Today’s REI Classroom Lesson

Today, Nav Athwal talks to us about how draws and payments are made through the crowdfunding platform.

REI Classroom Summary

Nav Athwal discusses the ease of draws within crowdfunding.

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.com, a crowdfunding for real estate platform. I’m very excited to be joining you all today to tell you about how servicing in the rehab draw process works for a loan that you received through a crowdfunding platform.

Mike: This REI Classroom real estate lesson is sponsored by UglyOpportunities.com.

Nav: Again, this is a topic very near and dear to my heart because I run RealtyShares and we focus a lot on how the borrower can get more efficiency through our platform with not only a good funding process, a closing process but also through a servicing and draw process that jives and is consistent with the way they do business. So again, the process for crowdfunding, in terms of servicing and rehab draws, is not that different than a conventional lender or a hard moneylender. But I think with crowdfunding, you’re actually able to build a bit more efficiency into these processes.

So once your loan has been funded and the loan actually is closed and you’ve received the funds, then you are now in the servicing portion of the loan’s lifecycle. And even though your loan may have 20, 30 different investors that participated with check sizes as low as $1000 that are highly interested in your deal and in your loan, the servicing process is actually handled through the crowdfunding platform itself so you don’t have to actually make small distributions on a pro rata basis to 30 investors. You make a single payment through the platform. Our platform, RealtyShares.com, you’ll have a dedicated dashboard where, each month, you’ll get a notification asking you to make your monthly payment. You can also have an autopay feature so that each month, it auto-deducts from your bank account if you don’t want to have to worry about it on a monthly basis.

So you make that single payment, then the crowdfunding platform handles the rest. It makes sure that that payment is then distributed on a pro rata basis to all the various investors that are participating in your deal with, again, check sizes as little as $1000. So those distributions are handled through the crowdfunding platform, not by you, the borrower.

So that’s the servicing pieces. Again, not much different than what you would do through a hard moneylender or bank. The only difference is you can actually do it all online through the website, through your dashboard so it takes minutes. You can have an autopay feature, very quick, very painless.

The rehab draw process is a little different. Typically, you’ll see this for loans that have the acquisition financing piece, but also a construction-financing piece. So if you have a loan that you’ve received 80% loan-to-cost on, on day one, you’ll get 80% of the acquisition price in advance, but the remaining funds for the rehab will be held back by the crowdfunding platform and administered through a draw process.

The draw process and the number of draws is agreed to on the front end, so that happens actually prior to your loan closing and is set forth in the loan docs. Usually, the promissory note, the deed of trust, so you know exactly how many draws you can expect and what is required before you get those draws.

So once you have completed a phase and it can be up to three phases, typically, for a crowdfunded loan and you’re ready to submit the request for draw, then you go to the crowdfunding platform. Again, you deal, with the platform, not the individuals, and you request the draw be made. The crowdfunding platform will then typically ask for receipts that prove that the work’s been completed and may send an inspector to the property to verify the work’s been completed. That could typically take 24 hours. Once that verification has been completed, then the draw funds are wired to the bank account you’ve listed with the crowdfunding platform, typically with a $250 fee for the inspection and then you’re ready to go. For your next phase, you can do this same thing. Again, 24 hours from the submission of the request for the rehab draw, as well as receipts if required, and the inspection. You’ll get your second draw, your third draw and so on.

So very quick, very efficient, very painless process, both on the servicing end and on the rehab draw process for your next crowdfunded rehab loan. Thanks again for joining us here at the REI Classroom. My name is Nav Athwal, founder and CEO of RealtyShrares. See you all next time.

Please note the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.

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Nav Athwal is the Founder and CEO of RealtyShares. Athwal oversees company planning and strategy, legal, investor fundraising across the platform and deal activity. Nav started his career as an electrical engineer, before transitioning into real estate law. He worked as a Real Estate and Land Use Attorney at Farella Braun & Martel, LLP where he led some of the largest mixed-use, residential commercial and renewable energy real estate projects in California on behalf of clients such as Archstone, AvalonBay, FirstSolar, Equity Residential, Related Companies and SKS Investments.RealtyShares is an online marketplace for real estate investing through which Accredited US Investors can invest as little as $5,000 in residential and commercial real estate properties across the United States. To date, RealtyShares has successfully funded over 150 real estate deals to date. Athwal’s San Francisco Team has grown to 18 members in the last year and the company plans to have 35 employees by the end of 2015. In April, RealtyShares raised $10M in a venture round lead by Menlo Park-based Menlo Ventures with participation from General Catalyst Partners.Athwal is a UC Berkeley lecturer on real estate law, a real estate broker and a second-time entrepreneur. He has been featured on television networks such CNBC and Fox Business and regularly contributes to Forbes.