Traditional methods of real estate lending have changed quite dramatically with the introduction of debt & equity crowdfunding. Today, real estate developers are able to use the new world of Peer to Peer lending (P2P Lending) as an alternative solution to crowdfund their real estate projects. After reading this article you will gain a better understanding of how professionals in the real estate industry are utilizing the many benefits of alternative lending to help scale and grow their business beyond what they were previously capable of accomplishing through conventional loans and hard money lenders.
The Top 3 Benefits of Using Patch of Land vs. Hard Money Lenders
1) A Consistent & Reliable Source of Capital
Many professional real estate developers are highly skilled and experienced, but don't have the capital to scale their business. Perhaps, they are doing 3 to 5 development projects a year, but want to be doing twice as much. However, their ability to raise funding has traditionally been limited to using their local bank, or hard money lenders. The issue with trying to borrow from banks are their tight regulations which make the process too slow and unreliable. As a result, many professional real estate developers are forced to turn to hard money lenders to finance their projects. Unfortunately, hard money lenders have limited capital compared to the banks. So while it's true you might be able to get a fair amount of work done, there is no certainty that they will be around to fund your next the real estate project you have in the pipeline.
On the flip side, alternative lending is able to provide borrowers with access to what's essentially an unlimited amount of capital. Not only that, but borrowers are also able to take advantage of the speed to close which is extremely important in the housing market. Debt-based real estate crowdfunding platforms like Patch of Land have a network of thousands of accredited investors interested in online real estate investing, and are using peer to peer lending to fund projects across the country.
Related Podcast: How to Fund your Fix and Flip Properties
2) "Makes Sense" Underwriting with A Nationwide Reach
It's no secret that bad credit will almost certainly disqualify you from receiving any type of loan from a traditional bank. While hard money lenders tend to be more lenient on credit scores and focus more attention on LTV and ARV, the downside is they are also usually private lenders confined to a hyper-local area. Typically hard money lenders are reluctant to lend to borrowers outside of their immediate area because it may be difficult for them to gauge other markets, or perhaps they are uncomfortable lending to an individual who lives in an entirely different state. To make matters more complicated, often times hard money lenders will only lend to a short list of close friends or associates who they've known and developed a relationship with over the years. This makes it extremely difficult for highly skilled and professional newcomers to penetrate their local markets.
Alternative lending solves these inefficiencies by providing a nationwide reach which can be used to serve real estate developers who live in communities all across the country, and the world for that matter. For example, Patch of Land has fully funded more than 90 loans spanning across more than 10 states, and is continuing to penetrate new markets on a quarterly basis (View The Patch of Land Stats Page). Additionally, alternative lending does not play favorites to certain individuals who are "in the know" or have connections. Strong real estate crowdfunding platforms will assess each project on an individual basis and perform thorough due diligence on the property. While credit scores are factored in, it's understood that they don't tell the entire story of a borrower's creditworthiness. In fact, it's not uncommon to come across a professional real estate developer who lost his hat in the recession and is trying to bounce back. Therefore, Patch of Land uses a "Makes Sense" underwriting approach to evaluate each project.
Related: Patch of Land's Due Diligence & Underwriting Process
3) Competitive Rates & No Hidden Fees
Unfortunately, many traditional and hard money lenders have an onerous and opaque lending style. If you're not careful you might end up being gouged by hidden and junk fees which are inconveniently tucked away in the fine print. Let's face it, if you're dealing with the only hard money lenders in town who are willing to finance you, then you're essentially left powerless to their demands, rates and terms. Alternative lending balances out the power structure by offering rates that are competitive to industry standards. While there will always be unscrupulous lenders out there, the industry leading crowdfunding platforms have all rallied around the notion of complete transparency, which means they believe in providing all parties with as much information about their products up front and never on the back-end. Some examples of the transparent benefits borrowers enjoy while using Patch of Land's real estate crowdfunding platform are no prepayment penalties, hidden, or junk fees, plus we cover up to 100% of rehab costs as well.
View: Patch of Land's Lending Parameters
Overall, Patch of Land understands that the backbone of real estate development are the highly skilled and experienced professionals who want to do more projects, but don’t have the access to capital to grow their business. By participating in alternative lending with a real estate crowdfunding platform, real estate developers are now able to borrow the necessary funds to scale and take their careers to the next level. If you're a potential borrower we strongly suggest exploring how alternative lending through real estate crowdfunding can benefit you by browsing our blog content or contacting us directly.
Leave a comment below if you have any questions or suggestions on how to best utilize today's technology within the real estate industry. We'd love to hear your thoughts.
Free Download: Top 10 Crowdfunding Questions
Take a look at some of the most commonly asked questions we receive about real estate crowdfunding on a daily basis and find out why so many people are crowdfunding real estate projects across the country with Patch of Land
If you still want to know how Patch of Land works for professional real estate developers and accredited investors, please visit Patch of Land’s FAQ section and learn more today.
Construction Loan DC commented August 11, 2018
I appreciate the excellent post which is also so valuable. Really, there are benefits of using patch land vs hard money lenders. Some companies are now giving hard money lend services or other loans services.