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Peer to peer mortgage lending Dallas Texas

Peer to Peer mortgage lending Dallas Texas | InvestmentClub360

Peer to peer mortgage lending Dallas Texas

Peer to peer mortgage lending is an online platform or company that connects borrowers with lenders. It is an alternative means with which real estate investors/developers can acquire capital from investors instead of seeking loans from banks and other traditional means.

It cuts out the lending protocols of the bank and makes it easy for investors to seek capital from other investors. Peer to peer is conducted by a P2P platform who brings the borrowers and the lenders together.

The P2P platform does not lend money to investors seeking for funds; they only bring the investor seeking for funds with other investors who want to invest.

Peer to peer lending platforms has made it easy for investors to get funds to expand fund their investment without going to the bank to seek loans.

P2P lending involves low-interest rates, simple applications, and quick decision making. All these have made P2P a better alternative to traditional means of seeking loans from the bank and made it a huge success in the modern world. The number of P2P lenders getting into the mortgage business has increased steadily.

The lender can set the interest rate and compete for the lowest rate reverse auction model or fixed by the P2P company on the basis of the analysis of the borrower’s credit score.

The lender’s investment is not normally protected by any government guarantees. This means the government cannot guaranty repayments in case a borrower is defaulting to pay back.

For this reason, the lender mitigates risks by choosing which borrower to lend to. The lender can also further mitigate risks by diversifying his investment loan among many borrowers.

According to a report by PriceWaterhouseCoopers, US P2P platforms have issued approximately $5.5 billion in loans in 2014. It is estimated that by 2025, the market could reach up to $150 billion or higher.

Process of obtaining a peer to peer mortgage loan

The process of obtaining a P2P mortgage loan varies by companies. Different P2P mortgage lending companies have different processes before giving out loans, however, the process typically follows a similar pattern.

The pattern is:

  1. The developer/borrower begins an online search and application for a loan. The borrower then receives pre-qualifies interest loan amounts and interest rates from the P2P company.
  1. The borrower then chooses the loan amount and interest rates which he/she wants and is most convenient. The borrower will then complete the application and receives a letter of pre-approval from the P2P company.
  1. The borrower will then submit his/her offer to the P2P company and close the loan. Here, the borrower will need to upload his/her purchase agreement, state his/her interest rate, obtain a property agreement and sign final documents.

As a developer/borrower, before applying for a mortgage loan, you need to know the ups and downs. You need to know all it entails.

What are the Pros?

  1. P2P lenders tend to approve loans for people with low credit scores more than for people with high credit scores.
  1. The interest rates on P2P loans are typically lower than the interest rates of other traditional loan lenders.
  1. Service fees on P2P loans are also typically lower than other traditional loan lenders.

What are the Cons?

  1. The time to process and approve a P2P loan may be longer than that of the traditional loan lenders.
  1. Collections fees for borrowers who don’t pay back on time can be very steep.

Peer to peer intermediaries provide the following services to better secure a lenders investment:

  1. An online investment platform that enables borrowers to attract lenders. It also allows lenders to identify and give loans that meet their investment criteria and expectations.
  1. The P2P intermediary identifies borrower’s identity, bank account, employment status, and income.
  1. Develop credit models for loan approvals and pricing.
  1. Perform borrower’s credit checks in order to filter out borrowers that are not qualified.
  1. Provide customer service to borrowers and also collect fees from borrowers who default in payments.
  1. Process payments from borrowers and remitting the payments to the lenders who invested in the loan.
  1. Ensure legal compliance and reporting.
  1. Loan servicing.
  1. Find new lenders and borrowers and connect them together.

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How to Syndicate a Real Estate Deal, Texas

How to Syndicate a Real Estate Deal, Texas

How to syndicate a real estate deal Texas

Real estate syndication is a way in which investors come together to invest in larger properties which they can’t afford individually.

Real estate syndication is group investments where all investors involve combining their individual money to purchase a large property that they are not able to purchase or manage individually.

Imagine a large commercial or residential real estate is up for sales and the cost of the property is very high. It will be very difficult for individual investors to purchase the property. When individual investors combine their resources, they will be able to purchase the property.

The aim of real estate syndication is to generate larger returns on investments.

In real estate syndication, there is always a person or group that will manage the property. The manager, who should be very experienced, will be responsible for decision making. The investors enjoy the profits from their investments.

Real estate syndications are actively regulated by the Securities and Exchange Commission.

How to participate in a real estate syndication

  1. Accredited investor – You need to earn more than $250,000 as an individual or $300,000 as a married couple. Or you can have at least $1,000,000 in assets. These assets should be outside your primary residence.
  2. Connections – You need to know the Sponsor or you need to be invited by a limited partner to invest in the syndication.
  3. Have a fundamental understanding of the syndication – You need to understand what type of real estate investments you will be investing in. You also need to know the timeline and returns for your investment.

How does Real Estate Syndication work?

A real estate syndication deal is pretty simple. It involves a Sponsor/developer and a group of investors.

A Sponsor or developer is the person who is physically involved in the daily operations and management of the property.

The investors are the ones with more money who invest more money to purchase the property but are not involved in the daily operations and management of the property. The investor simply invests money and gets a share of the profit based on time and the amount of money invested.

A Sponsor is usually responsible for investing a smaller portion of the investment capital. The Sponsor usually invests anywhere from 5-20% of the total equity capital required for the purchase of the property.

The investors are responsible for investing a larger portion of the investment. The investors are usually responsible for investing 80-95% of the total equity capital required for the purchase of the property.

Syndications are usually simple to set up and it comes with built-in protections for everyone involved. It is usually structured as a Limited Liability Company or a Limited Partnership. The Sponsor participates as the General Partner or Manager while the investors participate as limited partners or passive members.

The Sponsor rights and Investor rights, including voting rights, distribution rights, and the Sponsor remunerations rights for managing the investment are all written in the LLC Operating Agreement.

Real Estate Syndication profits

How do a Sponsor and investors make money in a real estate syndication?

The money in a real estate investment majorly comes from rental income and property appreciation.

The Sponsor distributes the rental income is to the investors on a monthly or quarterly basis in accordance with the pre-set terms.

The value of a property usually appreciates over time, hence investors are expected to make more profits when the property is sold.

When does everyone get paid?

The time for payment depends on the terms and when the investment gets matured. Some investments can take within 6-12 months while others can take a longer period of time. It could take up to 10 years or more. Everyone who is a part of the syndication receives a share of the profits according to their investment equity capital and the terms of the agreement.

How does everyone get paid?

Investors receive what is called a Preferred return.

A Preferred return is a benchmark payment that is distributed to all investors. Preferred return is usually about 5-10% annually of the initial money invested.

A Sponsor may earn an average acquisition fee of 1%. It could also be anywhere from 0.5 to 2% depending on the transaction and terms. Before a Sponsor will share in the profit as a manager of the property, all investors must have received a preferred return.

Here is an example of a payment structure of a real estate syndicate:

If for example, an investor invests 100k in an investment with a 10% preferred return, the investor could take home 10k each year once enough money has been made from the property to make payouts possible.

After all the investors have received their preferred return, the money remaining is shared between the Sponsor and the investors in accordance with the syndication’s profit split structure.

For example, if the profit split structure is 70/30, all the investors will receive 70% of the profits after they have received their preferred returns and the sponsor receives 30% after preferred returns.

How to Structure a real estate syndication deal

Real estate syndication deals are usually structured as an Equity Partnership, Private Loan or Capital Structure. It is very important that you understand how a deal is structured before you take part in it.

  1. Equity Partnership

In an Equity Partnership, all expenses and profits are shared between the investors and the Sponsor as stated in the deal documents.

Equity Partnerships tend to have higher risk more than a Private Loan. The risks often occur when dedication and due diligence is lacking in the parties involved. Equity Partnership can generate more returns for investors if risks are properly mitigated.

  1. Private Loan

In a Private Loan, an investor lends money to a Sponsor/developer who must pay back at the agreed time frame. A Limited Liability Company (LLC) is used to increase the level of protection, mitigate risks and provide opportunities for investors to become members of the LLC.

The investors can then enjoy the benefits of the LLC becoming partners with the developer or lend the investment funds to the developer.

  1. Capital Structure

Capital Structure is also known as Capital Stack. It refers to the organization of all financial capitals that are included in syndication.

Capital Stack defines who has the rights to the income and profits generated from the property all throughout the rental period up to the sale of the property. It also defines in what order investors will get paid and who has rights to the actual asset in case of default.

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How to do Crowdfunding for Real Estate Development in Dallas, Texas

How to do crowdfunding for real estate development in Dallas, Texas

How to do crowdfunding for real estate development in Dallas, Texas

Crowdfunding is a way in which real estate developers raise capital. It is a way investors raise capital by reaching out to a large pool of investors who contributes a little amount of money. Crowdfunding is different from the traditional way of raising money in that it is usually done online.

Real estate developers use their crowdfunding websites and social media platforms to reach out to more investors who are interested in investing.

Real estate developers have adopted crowdfunding as an alternative traditional means of raising funds for real estate projects. Crowdfunding is a better alternative to traditional bank loans as it entails very low-interest rates.

Benefits of Crowdfunding

Unless you’re as wealthy as Bill Gates or Warren Buffet, you will most likely need investors to be able to acquire the amount of money you need for a real estate deal. As a developer, you will most likely need investors who want to invest in order to be able to generate capital for a real estate investment.

A lot of developers and investors have chosen crowdfunding as an alternative way of raising funds needed for real estate projects.

There are several benefits of crowdfunding which include:

  1. Crowdfunding increases your chances of raising money to fund your real estate investment

With crowdfunding, you have easy access to credits and capital without going through the stressful procedures of getting a loan. As an agent investor, you are able to keep your personal funds for other uses and keep your personal credit scores intact.

It helps you to secure funding for real estate projects when other traditional means of raising funds are not available or are limited.

  1. Crowdfunding helps to grow your investor network

Through crowdfunding, you are able to reach out to a lot of investors across your state, country and all over the world. You get to communicate and make deals with a lot of investors and grow your investor network. 

  1. It helps to save time and money

Crowdfunding helps you save time and money as you only use an online platform to reach out to lots of investors who want to invest. It takes a little amount of money and time to create a crowdfunding website compared to when you seek for loans via traditional means. You can also make use of your personal social media platforms to reach out to investors who are willing to invest.

  1. You gain access to lots of contributions and feedback from your online audiences.

Crowdfunding is a way to get feedback and contributions from the online audience about you and what you do. As an investor or developer, it is important that you pay attention to what investors are saying, their feedback and contributions.

From their feedback and contributions, you gain access to important information and knowledge on how to succeed in your fund sourcing campaign from potential investors.

  1. It is also a marketing strategy to inform people about your business and what you do

Crowdfunding is a marketing tool to promote your brand. Apart from launching a fundraising campaign, it is also an opportunity for you to promote your brand and what you do. It is an avenue to sell yourself as a reliable and professional real estate developer/investor. 

Crowdfunding Channels to source for funds

As a real estate investor who is looking for ways to expand and grow his/her portfolio, there are two crowdfunding investment channels to seek funds from willing investors. These are:

  1. Equity investment

Equity investment gives investors an equity stake in the real estate property/investment. It effectively turns investors into shareholders. Equity investment is what most real estate investors are willing to invest in because it yields higher returns than debt investment.

Returns are based on rentals income of the property. Investors also earn a share of the appreciation value of the property in case the property is sold. Payouts are usually sent quarterly.

  1. Debt Investment

Debt investment means the investors are basically lenders to the developer/property owner. Each Investor receives a fixed amount based on the interest rate of the property mortgage loan as well as the amount invested. Payments are usually given every month or quarterly. Investors are given priority during property payouts.

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How to Invest in Commercial Real Estate Texas

How to Invest in Commercial Real Estate Texas | InvestmentClub360

How to invest in commercial real estate Texas

Commercial real estate (CRE) is a profitable investment sector because of its growth potentials, consistent investment returns, and passive income. CRE is becoming increasingly popular with investors as an alternative investment.

If you want to make more profits as a real estate investor, investing in commercial properties yields more income than investing in residential properties.

However, you need to know how to invest in commercial real estate so as to maximize profit and avoid the risks of running into a loss.

CRE has the potentials to be increasingly profitable, most especially if you invest in the right location.

Texas is a very big state in the United States. It has a population of nearly 29 million and the land of about 267,000 square miles. Texas is one of the three states in the United States that contributes 48% of the total population growth in the U.S. Texas has the second-largest economy in the U.S with a GDP of $1.803 trillion in 2018.

Investing in commercial real estate in Texas is a very profitable investment in which real estate investors are sure of making good profits on their investments. 

Why invest in Commercial Real Estate in Texas

Texas has one of the lowest unemployment rates in the United States with its unemployment rate at 3.4% in Oct 2019. This makes Texas a desirable location for foreigners who are seeking jobs and better living conditions.

There is no state income tax in Texas which promotes a business-friendly environment. Texas is being ranked as the second top state for business in the U.S.

Investors who are looking to invest in commercial real estate in a state with stable growth rates, better opportunities, and long-term investment growth are advised to look into investing in Texas commercial real estate market.

As a real estate investor, you should invest in Texas commercial real estate because:

  • The population of Texas keeps increasing as foreigners and even locals are relocating to Texas due to its high employment rate and good economic condition.
  • The economy of Texas is always growing and it is not expected to fall.
  • Tax rates for residents and businesses are less in Texas.
  • The increase in population and businesses lead to an increase in rentals which benefits commercial real estate owners.
  • Commercial real estate properties are always sought after due to the increased number of businesses.

How to get started in commercial real estate

You must first do your homework and thorough research before investing to prevent failure and losses. You must know the ins and outs, dos and don’ts of commercial real estate.

Below are some vital tips you need to follow for a successful commercial real estate investment:

  1. Understand how commercial real estate is different from others

The income from commercial real estate is usually larger resulting from longer leasing periods. A commercial real estate investor has better potentials and opportunities to earn a higher income than a residential real estate investor.

The location of the property and the type of tenant also has a great role to play in determining the demand for the property.

A property located in a location with a low economy and low population will have low demands. This will affect the value of such property. Commercial properties have better value and generate more profits in urban areas compared to residential properties.

  1. Analyze comparable properties

You must first compare the property with other recently sold similar properties before buying and selling a property. This is to help you determine the current market value of the property.

To determine the current value of the property you want to buy, search for a similar property that the square footage is not higher or low than 10% of the property you want to buy. Doing this, you will come up with the most accurate comparable value for the property.

  1. Use the right success metric

You need to understand real estate finance and investing. There are a lot of calculations and formulas involved in real estate finance and investing. These include:

  • Net Operating Income – The net operating income equals all revenue and costs from a property. This calculates the amount investors will make from an investment after removing all operational expenses. This is calculated before payment of taxes.
  • Cash On Cash – This is a calculation that shows investors the rate of return on a commercial real estate investment. Real estate investors that rely on financing to purchase their properties commonly use this. It measures the returns on out-of-pocket cash or the personal cash invested relative to the return on the part that was financed. It provides an accurate analysis of an investment’s performance.
  • Cap Rate – The cap rate or capitalization rate is used to calculate the value of income-producing properties. It is the ration of the net operating income to a property asset value. It provides investors with an estimate of future cash flows or profits from an investment. 
  1. Avoid mistakes and mitigate risks

As a commercial real estate investor, it is very important that you avoid making mistakes and mitigate risk. Mitigating risk is the greatest asset of a commercial real estate investor. If you do not know all you need to know to avoid mistakes, you may end up losing and failing.

What are the common mistakes a commercial real estate investor should avoid?

They include:

  • Financial ignorance – Financial ignorance is failing to understand the financial intricacies of commercial real estate investment. As a commercial real estate investor, you need to learn all the financial components of commercial real estate investments.
  • Improper Valuations – As a commercial real estate investor, you need to be able to evaluate and account for variances in each property. If you do not know how to make proper valuations of the properties you want to buy, you may end up going into a great loss.
  • Neglecting due diligence – As a real estate investor, you should always mind due diligence. You need to take adequate time to learn much about a property before investing in it.
  • Not working with a team – It is wrong for a real estate investor to work alone. Working with a team is essential in order to get the best professional advice and services. Hire a team of qualified professionals who are knowledgeable in commercial real estate investment.

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Equity Multiple Real Estate, Dallas, Texas

Equity Multiple Real Estate, Dallas, Texas | Investment360

Equity Multiple Real Estate Dallas, Texas

Equity multiple is a performance metric that is commonly used in commercial real estate. It is what investors use to measure the performance of real estate opportunities.

It is a metric that is used to calculate the expected or achieved total return on an initial investment.

Equity multiple is the total cash distribution received from an investment divided by the total equity invested.

For example, if the total cash distribution received from a project is $2,000,000 and the total equity invested in the project is $1,000,000, the equity multiple will $2,000,000 divided by $1,000,000 which is $2x.

When an equity multiple is less than 1.0x, this means that you are getting less cash than you invested as an investor. When an equity multiple is more than 1x, it means that you are getting more cash than you invested.

From the example cited above, it means that an investor is expected to get $2 for every $1 invested. The $2 includes the $1 initial investment.

Equity multiple doesn’t put time into account. It ignores the time value of the money. This means it is much better if the holding period is 1 year rather than 10 years. This is why an investor needs to consider the equity multiple of an investment against similar investments.

Equity multiple is often reported along the Internal Rate of return (IRR).

What is the Internal Rate of Return?

Internal Rate of Return (IRR) measures the percentage rate earned on each dollar invested for the period it was invested while equity multiple measures how much cash an investor will get from an investment.

IRR and equity multiple are usually reported together because they complement each other. The difference between them is that they measure two different things.

IRR takes into account the time value of money but equity multiple does not take the time value of money into the account.

Equity multiple is a performance metric that puts IRR into perspective by summing up the return on investment in absolute terms. It does this by describing the amount of cash investment that will yield over the entire holding period.

Accessing risk in real estate investments

Neither equity multiple nor IRR adequately account for risk. Investors should pay adequate attention to the risks inherent in a project as part of the due diligence process.

This is very important especially if high equity multiple opportunities are projected for low-quality properties or if the financing is inherently risky. Investors owe it to themselves to adequately consider all the risks involved before acquiring an investment even if the deals are particularly attractive with upside potentials.

It is important for investors to be skeptical of deals advertised, particularly with high equity multiples. This is because most metrics in real estate are projections, not certainties. Investors should adequately examine which key assumptions drive a deal with high equity multiple.

Investors should keep in mind that the metrics do not consider all factors and should be analyzed as part of the due diligence process.

Equity multiple is a very important tool for real estate investors. It is recommended that you pair equity multiple with IRR when evaluating a potential real estate investment and appropriately analyze the risk in order to identify the investment that best meets your investment criteria.

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