March 9, 2017

Investors: Is Financing Your Real Estate Project Through RealtyShares a Good Idea?

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Funding your next real estate investment could come from an entirely new source - a "crowd" of investors rather than a traditional bank. But would a new way of financing your next home or flip be a smart move?

With the real estate market starting to come roaring back after the 2008 crash, people are starting to look for innovative ways to buy and sell properties at a major profit. And it's no surprise why that's happening. Savvy investors, homeowners and people who simply love home improvement recognize the potential return that comes from buying and selling homes.

If you are looking for ways to turn a profit on real estate, this is a risky investment with tremendous potential. There are a lot of factors that go into buying and selling homes for a profit:

  • Purchase price
  • Closing costs
  • Opportunity costs
  • Needed repairs
  • Surrounding neighborhood
  • Future potential
  • Length of investment

Unless you have loads of cash lying around, you're going to run into the same initial challenge as the large real estate corporations when you decide to flip a house - you'll need to get financing.

Raising Money for Your Real Estate Projects

When it comes to the large amount of capital that you need to finance your real estate investment, construction or renovation, you have always been limited to a series of traditional options. Even though there have been booms and busts, those three ways of raising money remain unchanged:

  • Traditional bank: Your finances and credit worthiness will be evaluated to determine your mortgage rate and amount of money you can be lent. The bank effectively owns the property until you have paid off the mortgage.
  • Borrowing from rich friends and family: Instead of a loan from a bank, you take out a loan from a rich family member. You might get a better interest rate, but there are few things more awkward than borrowing a lot of money from friends or family.
  • Paying everything up front with your own money. You lose the mortgage interest tax deduction and have almost all your money tied up in a property.

But there's a new option to add to the list: crowdsourcing. That's where RealtyShares comes into play. It offers a new method of fundraising that's exploding in popularity for real estate investors and people looking to buy a home.

CrowdSourcing Your Real Estate Project with RealtyShares

Looking to become the Lending Tree and SoFi for real estate, RealtyShares, a new start-up based in Silicon Valley, allows for real estate investments to be crowdsourced online. Investors can pick the projects in which they want to put their money. And people looking to finance their project outside of the traditional banks get access to a new resource for raising the money they need.

Think of how Kickstarter has opened up thousands of projects that otherwise would not have raised money. Or people looking for loans and refinancing through Lending Tree, Sofi and other peer-to-peer investment start-ups. RealtyShares is looking to do the same thing with real estate projects:

  • Fund projects directly rather than through traditional banks
  • Streamline the approval and evaluation process
  • Fund residential and commercial projects
  • Invest in single-family homes through apartment buildings

What Is RealtyShares?

RealtyShares is part of a growing number of crowdsourcing start-ups for real estate investments. Having raised over 30 million dollars in funding, they are targeting mid-range investors who are looking to bring the success of SoFi and Lending Club to real estate. RealtyShares has funded more than $300 million in real estate projects since inception, just 4 months after exceeding $200 million invest in September 2016.

How Does RealtyShares Work?

Similar to other crowdsourcing ventures, the idea behind RealtyShares circumvents traditional banks and funding methods by going directly to investors from all around the world. This is in contrast to traditional funding, where you would have to bring your proposal to your nearby bank branch and wait for their decision.

Once you have found the property you would like to purchase or flip, you can follow a simple method to see if you can have your project funded online:

  • Create a RealtyShares account
  • Fill out your personal and financial details
  • Receive an interest rate that you'll have to pay (akin to a mortgage)
  • Once the project is fully funded, you'll be able to go through with your project

Who Is RealtyShares For?

RealtyShares is great for people who are looking to raise money for a real estate project directly from investors rather than through a traditional brick-and-mortar bank. There are a lot of people this applies to. The housing crash of 2008 left people with a really bad opinion of the larger banks and they might not want to make them any richer with their mortgage interest.

It's also a great option for people who regularly flip houses and need financing for continuous projects. If you are proven to be a reliable borrower, then you can raise large amounts of money to continue flipping houses at a profit. This applies to both residential and commercial projects, whether you're looking to fix up a house or build one from the ground up.

You also might have excellent financials that you can prove but not much of a credit history. For example, if you recently moved to the country and you have a short credit history, a traditional bank might deny you a loan. However, you could potentially show your financials through RealtyShares and get the loan you need for the home purchase you want.

Features and Benefits

Once you have created an account and filled out your information on RealtyShares, they provide a series of benefits to promote their services over a traditional bank. Some of those include:

  • High Loan to Value Ratio Loans if you need financing for a project you plan on flipping
  • Seamless and quick pre-approval that you can complete online without having to visit a bank
  • Closing in under ten days

Is RealtyShares Right for You?

Whether crowdsourcing your project is right for you comes down to a few factors:

  • Are you purchasing your home for long-term living or to flip for a quick investment?
  • Are you looking to rent out the property and sell it once the value has reached a certain point?
  • Are you getting a better interest rate online than through a bank?

RealtyShares is a great option if your finances earn you a low interest rate and you are looking to capitalize on flipping a home or investing in a project that's out of reach. If you prefer to deal directly with investors rather than a bank and you like doing all your finances online rather than going into your corner branch, then it's right for you.

However, if you can get a lower mortgage and you might want to stay in your home for a few decades, then a traditional funding method might be the safer bet for your real estate venture.

How to Get Started

Whether you're looking to get your real estate project funded or are even thinking about investing yourself, creating an online account is free.

  • Cruise over to RealtyShares.com and click on "Get Financing" if you're looking for funding.
  • If you're considering investing in other people's real estate projects, then hit the Green "Get Started for Free" button.
  • You can also call their dedicated number: 855-880-6050
  • You can apply online in a matter of minutes and you'll receive notification in less than 24 hours to submit your documents for underwriting.

All in All

Whether RealtyShares is right for you or not, being able to crowdsource real estate investments is a great option for those of us who are wary about traditional brick-and-mortar banks. It's an excellent new addition, especially for people looking to flip and profit off real estate investments, and it is an effective way to bring the popularity of Kickstarter to the world of home improvements.

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