Crowdfunding remains the most accessible way for individual investors to earn money from house flips without actually carrying out the renovations themselves. Crowdfunding usually takes place on an online platform and relies on you (the individual investor), to finance the loans listed on the site. These loans are then given out to active house flippers.
However, there some fundamental things you should look into before investing in these loans.
Before investing in any loan, consider the platform, or the website on which you aim to make your investment. Be wary of crowdfunding sites that claim to charge absolutely no fees. In almost every case this is too good to be true. In general, these websites will charge you a percentage of the income you earn either on an annual or a regular basis. Obviously, you want to make your investment on the crowdfunding website that charges the lowest possible fees.
Consider the type of flip you are investing in, is the project a residential or commercial flip? Residential flips offer a smaller return over a shorter period, while commercial flips provide a potentially larger return over a longer period. So consider how quickly, and how much, of a return, you want from your investment.
Consider the borrowers details, ideally you want to someone with prior experience and a proven track record of successful projects. Also, do your best to understand the conditions of the surrounding market to get a sense of the project’s potential. Developing an understanding of an individual borrower and their project might put your mind at ease.
Ideally, you also want to invest in loans in which the borrower has signed a personal guarantee, as this will indicate they have some personal stake in their project.
After you find the right loan, there are two ways to actually invest.
When it comes to investing in these types of loans, you can choose to act as a “debt” or “equity” partner. Acting as a debt partner allows you get regular interest payments throughout the term of the loan. Most crowdfunded fix and flip loans, have terms of 36 months and charge interest rates of 8 to 14%. You earn these interest payments on a regular monthly basis, and once the term of the loan expires, you receive the remaining interest and principal.
Acting as an equity partner gives you a share of ownership in the property. In this case, once the flipped property is sold you earn a specific percentage of the profits earned by the borrower. The potential returns from an equity partnership can be far greater; however, there is more risk in this case. It’s uncertain how much profit a flip will earn until the renovations are finished and the property is actually resold.
In short, crowdfunding presents the opportunity to earn money from house flipping without actually flipping homes yourself. Consider the platform, type of project and borrower you want to invest in and whether or not you want to act as a debt or equity partner.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
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Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.© 2016 Level 4 Funding LLC. All Rights Reserved.