6 reasons online lenders may be easier to work with blog by Lawrence FasslerMany banks are just not focused on investment property loans, as I discussed in my previous blog for Personal Real Estate Investor Magazine.

For rehab investors, a good alternative can be the new online “peer-to-peer” real estate marketplaces, which are often focused on rehab situations.

These companies (and I would count my own company here) make it their mission to use technology to make fix-and-flip rehab loans simple and fast. The application process can be straightforward and simple.

Online lenders have a number of advantages over traditional source, whether they be banks or local “hard money” lenders.

Here are 6 reasons online lenders may be easier to work with

No. 1 – Online lenders often focus on the rehab market

Private “hard money” lenders – so called because rehab properties can be difficult for conventional banks to lend against – usually prefer to focus on a certain region or property type, so it may be a bit difficult to locate a good one in your area for your property. Big banks, on the other hand, typically don’t like to lend on non-occupied properties, especially when the properties are in disrepair and require more than a minimal amount of renovation.

Online lenders often focus on the rehab market, face fewer of the limitations facing many other private lenders, and use technology to make fix-and-flip loans consistent and fast. Hopefully your life becomes simpler as a result.

No. 2 – Broad geographic reach

Private money or hard-money lenders often prefer certain areas only, usually local to them, or only certain types of borrowers. Online lenders tend to have a much broader geographic reach, and the best ones have pricing models that account for local market differences and varied borrower characteristics.

No. 3 – Technology allows for consistency

The pricing models I mentioned are driven by online lenders’ extensive use of technology. Credit data can be input into algorithms that produce instantaneous determinations of creditworthiness and appropriate pricing. The result is consistency; even where a pricing model produces different terms based on market area or borrower experience, the model itself remains consistent.

No. 4 – Higher loan amounts

Private hard money lenders are often known for lending at conservative loan-to-value ratios (LTVs), meaning that they may only loan a small fraction of the value of a property. The better online lenders use networks of appraisers and construction overseers to get comfortable in lending larger amounts, including the money needed for covering rehab costs and not just the property’s purchase amount. The loans are usually structured so that the portion of the loan meant to cover construction costs is held back in “reserve,” disbursed gradually through “draws” while the rehab work is being completed – a good fit for the rehab investor’s situation.

No. 5 – Speed, speed, speed

Rehab investors need speed; they typically just can’t wait that long to know whether financing will be lined up, since good deals move fast. Online lenders don’t ignore underwriting (risk analysis), but they use technology to automate it to a great extent. I mentioned the calculations that help drive consistent determinations of creditworthiness and appropriate pricing. Aside from the potential for smarter underwriting, the processing capabilities of online lenders translate into their being able to significantly speed up the entire loan process. P2P platforms can use their assembled credit data to determine immediately if a deal fits their guidelines.

No. 6 – Lesser capital constraints

Private money lenders typically face capital constraints, i.e. their money barrel isn’t bottomless. The better online lenders don’t act as mere brokers, but are using both the “crowd” and financial institutions with whom they have a relationship to fund the various loans they originate. This means they generally have a much larger pool of capital with which to fund loans.

The better online  real estate lenders have become proficient at examining the fine grains of their various activities for small but useful improvements.

Constant experimentation and rapid implementation of demonstrably better business features – even if the gains are tiny – can, in combination with other such improvements, produce significantly improved results for rehab investors looking for a solid finance partner.

[hs_form id=”4″]

Categories | Article | Topics
Tags |
  • Lawrence Fassler

    Lawrence Fassler, an attorney and real estate investor, is Corporate Counsel of RealtyShares, a leading real estate investment marketplace that places equity investments through North Capital Private Securities Corporation; a registered Securities broker-dealer, and member of FINRA/SIPC. RealtyShares as an institution does not advise on any legal issues, and this article is for general information only and does not represent professional legal advice. Contact the author at lawrence@realtyshares.com.

Related Posts


Submit a Comment