Crowdfunding in Residential Real Estate


Crowdfunding has been around for a long time in the technology and other industries, but it’s now being used to raise money to flip houses.  I just read an article in the LA Times about David Berneman of Golden Bee Properties, who uses crowdfunding to buy homes, fix them up, and resell them.  With crowdfunding, Mr. Berneman gets a large number of investors to put money into his home flipping projects.  As a result, each investor can invest as much or as little as they want based on what they can afford.

This is very interesting from both sides of the coin.  On one side Mr. Berneman is able to finance his home flipping projects without using short term loans with double digit interest rates, or by borrowing money from friends and family.  I added friends and family, because I heard the married couple from the HGTV show Flip or Flop started out by borrowing money from his mother to finance their home flipping projects.  I digress, sorry….back to the point.  On the other side, crowdfunding affords people that might never be able to invest in real estate the opportunity to do so without breaking their bank.

This is also a very safe investment, because the home being flipped serves as the collateral for the loan.  Furthermore, the sum of the individual investments in the fund is less than the full value of the home.  Therefore, if the home flipper doesn’t allocate the funds properly in order to finish the project and provide a return to each investor in the fund, the lending platform that initiated the fund will simply take title to the property.  They should be able to sell the property for more than the loan from the crowdfunding.  There is a lot more information about this on the LA Times website I mentioned above.

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