Crowd funding for flipping
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
1yQuote from @Li Ou:
Hi guys,
I'm wondering if any people out there using crowd funding instead of using hard money lending for house flipping, by saying crowd funding, I mean several investors pitch in to buy a property and renovate it, and share the profit after it gets sold? I'm in the Bay Area, houses here cost millions of dollars, so the bar for fix and flip here is quite high. You can't fix and flip a property by yourself even with 200k - 300k in cash in hand, but if a couple of like-minded people come together and pitch in, it's doable. However, it seems not a lot of people out there are doing so. The reason I ask is that I've been investing with a few private money lenders and receives 10% in interest, but if I can invest that money into a fix and flip project, the gain will be higher.
california i think you can do it up to ten people, in other states you need to file for an SEC exemption and that will cost you $10-$25k. Also just remember if you have more people involved that is more people who may have some sort of control and more mouths to feed. If you are raising less than $3M, I would not recommend crowdfunding or an SEC exemption
Lastly have you ever done a fix and flip project?
7e investments53 Reviews
12 Replies
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Quote from @Li Ou:
Hi guys,
I'm wondering if any people out there using crowd funding instead of using hard money lending for house flipping, by saying crowd funding, I mean several investors pitch in to buy a property and renovate it, and share the profit after it gets sold? I'm in the Bay Area, houses here cost millions of dollars, so the bar for fix and flip here is quite high. You can't fix and flip a property by yourself even with 200k - 300k in cash in hand, but if a couple of like-minded people come together and pitch in, it's doable. However, it seems not a lot of people out there are doing so. The reason I ask is that I've been investing with a few private money lenders and receives 10% in interest, but if I can invest that money into a fix and flip project, the gain will be higher.
california i think you can do it up to ten people, in other states you need to file for an SEC exemption and that will cost you $10-$25k. Also just remember if you have more people involved that is more people who may have some sort of control and more mouths to feed. If you are raising less than $3M, I would not recommend crowdfunding or an SEC exemption
Lastly have you ever done a fix and flip project?
7e investments53 Reviews- 1yLi OuSF Bay Area, CA · Member since 2022 · 17 posts · 6 votesOP
@Chris Seveney No, I haven't. What I meant was if there's someone who has a good project but needs more capital, I can pitch in. I definitely don't want too many people to get involved, 2-3 would be perfect.
- 1yAndy SabischPro MemberInvestor · Jackson, MS · Member since 2021 · 657 posts · 559 votes
What you are describing is called a Private Money Lender or PML. Deals use this source all the time typically offering a set return on investment for a specific period of time. Looking to do it as a partnership and have input into the deal as far as the reno goes will be a turn off to most experienced investors who have a road map that has been proven to work but are in need of funding for part of the deal.
- Flipper/Rehabber · Bloomfield CT · Member since 2020 · 1k+ posts · 408 votes1y
I could imagine someone creating a crowdfunding platform for flippers. I would likely feel like Kiva.org
- Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes1y
You can certainly “pitch in to buy a property and renovate it, and share the profit,” @Li Ou. In this case, everyone pitching in would need to have a legitimate, meaningful job role, clearly detailed in a partnership agreement. Participation by silent partners would likely revert to require an SEC registration, which is not what you want.
Do you really want a job “pitching in” as a house flipper, or do you want to earn money passively from others who understand flipping? I read that you want to continue lending passively but don’t have enough to fund an entire deal on your own. There are some safe solutions available if you qualify.
Investing in a syndicated mortgage fund is one option. Your investment in this case would be spread over many loans and, depending on the fund, many property types (SFR, MFR, Commercial, etc.). You'll enjoy some amount of diversification but will not have direct recourse to any one property, which may or may not matter to you. Returns will likely be under 10 percent, and you might need to be an accredited investor. Obviously, you'll have to research the fund's asset classes, seniorities, and the sponsors.
Alternatively, you can invest in multi-beneficiary a/k/a fractionalized loans. These are legal and very popular in California. In this case, you can invest in a single loan with up to ten other investors and enjoy direct, first-position recourse to a local property. These loans must be originated by a licensed California real estate broker, but the benefit is you’ll also receive professional guidance and vetted paperwork from a fiduciary. Many licensed California RE brokers originate fractionalized loans among those with less cash and/or those who just want to diversify into more deal flow.
One drawback is that you won’t have 100 percent control, since decisions are typically deferred to the broker or servicer and follow majority rule. Also, you can’t invest more than 10 percent of your net worth, exclusive of your primary residence, in any single loan. Fractionalized lending is a good way to diversify small amounts of capital into relatively safe, first-position loans on high-value local properties. It’s a smart way to earn a solid return from real estate without the headaches of property ownership or flipping yourself.
You might also consider joining the California Mortgage Association, which is comprised of private lenders of all shapes and sizes, as well as a variety of service providers, including lending lawyers, servicers, insurance brokers, accountants, and others. The education is excellent (if I may say so myself, I serve on the education committee), with monthly webinars and two conferences each year. The next conference will be held October 8–10 in your backyard, Monterey. The American Association of Private Lenders is another organization you'll hear about. It tends to have a more national focus, so join the CMA first.
Final thought: Be cautious of the many solicitations you’ll receive sucking up to you in hopes you invest in their out-of-state “creative” deals. You were wise enough to earn your money, so I’m confident you’re wise enough to protect it. Keep it local.
- Investor · BAY AREA · Member since 2017 · 81 posts · 21 votes1y
Quote from @Jeff S.:
You can certainly “pitch in to buy a property and renovate it, and share the profit,” @Li Ou. In this case, everyone pitching in would need to have a legitimate, meaningful job role, clearly detailed in a partnership agreement. Participation by silent partners would likely revert to require an SEC registration, which is not what you want.
Do you really want a job “pitching in” as a house flipper, or do you want to earn money passively from others who understand flipping? I read that you want to continue lending passively but don’t have enough to fund an entire deal on your own. There are some safe solutions available if you qualify.
Investing in a syndicated mortgage fund is one option. Your investment in this case would be spread over many loans and, depending on the fund, many property types (SFR, MFR, Commercial, etc.). You'll enjoy some amount of diversification but will not have direct recourse to any one property, which may or may not matter to you. Returns will likely be under 10 percent, and you might need to be an accredited investor. Obviously, you'll have to research the fund's asset classes, seniorities, and the sponsors.
Alternatively, you can invest in multi-beneficiary a/k/a fractionalized loans. These are legal and very popular in California. In this case, you can invest in a single loan with up to ten other investors and enjoy direct, first-position recourse to a local property. These loans must be originated by a licensed California real estate broker, but the benefit is you’ll also receive professional guidance and vetted paperwork from a fiduciary. Many licensed California RE brokers originate fractionalized loans among those with less cash and/or those who just want to diversify into more deal flow.
One drawback is that you won’t have 100 percent control, since decisions are typically deferred to the broker or servicer and follow majority rule. Also, you can’t invest more than 10 percent of your net worth, exclusive of your primary residence, in any single loan. Fractionalized lending is a good way to diversify small amounts of capital into relatively safe, first-position loans on high-value local properties. It’s a smart way to earn a solid return from real estate without the headaches of property ownership or flipping yourself.
You might also consider joining the California Mortgage Association, which is comprised of private lenders of all shapes and sizes, as well as a variety of service providers, including lending lawyers, servicers, insurance brokers, accountants, and others. The education is excellent (if I may say so myself, I serve on the education committee), with monthly webinars and two conferences each year. The next conference will be held October 8–10 in your backyard, Monterey. The American Association of Private Lenders is another organization you'll hear about. It tends to have a more national focus, so join the CMA first.
Final thought: Be cautious of the many solicitations you’ll receive sucking up to you in hopes you invest in their out-of-state “creative” deals. You were wise enough to earn your money, so I’m confident you’re wise enough to protect it. Keep it local.
I'd love to attend the conference, please send me details when you can
- Specialist · NJ · Member since 2022 · 1k+ posts · 649 votes1y
If people in the deal are in "active pursuit" of the return then that's fine. But there are strict guidelines/rules concerning passive investing. Especially in RE. I looked into this earlier in the year. I was thinking of starting a fund. I consulted a RE attorney and laid out the idea. Geez, the paperwork/contracts/forms needed are insane. The SEC needs to be notified. Can't just have ppl out there pooling funds and guaranteeing rates of return to investors. You'll have dozens of Madoffs running around destroying the market.
It's very involved and then why would anyone put their money with you? Can you show them a spreadsheet of investments and returns? I would think you'd need proof of concept.
- Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes1y
@Li Ou, since it seems you want to get into local deals, I would highly suggest attending meetups/REIA groups in your area. The meetups in my area focused on real estate investing are almost entirely flippers and rental owners, with a decent number of wholesalers and realtors trying to get clients. I would imagine the Bay Area would hold the same.
- Investor · BAY AREA · Member since 2017 · 81 posts · 21 votes1y
Quote from @Syed Ahmed:
That’s a great way to look at it teaming up with others can really open the door to bigger deals, especially in high-cost areas like the Bay. I’ve seen more people exploring that kind of structure lately, pooling capital for flips or BRRRRs, though it definitely requires strong trust and clear terms. The returns can be stronger than traditional lending if everything goes well, but risk management becomes even more key. Feel free to connect if you want to talk through more ideas I’ve had to get creative in similar situations.
Can I connect with you brother?
- Lender · Sanford, NC · Member since 2024 · 347 posts · 116 votes1y
That’s a solid question, Li. If you’re thinking about putting your money into another investor’s project instead of just lending at a fixed rate, the biggest thing I’d say is to vet it seriously. Look at the deal numbers, the exit plan, and the borrower’s track record.
But even then, things can still fall apart. I’m actually dealing with one right now, on paper it was a great deal, have some potential buyers already lined up, and everything checked out. Months later, I’m still owed money and the borrower has gone completely dark.
Not saying that’s always the case, but it’s the risk you take with lending money. The upside can be bigger, but so can the headaches if something goes sideways.
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