Today’s REI Classroom Lesson

Nav Athwal lets us in on the differences between crowdfunding and conventional banks from a borrower’s perspective.

REI Classroom Summary

Learn about the pros of utilizing crowdfunding, including a quicker processing time and ease of doing multiple deals.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the FlipNerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Nav: Hello, and welcome to the REI Classroom. I’m your host, Nav Athwal. I’m the founder and CEO of RealtyShares. And today we’re going to be talking about the crowdfunding process for getting loans and how it differs from the process you go through with conventional banks.
Mike: This REI classroom real estate lesson is sponsored by VirtualStaffNow.com
Nav: I’m really excited about this topic because, as I mentioned, I am the founder and CEO of RealtyShares.com, which is a crowdfunding platform, and we actually provide a lot of debt to first-time as well as seasoned investors that are looking for financing for their next fix and flip purchase or their single-family rental purchase. So very excited about this topic and to be here today to talk to you all about it.
So you know, the crowdfunding process in how it’s similar or different than conventional banks, the very basic root of it, they’re both ways in which you can get financing and to acquire an asset, a real estate property. The biggest difference with crowdfunding is you’re actually getting capital through interested investors that can see your property, can view your property, can get information on the borrower or where the property’s located, whereas with the bank, you’re dealing with a single person or a single representative at the bank and getting capital without really appealing to a broader set of investors.
But the underwriting and diligence processes are very similar. When you apply for a loan through a crowdfunding platform, you’re usually going to submit the same documents you’d submit if you were getting a conventional loan from a bank. You want to submit an appraisal. You want to submit information on the property, inspection reports, information on yourself. A credit check is probably going to be pulled, a background check. So really, the underwriting process isn’t that much different.
But with crowdfunding, because you are leveraging technology, at times you can see a loan completed within a week to 10 days, whereas with a conventional bank you can see that same loan take 30 to 60 days. So one benefit of crowdfunding relative to conventional financing is definitely the speed of execution. Through our platform, RealtyShares, for example, on average we’re able to get a borrower reviewed, funded, and the loan closed within 10 days. So a very efficient, quick process.
Once the loan’s approved that’s where the differences come in. With a conventional bank, you’re typically going to proceed to escrow, and the bank will wire the loan funds and you’ll close the loan. With crowdfunding, once you’re approved, your deal is actually listed on an online website, in our case RealtyShares.com. There are others as well. And then it’s opened up to investors that have signed up with the site. So your deal could have anywhere from 1 investor up to 30 to 40 investors, depending on the size and the interest level from investors. So that’s where the biggest differences come in. Because of that, you get more exposure to a broader set of investors, a broader set of capital sources than you would through a conventional bank.
A lot of crowdfunding borrowers are repeat borrowers. So we’ve seen borrowers come on the RealtyShares.com platform and get anywhere from 3 to 10 loans for various properties. Once you’ve used crowdfunding, once you’ve appealed to that broad set of borrowers, you actually are able to come back to the well and do that on a repeat basis. And with each new loan, the process gets quicker, because I think crowdfunding platforms are a lot more equipped and better at reusing your underwriting data to make the process better for future loans, whereas with conventional banks, it feels like you’re going through the same process every time you get a loan.
So that’s another benefit you do have. But ultimately, the crowdfunding piece is a new innovation. It started in late 2013. It got kicked off by the JOBS Act, a new piece of legislation that makes it easier to raise capital online, and we’ve seen great platforms come online to provide more efficient, speedier capital than conventional banks with the same type of borrowers that ultimately have a bank loan take them 30 to 60 days and get them funded in as little as 10 days.
Very exciting process, and if you haven’t tried it, definitely try it. Again, our platform is RealtyShares.com, and I’m very excited about the future of crowdfunding to fund your next loan.
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