Crowdfunder for Flipping?

Question

Just read an article on a Crowdfunder trying to fund flips; curious if anyone had heard of this (and if it's a good option). Not trying to invest personally right now but a lot of investors who close with us ask about lenders from time to time... Thoughts?

Article link HERE

Article link HERE

John Marshall · Answer

I agree with much of @Matt Rodak . Each platform has a different criteria, some focus on hard money type deals, others want bank quality underwriting.

At its core - crowdfunding is about transparency and creating a very public track record. And getting all of the benefits associated with it. Many firms work with folks who are very concerned with returning their investor's money, who want to establish a track record, and want to build a brand with their investors. I.e., they become a "known quantity", as you would with a HML or private lender, except you have 30,000 private lenders who compete for the best deals. While HML is focused much more on the asset itself, crowdfunding is equally concerned with the sponsor/investor.

Crowdfunding is a long game - it's not free money, it's not cheaper than bank financing but in time, will come close. The potential for more cost efficient capital raises in the SFH (as well as commercial) space is huge. And someday, if Title III crowdfunding is ever legalized, you get all the social benefits of having your community invest along side with you.

Bo Wagner · Answer

I really just thought it was an interesting idea that i hadn't seen yet.  Some people are always looking for hard-money lenders and it seemed like an interesting concept.  So far I'm still seeing cash deals and hard-money loans with my ATL investors.   A lot of people are asking about tax liens here; guess that will be the new 'thing'!

J Scott · Answer

I posted in the Marketplace about a crowdfunding company for rehabbers yesterday...feel free to take a look at that post for info...

Bo - Let me know if you have questions...I owe you a call anyway...  :-)

Mike Wadsley · Answer

Hey @Bo Wagner .  Have you looked into it any more.  I'm seeing a lot of articles and companies pop up, but haven't done much more than read about it.

Bo Wagner · Answer

Thanks for the info; that is definitely good to know.  I like the marketing concept; I wouldn't have thought of that at all!

Matt Rodak · Answer

Hi @Bo Wagner

Crowdfunding or Crowdfinancing real estate has definitely become more popular in the last year. From a borrowers perspective, I like to recommend they first develop a strategy of how going this route fits into their long-term funding strategy. This is because, like anything else there will be worked involved. Pursuing without a long-term strategy may yield lower return on your time.

I recently wrote a lengthy blog on this subject specifically for "flippers" which can be found on the website listed in my signature. Here is an excerpt you might find useful:

In my opinion, a strategy should broadly fit into one or more of the following categories:

• Marketing – When you post your deals on a crowdfunding platform, you are going to get more coverage and distribution than you might get through more traditional means. Can you leverage this to your benefit in some way? One crowdfunding platform recently did a raise for a high-profile hotel/resort. In addition to raising the needed capital, they were featured in multiple well known publications – increasing the awareness of their asset. While the jury is still out on whether or not this will lead to increased room bookings or conferences, the press certainly can’t hurt. For residential flips, a marketing strategy may not be the best angle but could potentially help with your re-marketing of the property when it’s time to sell it – especially if you are trying to sell it to a buy-and-hold investor who may be also using the platform.

• Enlist New Investors – If you’re building a network of private investors you’d like to partner with on deals, one of the toughest parts in the conversion process is getting them to write you the first check. By using a crowdfunding platform, you may be able to shorten this conversion cycle by allowing them to invest with a lower amount of capital. For example, getting a new partner to write you a check for $200,000 for your next deal is much more difficult than getting them to write you a check for $5,000 – which is the minimum investment on most platforms. The crowdfunding platform will help you manage all of these smaller investors, meaning it won’t be much more paperwork for you. If you perform well, you’ll have a new happy investor ready to write a larger check for the next deal.

• Networking Efficiencies – One of the beautiful things with the crowdfunding platforms is that they capture and store a lot of information about you and your deals and present all of this information professionally online. By developing a strategic relationship with one of the platforms and their investors, you are essentially building an online resume of your credentials and past success. If you are strategic about this, each deal will add to your reputation and credibility making it more efficient for you to attract and enlist new investors. Rather than building relationships one at a time, you are building a relationship with a platform and their 100s or 1000s of investors.

I'd be happy to discuss this topic further with you or any of your clients looking into this new funding method.

Best!

Matt

Bo Wagner · Answer

Or, here is the article link:  http://www.inman.com/2014/09/22/crowdfunder-to-funnel-73m-in-financing-to-home-flippers/