When one of our lenders recently moved their investment funds to Crowdfunding Trust Deed providers, I realized I better get up to speed on Crowdfunding. How will this new capital raising phenomenon impact the Hard Money Loan and Trust Deed investment business? How can a Hard Money Lender effectively Crowdfund? I will answer a few of these questions over my next few Blogs but for today I will discuss whether Crowdfunding offers Promise or Peril for Hard Money Lenders:
In October, 2013 Congress passed and the President signed the “Jobs Act” into law which authorized this new era in fund raising. Crowdfunding is, according to Forbes, the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet. While Hard Money Lenders sell Trust Deed Investments over the Internet to multiple people, there is a wide chasm between today’s traditional Hard Money Lender and the new breed of Real Estate debt Crowdfunding companies.
To effectively evaluate the Promise of Real Estate Debt Crowdfunding, the perspectives and benefits from the Borrower and Lender stakeholders need to be understood:
While there is certainly promise to Crowdfunding, there is also potentially Peril. What happens when a loan defaults? Who navigates the foreclosure process? What if one of the lenders does not want to contribute to a capital call? Is the security a Trust Deed or interest in a company? Has anyone seen the property or met the borrower or the lender? What are the Securities laws or exemptions being used? What happens when the loan matures? Answers are TBD.
These are exciting times for all participants. It is time to get smart about the promise, peril, opportunities, threats and limitations of Real Estate Debt Crowdfunding. Do you have a Crowdfunding experience or thoughts on Crowdfunding? We would like to know.