Investing in fixer-upper homes is one of the most widespread tactics employed by home buyers looking to elevate a home’s value, but savvy investors are now using crowdfunding in order to raise money to flip their properties.
“House flipping” is by no means a new investment tactic. Dozens of T.V. shows, like Flip or Flop and Fixer Upper have given the strategy public attention and emphasize how the hard work that comes with house flipping can potentially reap huge gains for investors. At its core, house flipping is the process of buying distressed houses, giving them a face-lift with renovations and decor, and then selling them for profit.
The properties purchased are desperately in need of someone to come in and bring up their values, and in the process the entire neighborhood benefits from the elevated worth. However, investors generally have troubles getting loans from banks on these homes because of the lack of stable income that house flipping generates.
In recent years, a solution has emerged in the market for investors looking to flip houses. Crowdfunding is a method of raising capital from thousands of unrelated investors online which allows them to buy shares of the property and bypass the bank. This allows lending to facilitate the work of many house-flippers doing amazing work and making a big difference in underdeveloped neighborhoods.
Anyone can go to these online crowdfunding platforms, fill out a quick online application, have their projects vetted, and request funding for their venture. The technology was built to allow these flippers to do absolutely everything online, without ever having to talk to a banker or salesperson. The borrower is evaluated with thorough background checks to assure investors that they won’t lose any money. Ultimately, there is also a physical inspection of the property to ensure its welfare.
RealtyMogul is one real estate crowdfunding and investing platform that lists many fix and flip projects available online for investors to fund. Potential investors can review the project thoroughly online before deciding to put their money on it, ultimately benefiting all parties involved. Deals are made that could never have been achieved otherwise, and those flippers who are cash constrained are helped throughout the completion of their project. Investors are paid on a monthly basis and get principal back from the property so it can be refinanced, and the flippers no longer must worry about having enough capital to finish their renovations.
This has tremendous significance for local economies. Not only are workers being employed to complete these renovations, but as soon as the value of one home goes up, so does the value of all the other homes surrounding it. This ripple effect is something that was much more difficult for house flippers to achieve before crowdfunding and makes it easier for real estate to improve in drained neighborhoods.