The New Source of Capital ALL Rehabbers Should Know About

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Whether you’re a buy and hold investor or a rehabber, oftentimes the most difficult part of a project is getting the financing in place. For investors who are buying for the long-term, the most preferred method has been traditional bank financing. Let’s face it, with interest rates at historic lows and 30-year terms, you could do a whole lot worse.

However, for investors who take a more active approach to their real estate investing, getting short-term financing can be tough. Many traditional lenders won’t loan on properties that need extensive work. It usually doesn’t make financial sense for rehabbers to go to a bank for a short-term loan, so they often are forced to look to alternative sources of capital. Rehabbers typically must turn to private money sources or hard money loans when funding a flip, while some of the more senior rehabbers have alliances with strategic partners that provide the necessary upfront funds.

How to Estimate Rehab Costs!

Estimating rehab costs accurately can make or break your real estate business, and it takes years of experience for even the best rehabbers to master the art. However, you can expose yourself to less risk and get more accurate with your projections by learning how the pros think when estimating construction costs.

Click Here For Your Free eBook

How Technology is Changing Real Estate

But like with many other aspects of the economy, technology is changing the game of lending. Crowdfunding first started as a way for small businesses to get start-up funding via pre-sales of goods or the promise of a VIP experience for super passionate fans. This method then evolved to businesses offering small pieces of equity in return for investing in the company.  


Related: An Investor Analyzes: Could Crowdfunding Disrupt the Hard Money Lending Industry?

What started as a way of pre-selling, though, has paved the way to cutting out banks altogether. With crowdfunding growing in popularity, peer-to-peer (P2P) lending also took off; while the two are similar, they are not the same. The general population tends to use the two terms interchangeably, and it wasn’t until recently that I learned that there are distinguishing differences between the two.  

Crowdfunding is equity-based, which means that investors will own a piece of the company. On the other hand, P2P lending is debt based: It is a loan with an interest rate and a repayment period. Once the loan is repaid, the borrower owns the asset free and clear. If you are one who seeks alternatives for your personal investment portfolio, you may already be familiar with peer-to-peer lending platforms like Prosper and LendingClub.     


GROUNDFLOOR is a real estate P2P lending platform, the first and only that has jumped through the myriad regulatory hoops in order to allow non-accredited investors to participate in their loans backed by real estate. For all you potential or experienced rehabbers reading this, that means more capital from investors seeking to add real estate exposure in their portfolio.

What Do They Do?

Here are some pertinent stats:

  • Typical loan size between $50K to $500K (average $120K)
  • Interest rates from 7-20% on a 6-12 month term
  • Close in 21 days
  • No personal guarantee required
  • Fund up to 90% of the project cost
  • Total cost of 4 points — 2.5% upfront, 1.5% at closing

Why Should I Care?

As a rehabber or developer, you are probably already working with private investors rather than big banks. You’ve had to go through the trouble of sourcing hard money lenders and raising money to finance your projects. Imagine how much time and money you could save in the process if you no longer had to hunt for those investors and they were instead looking for you.

What makes GROUNDFLOOR so unique is that they were the first real estate peer lending site to qualify under the amended Regulation A (read the press release here). Basically, this means that the non-accredited general population can still participate in these offerings on a fractional basis. This truly opens real estate investing to the crowd, meaning rehabbers have a much larger pool of capital to draw from.

Another distinction that sets real estate P2P lending apart from other P2P lenders is that these real estate loans are secured by property. In comparison, the loans on other, more general peer-to-peer lending sites are unsecured. As an investor, having your investment be secured by a lien on property means you have a legal claim on the property in case of default.


Related: I Used Portfolio Lending to Transform My Business. Here’s How You Can, Too.

Where Do They Lend?

GROUNDFLOOR actively lends in the following states: New Jersey, Maryland, District of Columbia, Virginia, North Carolina, Tennessee, South Carolina, Georgia, Alabama, and Florida.

As a buy-and-hold investor and entrepreneur, I am glad to see changes in the marketplace that make it easier for real estate investors to borrow money. I don’t have many regrets when it comes to my pursuit of self-employment, except that not having a stable income makes it more difficult to get financing for my potential investment properties.     

Investors: What kind of funding do you use for your rehab deals?

Let me know with a comment!

About Author

Tiffany Alexy

Tiffany Alexy is the Broker/Owner of Alexy Realty Group, a boutique real estate firm located in the Raleigh-Durham, NC metro area. She actively invests in her own buy and hold projects. With several financial certifications under her belt, Tiffany specializes in helping individuals understand how real estate can fit into their investment portfolio. In her spare time, Tiffany loves to ride horses and travel.


  1. margaret smith on

    So very interesting, tiffany, and something I would like to investigate as, like you say, the internet makes many opportunities available to the masses. However, there are certainly lots of questions about all this. For instance, what is the LTV on the loans? This makes it sound like the investor owns the house, and the funds go toward the rehab only. I’m sure the P2P is not interested in a 2nd position lien, right?

    Lots of room between 7% and 20% (plus those pesky 4 points!)- so what kinds of factors are those? In Florida, we have an absolutely usury threshold of 18% to include all fees and points- I’m sure each state has it’s own rate caps.

    I am a hard money lender- and I can lend a much smaller principal amount to help a rehabber. I can get the job done with repeat clients in 10 days- doing one now. Often I come in and save a deal after an institutional loan of some kind has tried- and failed- to get the thing funded. I also often do a JV with an underlying agreement that is private between lender and borrower- essentially, I participate in profits of the project, no interim payments. I will fund the purchase, closing, and most or all of the rehab for those I know and trust, where there is decent equity on the table at acquisition- Your P2P do that?

    Finally, have you ever had to draft and approve legally sound lending docs, review construction progress, confront a deadbeat borrower, or foreclose on a property that is out of state? As a wise attorney once told me–“Might have more fun in Vegas if you have money to burn…” Something to consider…

    Really, though, would love to hear good reasons why these hurdles can be nicely overcome, as the idea of easy armchair investing is very sexy indeed!

    Just sayin’!

      • margaret smith on

        Like most private lenders, I invest in what I know, and stay within my local area so that I can touch and understand my investment, and know the real estate market here. I don’t know if you are brand new, or a more seasoned vet in the rehab world. If you will focus hard for a short time on the lending game in your area, you will become educated in how this works, and find the lenders with high integrity that you can work with. Take a couple for coffee, start building your “credibility portfolio” that you can use to look good to a lender. Write up a 5 year business plan. If you don’t have real addresses to point to yet, show numbers on a typical rehab that you would like to do, showing budget, timelines, and profits. Lenders are very detail oriented- You must show that your pencil is sharp also! Expect a credit/background check. Once you have experience with a couple of flips, it will be so much easier to return for a wash, rinse, repeat relationship with that lender.
        Good luck, and let us all know how you do!

        • Thanks for your advice. I have 5 resales under my belt. All good, had some trials with one but pulled it out. Always looking for good lenders. Thank you.

  2. Charles Worth

    Gee when did BP become an Ad site come on. Yes they do Reg A but that means 0 to rehabber since getting money (at least today) is the same as if you got it from any funding site. Go to forums and you will see compared to others in the industry they don’t rank highly. I could go on but at the same rate and terms I don’t know why one would want to deal with retail vs. high net worth considering the former is way more regulated and costly for the platform itself.

    • Allison Leung

      Hi Charles:

      Just to be clear, the author Tiffany is in no way affiliated with GROUNDFLOOR and is simply passing on some information about this form of financing. It’s up to each investor to decide what works best for his or her business. Thanks for reading.

        • Tiffany Alexy

          Hi Charles! Thanks for reading. I do only present one company, and that was on purpose. In previous articles I’ve referenced multiple companies, but I try to keep my articles rather digestible (both for sake of time and attention span). Most of the references to crowdfunding/P2P lending cover the topic more generally, and I thought I’d offer a unique perspective by doing some deeper digging and getting more information on the company beyond what is noted on the website. It is certainly not an ad, but more a byproduct of my own research. I was intrigued by the company and they were very gracious about answering my questions, so I wrote this up to document what I found. I hope the information was helpful to you in some way.

    • Julie Kern

      Hey, Peter. My husband and I have both invested through RealtyShares using our Self-Directed IRAs. His was just funded; mine has been invested for about 3 months, and so far, so good.

      I will say, it took some effort up front using our SD-IRAs. His was easier than mine because his SD-IRA is with Entrust, one of RealtyShares’ “preferred custodians”. My SD-IRA is with EquityTrust, and it was a huge pain to do the RealtyShares investment through them.

      We haven’t gone through the full cycle (return of capital), but I’m enjoying the 13% return.

      Hope this helps!

  3. Joe Kooner

    This is a great tool, but am I missing something or does it seem that the majority of your potential return will be ate away by the points and interest rate? 4% is quite steep.

    Example, Loan is 300k, 4% is about 12K (please correct me if I do not have the correct concept, I am fairly new to REI)

  4. russ kelly

    Great article.
    Thank you.
    Yes there is plenty of information AND OFFERS online or out there.
    You pinpoint one and we all appreciate it over here.

    If you guys are smarter and can find more cheaper avenues let’s share it.
    For others like us that are tired to go thru the “asking process” to friends and family members; Groundfloor is a great solution for now.
    Without Tiffany we wouldn’t have found it.

    Thanks !

  5. Angela Kriv

    Great article. I have a question- if I live in NY, but would like to invest in Florida which state is considered for P2P lending? I have a job in NY and my income tax in NY, but I already own couple properties in FL. Thanks!

  6. mike h.

    This is not a new source of money that all rehabbers need to know about. Its a source of mone that some rehabbers might be interested in.

    But you can call it what you want, its actually no better than hard money and maybe a bit worse.

    The terms are not very good. 4 pts and an interest rate at up to 20%? Even at 10, thats not so good. And only 90% of the cost? Plus 2.5 points up front?

    I don’t know any hard money lenders that charges 2.5 points UP FRONT. That to me would be a big red flag. If they weren’t a corporation, I’d suggest they were scammers and to not do a loan with them.

    Something is wrong when they need 2.5 points up front. That tells me they aren’t closing loans.

    My hard money lender today and the one I used before were both at 4 points and then 12 and 14% interest. But they provided 100% of the project cost – i.e. 100% of the purchase and 100% of the rehab. And I pay ZERO costs up front. If we don’t close, I don’t pay a penny to the lenders.

    So to me, this p2p lender might qualify as an option but I would actually suggest they are lower than a hard money lender and given the up front costs they’re asking for, I’d be extremely leery of recommending anybody use that company.

    Companies that charge large up front fees for financing are typically the ones that walk away with your money by coming up with bogus reasons they can’t close.

  7. Ray Slack

    Mike I think she meant that the 2.5% is charged at the loan closing. (purchase of the property) and the 1.5% at the payoff of the loan. Not 100% sure about that but I can’t believe they would be promoting a company charging fees before the loan is approved and closed.


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