Investors Turn to Crowdfunding for Flips

March 27, 2015

As home prices rise, investors looking to cash in are back to flipping properties, but they're using online crowdfunding sites to fund their flips.

Unlike the housing boom days, lenders are showing more caution in granting financing to those looking to quickly rehab a property and attempt to then sell it for a profit. As such, investors are turning to other financing avenues fund their flips.

A growing number of online crowdfunding sites are offering some financial aid for housing flips.

Ben Walhood in Chicago, for example, says he turned to RealtyShares in San Francisco, an online crowdfunding platform. Walhood has gotten his property purchases funded by other investors across the country who are lending him money for his single-family flips. He pays interest on a loan and the investors earn about a 9 percent return. The interest charged is much higher than conventional financing, however – loans backed by Fannie Mae and Freddie Mac are around the 4 percent range while Walhood is paying about an 11 percent interest rate through crowdfunding. But Walhood says he plans to flip the house in three months so he only will pay the higher rate for a short-time before he pays off the loan.

"This gap has been left by banks that now crowdfunding platforms, like RealtyShares, are able to fill," Nav Athwal, CEO of RealtyShares told CNBC. "They are able to provide quicker, more efficient capital that helps meet the needs of these investors who are looking for speed of execution and the ability to be flexible with their terms as well as with the underwriting standards. Banks just aren't meeting that need."

Athwal says RealtyShares funded about 70 projects last year and about 30 so far this year (90 percent of the projects which have been fully funded).

Other real estate crowdfunding sites are also popping up, such as RealtyMogul, Fundrise, Groundbreaker, and PatchofLand. Many of those sites focus on commercial projects, whereas RealtyShares is one of the few to focus on the single-family flip market, CNBC reports.

Source: "Crowdfunding House Flippers: Risks and Rewards," CNBC (March 26, 2015)