Investors turn to crowdfunding for flips

NEW YORK – March 30, 2015 – As home prices rise, investors looking to cash in are back to flipping properties – but more are now using online crowdfunding sites to fund their flips.

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

In addition, a growing number of online crowdfunding sites offer 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 individual investors from across the country who lend him money for single-family flips. He pays interest on a loan, and the investors earn about a 9 percent return.

With crowdfunding, the interest charged is much higher than conventional financing, however – loans backed by Fannie Mae and Freddie Mac are in the 4 percent range, while Walhood pays about an 11 percent interest rate through crowdfunding. The higher interest rate might make sense, however, if the home won't be held for long before the resale. 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 full 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, though. 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)