Crowdfunding Your Flip

Two Los Angeles-Based Startups Offer Savvy Solutions

By GABRIELLA BOCK | Reporter

In just the last decade alone, crowdfunding websites like Kickstarter and Indiegogo have swiftly grown into powerful modern tools for financing both industry and independent projects.

The internet fundraising sites have been the backbone behind popular products such as the Pebble Time smartwatch, which raised $1 million in less than an hour, and the revival of the 1980s cult classic television show “Mystery Science Theatre 3000.”

Others have successfully used the sites to fund individual needs, ranging anywhere from honeymoon trips to open heart surgery.

So it only makes sense that millennials looking to ante in to the West Coast real estate game would turn to crowdfunding: Properties in dense, coastal metros are far more expensive than in midwestern and southern regions—with the median home price in Los Angeles sitting at $550,000—and without an investor (or a cool trust fund account), buying a house when you’re young can be as cost-challenging as procuring tickets to the next World Series.

To meet the changing demands of the millennial marketplace, LA-based companies Patch of Land and PeerStreet have launched peer-to-peer fundraising platforms that match hopeful young buyers with investors who can provide home financing faster than a bank or mortgage broker.

For people with outstanding debt, such as student loans or open mortgages on another home, crowdfunding allows borrowers to bypass a traditional mortgage lender’s request for income information and individual credit history.

The relationship presents itself as a win-win opportunity for both the borrower and the investor, as higher interest rates provide a quick return on as little as a $1,000 investment.

(It isn’t uncommon to see as many as 100 small investors backing a single 12-month flip.)

And apparently, access to quick cash is as attractive in the real estate industry as it is on other P2P crowdlending websites: Since its inception in 2012, Patch of Land has successfully managed more than $150 million worth of financial transactions.

Although the websites are only intended for those wishing to quickly fix and sell a property, profits garnered from a successful flip can easily open up a door to a future in real estate or simply fund the down payment on that first family starter home.

In 2016, the Orange County Register reported that 7.6 percent of all LA County real estate sales were home flips, averaging profits of nearly $127,000 per sale, the highest in the region.