3 Reasons Why Hard Money Loans Will Intersect With Crowdfunding This Year

Hard money loans

How does a hard money loan work? This is an asset-based loan, and the borrower will receive funds that are provided by real property. In other words, they are basically groups of investors that will lend money to real estate developers or house flippers. Because the loans are secured by property, the investor tends to be better protected than with a typical loan. The loan is based on the property, rather than the credit score of the developer. Not surprisingly, this type of loan often means higher hard money loan rates accordingly.

According to Investor Intel, there?s a few good reasons why money lenders are likely to get into the hard money loan crowdfunding space this year. Let?s review.

1. Crowdfunding Approved by Securities Exchange Commission

Although many have been tepidly exploring the waters, the truth is that crowdfunding spaces have opened up lately thanks to a 2015 approval from the SEC that opened up real estate crowdfunding to non-accredited investors. The new rulings under Title III and Title IV mean that there are more investor protections in place as well, ensuring that a wider range of investors will be comfortable trying their money here.

2. Money Needed Quickly

Hard money lenders often appreciate the quick progression of this loan type. Entrepreneurs developing a product may need months, even years, before reaching their financing goals. Real estate entrepreneurs, though, need money very quickly in order to close deals. The money, given out quickly, then has a faster turnaround time as well for repaying the loan. On average, hard money deals have a quick turnaround of about seven to 14 days of processing.

3. Crowdfunding Removes Geographical Barriers

For lenders looking for investment opportunities further out, crowdfunding is a potential boon. According to the 2015 Times Realty News Real Estate Crowdfunding report, in 2015 the amount of capital raised from real estate crowdfunding more than doubled, soaring past $2.5 billion. This is no chump change. It also means that more entrepreneurs are relying on crowdfunding for raising capital, period. This industry is growing and it?s going to continue to attract new investors to the field.

Do you think the world of hard money loans are changing? It does seem like, at the very least, crowdfunding, real estate and hard money loans are going to be intersecting more frequently within the next decade. Only time will tell where investor interest really lies, though.

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