Within two days, more than a dozen investors had each agreed to loan him an average of
"He left a candle burning and it did significant damage to the interior," Lunsford said. "I'm fighting it out with the insurance company, and I was going to front the money myself, but it was
Crowdfunding is just one new financing option that has emerged in a metro area where 56 percent of all home sales were paid for with cash in May, according to RealtyTrac. Recognizing that community banks and institutional lenders are reluctant to loan money to house flippers and landlords, several companies have started offering cash to real estate entrepreneurs in the
But the borrowed money doesn't come cheap.
In Lunsford's case, the individuals who loaned the money will earn 9 percent interest. Lunsford has agreed to pay 11 percent interest on the short-term renovation loan, and the crowdfunding platform he used, RealtyShares.com, will keep the 2 percent difference for doing the marketing.
"I think they're on to something in an underserved market, but I don't believe it impacts or affects our market," he said.
Berman said he appreciated that nontraditional funding sources such RealtyShares and Lima One don't offer federal-backed loans, so only private equity -- not taxpayer dollars -- is at risk.
Typically, investors used their own funds or that of friends and family members for short-term investment strategies including those involving home renovation and flipping.
"Additionally, there are numerous risks associated with rehabbing houses that the casual investor may not be fully aware," he said. "It only takes a few miscues to create the proverbial money pit."
A more traditional source of funds for these buyers are equity loans, which have interest rates of about 4 to 5 percent.
Those lenders have affirmed that they have income levels of at least
"We're never the sponsor of the loan and we're only the marketplace," founder
If Lunsford can't repay the loan, his fleet of lenders have the legal footing to file a lien against the house and get their money back when it sells.
Lunsford said he said he first began buying houses after the housing market crashed starting in 2007.
At the time, he had just sold a gourmet-coffee business in
"It was really frustrating because there were so many deals and the reason there were so many deals was because no one could get the money to buy," said Lunsford, who had turned to community banks and national lenders with no success.
He said the RealtyShares option helped him get the cash on about a dozen of the 50-plus rentals he now owns in
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