Facts and Figures
Net interest rates to the investor amount to 10-12%.
Duration of the loans ranges between 6 and 36 months.
Loan to value ratios vary between 30-75%.
Size per Loan varies between $50’000-5’000’000.
-There has been an active market for short-term real estate investment in every major economy for a very long time. Real estate entrepreneurs would finance a purchase of a property with a mix of own equity and debt, fix-up or build-up, and having the goal of selling for a profit or refinancing at a cheaper rate after 12-24 months.
-The short-term real estate market is characterized by a race between entrepreneurs to come up with the capital to buy-up good deals on offer by sellers. As soon as an attractively priced property is placed on the market the race is on to get the financing to purchase it because the profit can be realized by an experienced entrepreneur fairly certainly.
-These real estate backed loans, even though legally speaking they are a first lien mortgage against the property, are not the average mortgages at 2.5% interest rate per year for 10 years. These are real estate development loans and are considered significantly riskier, and commensurately offer a 10-12% interest rate.
-Any small to mid-sized real estate developer will tell you the banks are simply too slow and uncompromising, and too bureaucratic and arrogant towards them. This is why they have been getting finance from wealthy private families and small specialized lenders. It is only now that these specialized lenders have opened up on their liability side to broker the capital of the Crowd for a fee, wherein the risk is borne by the crowdlenders.
-Each loan is valued individually and requires the developer to come up with at least 30% equity. It is critical that the valuation of the property being financed is accurate and conservative so as to avoid losses to lenders. For this reason the investment manager is only placing capital with Platforms that have reputation at stake and which have already brokered several hundred million dollars in real estate bridge loans. It is further desired that the Broker have had to handle hard defaults by borrowers in the past and have had to deal with problematic borrowers and situations in court. Chosen brokers must have excellent experience in the markets they are operating and have top notch legal experience and solicitors.