BiggerPockets

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.)

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.

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.

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.

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

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...

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.

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.