan, so that particular argument is rendered mute." That was 2006-2007. See the above links. They have been filing SEC docs daily for many years.



Lloyd Dixon

Beverly Hills, California

Jun 25 '12, 09:43 PM


I have been looking for opportunities to invest in hard money loans and found this post. I just went to the Money360 website and was impressed with the clean format. Although I live in California, I noticed that Money360 is now nationwide. I am not sure when they began offering loans across the US but this seems to be a great opportunity for investors looking for hard money deals.

I just registered as a "lender" and will keep you all posted of the experience.

I'm curious, has anyone recently tried Money360? I imagine the CA only requirement limited the amount of investors but it looks as though the model was proven out and expanded.



Joseph M

Real Estate Investor from Los Angeles, California

Jun 26 '12, 12:26 PM


Yeah it looks Money360 just recently announced Nationwide expansion about a week ago from a Press Release I saw online.

From their site: The loan terms range from 1-30 years, desired loan-to-values (LTV) are typicaly between 50-80% and interest rates typically range between 8-12%.

This doesn't seem too bad really compared to what hard money lenders are charging..plus there is no mention of points. If there are no points charged this would be a much better deal than hard money.

Will be interesting to see how this works out since it looks like they have just recently gone nationwide.

Will also be interesting to see how the JOBS act might affect real estate investment in terms of crowd funding,etc. People have been using the internet to buy/sell property for years..so it seems that it's about time that people are able to leverage the power of the internet in order to both borrow money and lend money for real estate investment. I can see why the big banks would hate this though as it means less money for them (even though they don't seem very willing to want to lend money to real estate investors)



Jack Carter

Othello, Washington

Jun 30 '12, 10:25 AM


I just checked this site out...what a great idea to get borrowers hooked up with lenders. This seems to be a better model than traditional hard money lending, where it is so hard to find a good lender. If the LTV is low enough and I can earn 10-12%+ returns, I am all over that! It may not be for everyone, but I do see this having the potential to revolutionize hard money and private lending...



Jeff N.

SFR Investor from Virginia Beach, Virginia

Jun 30 '12, 01:24 PM
1 vote


Hmmm, it always makes me wonder when new members make their first post advertising how great another site is.



Joseph M

Real Estate Investor from Los Angeles, California

Jul 03 '12, 09:56 AM


Yeah I agree. Would be interesting to hear from people that have used this site before..but since it just went nationwide that might take a little while.



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