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Four Technologies Transforming Modern Real Estate

A look at some of the new technologies that are impacting the buying and selling experience in real estate transactions today

November 2, 2020 By admin Leave a Comment

Views: 245

Over the past several years, technology has become increasingly ingrained in our lives. Most recently, the current global pandemic has supercharged technology’s role in a growing number of common needs and processes. With the increasing demand for more personalized and immediate service offerings, businesses have had to adapt to meet the demands of their customers. The real estate industry is no exception. Implementing new technology tools is not only improving the real estate process for buyers and sellers but industry professionals as well. Looking ahead, here are three key technologies transforming modern real estate.

Data

Today, technology has transformed the way data is gathered, structured and utilized, allowing for improved use of property information. For investors specifically, data can help more accurately predict trends and opportunity forecasts, therefore creating a sound foundation for knowledge-based decisions on real estate transactions. With tools like Neighborhood Scout, real estate investors can easily access comprehensive, location-based data on a specific neighborhood’s crime, demographic, school performance and more. This sort of data use has also significantly improved industry professionals’ ability to determine property value in a more accurate and efficient manner.

Apart from investor involvement, data is positively impacting individuals looking to buy and sell real estate as well. Streamlining the buying process through data-driven technology and tools removes the need for numerous in-person meetings, research and added confusion. As a first-time home buyer, for example, you can confidently begin the house-hunting process by calculating how much house you can afford in terms of your specific budget and mortgage qualifications. Approaching the often strenuous process of buying a house with this information arms buyers with the insight needed for making financially responsible decisions and facilitates a realistic house hunt with their real estate professional.

Artificial intelligence

Artificial intelligence (AI) has been a hot technology across all industries, including real estate, and the technology continues to demonstrate its benefits through its role in property value predictions. Real estate investment can be risky in the sense that there is always a chance property value may not prove to be as profitable as expected. AI’s ability to anticipate rent and sale price fluctuations and trends as well as identify the most ideal time for selling a property gives savvy investors a notable advantage.

Through the use of big data and AI’s predictive analytics, investors can accurately assess property value and make actionable decisions based on these insights. Further, AI can help determine the appropriate value of an existing property based on data and desirable qualities. For example, a study by McKinsey found that having two grocery stores within a quarter of a mile tends to increase property prices, but having more than four results in price reduction–a detail the naked eye may not notice when assessing value.

Mobile Apps

Mobile applications are becoming non-negotiable in real estate transactions , particularly for the younger generations. This 2019 research by the National Association of Realtors found that 81% of Millennials and 78% of Generation X home buyers found their home on a mobile device. As technology becomes more accessible, agencies must meet these buyers where they are through the use of online and mobile applications. At present, successful real estate mobile apps offer a number of key features that are streamlining processes and facilitating the full digital transformation of the real estate industry.

  • Buyer Profiles: Similar to how a relationship between a realtor and a buyer would traditionally play out, buyer profiles provide buyers with a platform to share their list of requests, properties they’re interested in and other useful information to help them find the right house. Similarly, these profiles can help agents best identify potential buyers for the properties they’re representing.
  • Property Profiles: Extensive information about available properties should be housed in a convenient and accessible location. Property profiles showcase virtual tours, photos, property descriptions and facts as well as list prices. The more interactive the profile, the better as prospective buyers can develop connections to these properties on a virtual level. Higher interactivity can also result in greater interest and quicker closing processes.
  • Pricing and Mortgage Resources: Keeping users on a mobile app is all about making for a one-stop-shop. The inclusion of pricing calculators where users can determine the final price of a home, including loan interest rates and closing costs, helps buyers better understand their available market and expedites processes. Additionally, links to reputable mortgage companies where buyers can compare and evaluate what rates work best for them with just a click saves time and money as prospective homeowners can fulfill all required steps with ease.

Virtual and Augmented Reality

No longer reserved for strictly recreational uses, virtual reality (VR) is serving as an incredibly useful and innovative tool in today’s contactless world. This increasingly popular proptech tool is revolutionizing the way showings, stagings and closings are conducted. Through a virtual lens, buyers can easily and conveniently view available properties regardless of their location. Additionally, with the use of augmented reality (AR), investors can also partake in life-like simulations of property concepts and those in the development stage.

As this technology continues to advance, more and more industry professionals are implementing user-friendly applications to meet the needs of their consumers while also improving their experiences. In fact, at present, nearly 90% of real estate agencies have started using these technologies to provide better client services.

In terms of financial benefits, VR and AR technologies will make the greatest impact on the scope of real estate operations. With the ability to accurately depict properties on a virtual platform, real estate professionals can reach buyers on a global scale. This in turn widens the opportunity for profit and provides investors with a broader pool of potential properties.

Nearly 40% of Americans feel that buying a new home is the most stressful event in modern life. Thanks to modern technology, the process behind real estate as a whole is changing for the better.

By streamlining processes through technology, buyers and sellers are able to expedite transactions and reach profitable and beneficial results on all accounts. Looking ahead, as our world continues to evolve, we can certainly expect technology’s role in the real estate industry to continue to grow and advance.

Filed Under: Fintech Tagged With: AI, big data, Mobile App, real estate, virtual reality

Views: 245

Podcast 267: Allen Shayanfekr of Sharestates

The CEO of Sharestates talks about navigating the pandemic, booming borrower demand, delinquencies and what's next for his company

October 2, 2020 By Peter Renton Leave a Comment

Views: 116

The pandemic has touched all niches within lending but there has been a wide disparity on the impact on individual platforms. In the fix and flip lending space originations went to virtually zero fairly quickly and have been slowly climbing the last several months.

Our next guest on the Lend Academy Podcast is Allen Shayanfekr, the CEO and co-founder of Sharestates (we last had Allen on the show back in 2016). They have done better than most, laying off only a small percentage of their staff and continuing to lend throughout. While they are not back near pre-pandemic levels yet the loan numbers are improving every month.

We recorded this podcast on Zoom so you can watch this interview on YouTube or view it below.

In this podcast you will learn:

  • What makes Sharestates a unique platform.
  • How they were able to adapt well to remote work.
  • The impact the pandemic had on their investor community.
  • The kinds of investors that continued to attract.
  • How demand for loans has fluctuated this year.
  • How capital has been flowing back into the space.
  • Where pricing is today versus pre-COVID.
  • How Allen is managing the staffing levels at Sharestates.
  • The state of the real estate market outside of residential mortgages.
  • How they are working with their delinquent borrowers.
  • The levels of losses that Allen is expecting on their portfolio.
  • The impact the pandemic will have on the fix and flip niche.
  • Their goals and new initiatives for the next year.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech Digital, the new online community for financial services innovators.

Download a PDF of the transcription of Podcast 267 – Allen Shayanfekr.

Click to Read Podcast Transcription (Full Text Version) Below

PODCAST TRANSCRIPTION SESSION NO. 267-ALLEN SHAYANFEKR

Welcome to the Lend Academy Podcast, Episode No. 267. This is your host, Peter Renton, Founder of Lend Academy and Co-Founder of LendIt Fintech.

(music)

Today’s episode is sponsored by LendIt Fintech Digital, the new online community for financial services innovators. Today’s challenges are extraordinary with the upheaval affecting all areas of finance. More than ever before, we need to come together as an industry to learn from each other and make sense of this new world. Join LendIt Fintech Digital to connect and learn all year long from your peers and from the fintech experts. Sign up today at digital.lendit.com

Peter Renton: Today on the show, I am delighted to welcome back Allen Shayanfekr, he is the CEO and Co-Founder of Sharestates. Now, Sharestates is a real estate platform, they’ve been around for a few years. I last interviewed Allen back in 2016 and I wanted to get him back on because obviously a lot has changed since then and I wanted to sort of see how Sharestates has handled the changes this year.

They’ve done a pretty good job, I think, in really navigating the storm, we talk about that in some depth, we talk about how they adjusted their staffing, how they adjusted their marketing and how the investors have performed and which types of investors have really stayed the course. We talk about their loan portfolio and what’s happening there, the impact on their borrowers, we talk about sourcing deals and what he is excited for about what’s coming down the track. So, it was a fascinating interview, I hope you enjoy the show.

Peter: Welcome back to the podcast, Allen!

Allen Shayanfekr: Thank you, Peter, thanks for having me.

Peter: Of course. So, it’s been four years since we last chatted on the show and I know a lot has happened, but maybe before we get started, for those listeners who don’t know Sharestates, why don’t you just share how you describe the company today.

Allen: Sure. So, Sharestates is a business purpose mortgage loan marketplace platform so we, essentially, have created a marketplace for borrowers and real estate speculators. They fill online, submit loan applications, handle their loan application and loan sourcing needs digitally. Once that loan is actually underwritten and closed by our system, we then make that loan available via our investor marketplace to both whole loans institutional investors as well as individual retail investors and smaller institutions for syndicated investments.

Peter: Right, okay. And what geographic footprint are you working in today?

Allen: We have lent in a total of about 34 or 35 states with a heavier concentration in the northeast, New York, New Jersey and the metro markets.

Peter: Right, right, okay. So then, maybe you can just take us through the developments in the company. I want to sort of get to this in two segments….so we chatted four years ago, obviously I’ll link to that in the show notes, take us through sort of the developments of Sharestates through the beginning of this year.

Allen: Sure. So, when we first launched this business, we came up with a slightly different angle than everybody else, you know, we were not finance guys, we were not technology guys, we came from a real estate background and more specifically, a title insurance background. So, going back to 2015 when we first launched, we had a pretty robust database, speculators and developers that we used essentially as a springboard to launch the business, which enabled us to do a couple of things really quickly and enabled us to get to profitability relatively quickly and which kept us from having to go down the VC route of raising capitals to grow the business, allowed us to control and run the business the way we want to which was fantastic over the last five years.

We were able to scale that business to about $2.5 Billion in origination volume through the beginning of 2020. Pre-COVID, we had gone up to just about $100 Million a month in origination volume, we had grown the team north of a hundred people, we built a ton of technology that pretty much supports our entire business from A to Z which has helped us to scale the business without having to have three or four times the staff and we’ve been able to do that all profitably just constantly reinvesting, growing the brand and growing the technology and our network.

Peter: Okay, great. So then, obviously things changed early this year. I was listening to an interview you did recently where you shared that you actually had kind of business continuity plans and you actually have drafted up some of the documentation which you said at that time you thought was not going to be useful at all and ended up pretty useful in hindsight so tell us a little bit about that.

Allen: Yeah. It was definitely an interesting transition going from a very office-oriented workspace to pretty much having everybody through today even continuing to work at home. So, part of this technology that we built was….we, essentially, have two different departments that handle all of our technology and IT.

So, we’ve got one group of developers that’s comprised of about 29 or 30 developers that are actually building our Sharestates software so that’s everything that you see from our online portals, the vendor portals for title companies, appraisers, brokers, investors, etc. all the way through our borrower portals and all of our backend systems and that’s all basically cloud-based which enables us to really be able to work from anywhere.

And we have a separate external group that handles pretty much all of our computer, IT and office needs so making sure that all of our laptops and hardware are secure, that we’re using VPN access and dual factor authentication to log-in to our tools and things like that just……….you know, not just making security a very big focal point of this all work from home concept. But, the beauty of all these is that everything that we have implemented over the last five years enabled us to transition to a work from home environment relatively quickly and easily.

So, at this point, you know, we have, give or take, 100 people working remotely able to interact with each other and slowly do their day-to-day jobs just through our online proprietary systems. Everybody’s tied into each other, there’s work flows, there’s communication happening through the system, notifications and pretty much everything anybody needs to help move those files along from applications close and then through post-closing and servicing pretty efficiently.

Peter: Okay. So then, let’s just take us through the developments from earlier this year. You know, the pandemic hit and you know, sort of every one closed their office, but you’re in the real estate space, there’s sort of a drying up of capital and I imagine you guys were pretty impacted by that. So, tell us a little bit about how you were impacted and how you handled sort of that initial shock.

Allen: Yeah. So, I think it’s important to differentiate the different types of lenders that exist out there and kind of the pros and cons of each. You have people that are kind of playing in the same sand box of our product types so loans access anywhere from $100,000 up to, you know ballpark $7.5 Million covering residential, multi-family and mixed use asset classes and we’re all kind of set up a little bit differently.

So, you’ve got some groups that are purely captive financing so they’ve got funds, they’ve got direct capital that they control, that they lend out so they are, essentially, the originator and the investor in one. Those businesses are great because they really do have full control over their capital stack. The limitations with that type of a structure tend to be that you don’t have the same level of scalability, meaning you don’t have as much capital available to you as you do under a structure like ours, we’re dealing with dozens of investors so we’re never really limited by how much cash we’re managing.

Then you’ve got companies that are more like mortgage banker-type setups or, you know, originate to sell type structures like Sharestates which, again, also has pros and cons so the pro being that we’ve got dozens institutional investors, we’ve got our syndication platform with hundreds, really at this point thousands of active investors, and that creates diversification of capital sources. You know, we can do hundreds of millions if not billions of dollars on an annualized basis without having to go out and actually raise more capital. It’s much easier to onboard in an existing investor and grow your investor base than have to go out and set up a whole new structure than to actually raise capital.

And then within that, you kind of have a subset of originators that are really kind of just selling to one or two counter parties, maybe three counter parties. They might have a right of first refusal or some strategic investment by the counter party that they’re selling loans to which, again, kind of takes you back to limiting capital sources and in some cases could limit your flexibility or what we saw earlier this year, have an originator that’s really beholden to a single investor and that investor decides to post pause or shut down their business is shutting down with them for however long that may be.

We kind of sit somewhere in the middle so we don’t have direct capital that we control for the purpose of balance sheeting loans long term. We do have a balance sheet that’s in the tens of millions, we do have warehouse loans that collect north of a $100 Million in actual balance sheet capital. And then we also have a very robust list of investors that we sell those loans on a forward flow basis. What that allows us to do is kind of get the scalability piece while still having control and capital that we have discretion with and then at the same time, you know, for example in COVID where many of those investors had to temporarily press pause and focus on asset management, because we have diversified those capital sources, we did not go completely dry.

We, definitely felt it, we saw different types of investors react in different ways. The thesis that we have kind of grown our business on was if you diversify capital sources, you should be able to survive a downturn because the likelihood of everybody turning off at the same time, you know, is more remote than if you’re beholden to one or two investors. That’s basically what happened. You know, probably about a 60 to 70% decrease in all raw capital availability from our institutional partner, but the syndication side of the platform and the smaller unleveraged institutions continued to actually invest through the COVID pandemic supporting existing loans, funding draws and even funding transactions.

Peter: Yeah, that’s interesting to me. Obviously, you’ve got individuals that are making their own decisions and that have been with you for a while, in many cases…..what you’re saying is those people really stayed with you and skeptical and just re-investing its returns, I would say, quickly so was that group much more sticky than the institutional group?

Allen: Yeah. So, what I would say is the smaller institutions, the fractional investors and the high net worth credit investors were actually stickier than the larger institutions.

Peter: Right.

Allen: I learned through this experience that it’s not a relationship that’s controlling that, it’s the capital structure and capital sources that’s controlling that. So, what I mean by that is everybody thinks that you get into that with larger institutions and that means scalability. That’s true with us, but it’s not sticky capital and it doesn’t matter what that relationship looks like, you can be best friends with the portfolio manager that’s in-charge of the day-to-day and you know, what loans they’re buying, what they’re investing in, but at the end of the day, the overall fund or institutional organization has other levers and limitations that they need to be concerned with.

So, these larger institutions, by and large, have leverage, they go to Goldman Sachs or Morgan Stanley or Credit Suisse, other leverage providers. They have warehouse lines, they’re levered up five to one, six to one, four to one, whatever their leverage is, and their ability to invest is directly tied to their cash availability from their warehouse leverage when they could be reliant on securitization as an exit.

When those things kind of floats up in March/April where you had warehouse lenders doing margin calls, you know, you could have repo facilities where they’re technically non-committed lines and they just freeze the lines so you can’t draw on it anymore or, you know, the securitization market blew up then ……those institutional investors are, basically stuck, they can’t do anything, it’s not their fault, it’s just the nature of their capital structure. Whereas the smaller, un-levered institutions that are investing what I call pure equity or, you know, individual investors that might be investing $5,000/10,000/15,000/20,000 a deal, that’s their capital, they have discretion, they’re not relying on leverage and they could continue to invest.

Peter: Right, right. So, what about the other side of the marketplace for borrowers who, you know… Did demand kind of continue throughout, I mean, how did the demand for deals kind of change over the course of the pandemic?

Allen: Yeah. So, again, break that into two buckets so you’ve got like your (garbled) which is a guy who’s got a day job and might do one or two fix & flip projects or one real estate a year  even that often and then, separately, you have your seasoned speculators/developers that are doing half a dozen/a dozen projects a year. We saw the less experienced hobby developers slow down for fear, we saw the more seasoned speculators/developers actually dive in deeper because they see this as an opportunity. If they see people that might be out of a job that might be looking to sell their home, you know, stress situations that are an opportunity for them to make money.

Second to that, the overall pie size of the lender community shrunk overnight drastically, I mean, I don’t have any way to quantify that, but, you know, this is just a random number, but I would say probably 90% of lenders just kind of shut down overnight, not permanently, but temporarily, to see what the market was going to do as a result of, you know, that institutional capital issue. That, for us, made the pie smaller, but we were one of the few lenders that was still active.

So, our borrower demand was just exploding, far beyond what we could even facilitate. So, there was a ton of borrower demand, much less supply and demand, right, kind of borrower demand, less investor demand which also make the loan programs a little wacky, sort of the investors that were still active in the space wanted super low leverage, secure product, at 50 LTV and higher coupons which also just made it a little difficult to do business so if some loans were happening, some deals were happening, but the volume of those transactions dropped significantly.

Peter: Right, okay, that makes sense. So then, where do we stand today, do you feel like this is kind of worked through, are you getting back close to your $100 Million a month run rate or are you still a long way away? We’re recording this in the middle of September, how has demand been this month?

Allen: So, things happened slowly coming back, everybody kind of cuts the world into pre-COVID/post-COVID, we’re not post-COVID yet and we’re still here. I think what’s subsided is the panic and the fear over what the market’s going to do which is typically what causes these downward spirals. That fear has subsided. I think people have come to terms with what’s happening in the world, people’s lives have changed, they’ve adjusted how they do business. We’re in a post-COVID era, but still very much a part of our lives.

That being said, because the panic has subsided, capital has been flowing back into the space very quickly, the securitization markets are back, warehouse lenders are back so we’re starting to see that demand really ramp-up and ramp-up pretty quickly. From a credit perspective, because all that capital is flowing back into the space and because we actually have a shortage of product, meaning loans, and the space as a result of everybody temporarily pushing pause over the last four/five/six months, it’s actually pretty much had a direct opposite effect. It’s from where it was pre-COVID even though we’re still in COVID.

So, what I mean by that is LTVs are pretty much back where they were, you know, borrower experience requirements, FICO requirements, pretty much anything related to credit underwriting is back to where it was pre-COVID, as far as we are concerned. There are some lenders out there that were higher on loans to cost and things like that that may not be fully back to where they were, but we were ballpark, you know, five to ten points lower than competition anyway. So, as far as our business is concerned, we’re pretty much back to where we were, from a credit perspective.

From a pricing perspective, I’d say that loans are still pricing probably 50 to 150 basis points higher than we were pre-COVID, but I think very quickly compressed back down to where we were pre-COVID by like January/February. And then from a volume perspective, we just started taking applications, formally taking applications in July so what we did in April, May and June was focused very much on asset management focusing on funding draws and supporting borrowers that we were already in bed with so that loan activity that we did do was really for existing borrowers that we continue to support.

Going into July, we opened that back to taking applications, not just from existing borrowers, but from new borrowers and of course, there’s roughly a 30-day ramp so that led us into August where we closed about $10 Million in volume, September, we’re looking at probably doing about $20 to 25 Million in volume.  My goal by the end of the year is to be back up to somewhere $60 to 70 Million in volume. I think somewhere towards the end of Q1 or early Q2, we’ll be back up to $100 Million in volume, but we have to kind of tippy-toe back into that because, you know, as I mentioned, we’re still in COVID era and we don’t know what’s going to happen and we’re also in an election cycle so there’s a lot of unknowns.

Peter: Right, right. There is a lot of unknowns and we don’t know about stimulus and all that sort of thing. So, I’m curious about, you know, what you did internally staffing-wise because obviously you went down pretty dramatically in originations and maybe just tell us how you managed the staff and like what sort of furloughing you did. I was listening to this interview where that said you really…..you shifted a whole bunch of people and you said you didn’t have to lay off that many so tell us about that.

Allen: Yeah. So, we had pre-COVID 135 people on staff. We ended up letting go approximately 25 people, it’s not an easy decision at all and it’s something that we really tried to hold off on doing for several months.  We didn’t do it as quickly as some other companies did, meaning generally not lending companies, but eventually we had to make that difficult decision. So, as far as the rest of the staff, what we tried to do is we tried to save as many jobs as possible and just transitioned them to different departments.

So, we’re going into a cycle where asset management, loan servicing, you know, foreclosure workouts, potentially forbearances, etc. have become part of our day-to-day so we took people from our processing and underwriting departments, we took people from our sales departments, we moved them into more customer service oriented roles making sure that they could properly communicate to our investors, to our borrowers, answer incoming calls, things like that which worked great. Now, we’re basically unwinding that and moving people back to their departments that they were initially in as we start to recover our business back.

Peter: Okay, okay, that’s good, that’s essentially good. So then, interesting about the performance of your loans because, you know, real estate has been interesting because real estate has been booming, in general, there hasn’t been much of a downturn, obviously rates have been down particularly in the home mortgage market and prices have either maintained or gone up so I’m really curious about the impact on your loan portfolio. Did you find that there was a significant impact, a small impact or no impact?

Allen: It was definitely a significant impact, it was more short lived in nature, but there was definitely a significant impact. There’s a lot of misinformation out there over how things are performing. So, the residential market is strong, yes.

Peter: Right.

Allen: What many people don’t realize though is that it’s not just about selling assets, many of these developers have real estate portfolios with renters that they’re collecting rent and that cash flow is what’s supporting their debt service on what I call their offline assets or their main construction assets and their cash flow has been impacted. So, if you look this is more of a local issue rather than a national issue because every state, county is handling it slightly differently, but kind of two things really….one thing really caused a problem and that was a ban or a moratorium on evictions.

You’ll see many articles that say that rental collections have been fantastic, more than 90% and misinformation….the misconception is that that’s really specific so like Class A higher end product. Class B and Class C which is more affordable living or single family home that’s renting for a couple of thousand dollars a month, $1,500 a month, that’s been impacted very heavily. The collection rate there……I mean, I’ve read kind of conflicting things, but I’ve seen anywhere from 50 to 70% collections, I mean, landlords are down 30 to 50%. If they have any commercial units, obviously the commercial market was impacted very hard.

I have several friends who are commercial landlords that have office space and retail space that’s taken a massive hit which is all cyclical, it’s all tied together. So, the short answer is that those rental collections dropping made it difficult for many borrowers to meet their deadlines so we did see a spike in delinquencies between April, May, June and even into July.

We’ve seen that subsiding since July so borrowers have been able to catch up with payments, other borrowers have been successful in executing some forbearances with which took a few a few months or two months of back payments added it to the payoff while reinstating the loan for go forward payments and workouts, situations like that. Thankfully, we haven’t taken a loss on anything and a result of that, we’ve been able to work through that and the performance has come back, thankfully, in a great way and my expectation is that by the end of October, we’ll be back to where we were pre-COVID in terms of collection so we should have…….

Peter: Really?

Allen: …..north of 95% collection rate. Yeah.

Peter: Okay, okay. I imagine there will be some that….you know, I’m just thinking about, the one great thing about what you do is you have an asset and you’ve got LTVs that are reasonable so are you finding that you’re having to foreclose on some of the borrowers that you’ve had?

Allen: Definitely. So, some borrowers work with you, some borrowers think you’re their enemy, less inclined to work with you so we will definitely have a subset of borrowers, probably less than 3% of the delinquencies that we’re seeing that will actually end up in foreclosure and stay in foreclosure. There are some borrowers that will start the foreclosure process with, just keep in mind again, locally there are moratoriums on foreclosures in many jurisdictions so we’re forced to work out and play nice with which we want to do anyway, but at the same time we have to protect our investors.

So, where we can, we’re starting those foreclosure actions to apply pressure to the borrowers that are less inclined to work with us. The expectation is that many of those, as we have seen historically, will come out of foreclosure and roll back to a performing status or some sort of a resolution that’s selling the property, doing it even before the foreclosure, whatever shake or form that may take and we’re expecting anywhere from a 2 to 3% of the delinquencies to actually really formally stay in foreclosure and go for foreclosure which have varied collection time frames, depending on what state you’re in, geographical location areas, etc.

Peter: But, would your expectation be then for no principal loss in those foreclosure proceedings?

Allen: Generally, when we stress test our portfolio that’s the expectation, it doesn’t always work out that way. So, we’ve been in business for five and a half years now, we’ve, of course, had losses. I think on a portfolio measure we’ve had about 50 basis points loss factor while delivering north of 10.5% average return so net effective 10% return on the portfolio. You’re going to have losses, it’s an inevitable part of our business, but you also have to look out what’s driving those losses sometimes.

So, we’ve had scenarios, for example, where we build leads that we would be fully made whole on the underlying transactions, but we’re looking at a 2, 2.5, 3 or 4 foreclosure timeline. There are investors on the other side who says, I’d rather take 90 cents on the dollar today than have to wait two or three years and carry this loan as a default on our book, you know, that balancing act. We’re sometimes forced into situations where we do have to take a worst deal, but that’s our job as servicer in that instance to listen to our investors. So, some like 50 basis point loss, for example, actually a lot of it can be attributed to kind of those investor forced sale scenarios.

Peter: Right, right, okay, that makes sense. So then, when you’re sourcing new deals today, are you……you said you’re back working with new borrowers, I mean, is the way you’re trying to source deals….has that changed since from what you were doing pre-COVID?

Allen: No, not really. We’ve never really done a whole lot of online marketing and advertising, most of our origination volume was coming the old-fashioned way (garbled) stuff which obviously you can’t do right now.

Peter: I’m aware. (laughs)

Allen: Yeah. So, we are…I think it’s a lot of phase where there is more limited capital than there is for our demand because still a lot of lenders still haven’t come back to the space so we’re actually seeing borrowers naturally find us or same brokers come to us with deals as well. So, we probably have more deals than we know at this point so we’re not really doing a lot of outbound marketing for borrowers.

Peter: Right, right, okay, that makes sense. So then, I’m curious about your take on this little niche of the industry that we’re in where you’ve got a marketplace, you’re doing the commercial fix & flip type loans, what do you think the impact of the pandemic is going to have on this sort of niche in the industry?

Allen: Long term, not much. I think in the short term, it’s what we’ve been describing. There’s going to be shortage of capital for a period of time, they’re going to see wider pricing as a result of that, but my expectation is that assuming we don’t end up in another massive shutdown of the economy that we’ll eventually rollback to where we were pre-COVID, I don’t think that change is going to take more than six months, eight months.

Peter: Right, right, okay. So, we’re almost out of time so last question then. You know, as you look to 2021, I’m sure most of us are looking forward to a new year, to have 2020 behind us, what are you excited about, what are your goals for the business towards the next year.

Allen: Yeah. So, we have a couple of exciting initiatives. So, aside from continuing to grow our core business, we have plans to launch an NPL, non-performing loan marketplace, recognizing that, you know, that there will be defaults that will happen as a result of the COVID pandemic, there will be a need for certain lenders and aggregators to have to offer those. So, we’re actually targeting, I think, November or December for the launch of our NPL marketplace, it’s really built as a full end-to-end automated service for buyers and sellers to interact through an organized platform, streamline the process for selling the non-performing loan and hopefully get better execution for the seller and then separately from that, we’re also starting a business purpose loan servicing platform.

One of the things that we’ve learned in being in this business and really in the investor non-QM business for the 30-year mortgage product is that many of the loan servicers that are out there are servicing consumer mortgage purpose loans as well so they’re kind of shackled and limited in how they service business purpose loans because their policies and procedures are set up in light of CFPB regulations, consumer regulations, etc. and that does not make for a great servicing platform per se for business purpose loans. So, we have that as an offshoot as well which we’re excited about launching. Those are two kind of new sister platforms to Sharestates that hopefully will make a big splash.

Peter: Very interesting. Well, good luck with that, Allen, it’s been great to chat with you again and best of luck as we all navigate the pandemic.

Allen: Thank you so much, appreciate it, Peter.

Peter: Okay, my pleasure. See you.

You know, it’s not surprising to me that companies like Sharestates really were impacted by the pandemic, I mean, everyone has been across the lending space, in one way or another. But, you know, with real estate that I think is different when you’re investing in consumer loans or investing in small business loans is certainly…..I find this personally is that it’s definitely more of a sense of security investing as an individual because you know you have that asset that’s really backing the loan that can be foreclosed on.

And as I said, that really is a huge protection that’s why I continue to like the real estate asset class, in particular, this fix & flip asset class because I think you’re getting, Allen said you are getting 10% net returns there which is hard to get anywhere these days. Certainly, I don’t expect that that would maybe maintain that level all the way through here, but given the fact that they can foreclose these properties it may be a multi-year process, but your principal is obviously more protected than it would be in other kinds of investing.

Anyway on that note, I will sign off. I very much appreciate your listening and I’ll catch you next time. Bye.

Today’s episode was sponsored by LendIt Fintech Digital, the new online community for financial services innovators. Today’s challenges are extraordinary with upheaval affecting all areas of finance. More than ever before, we need to come together as an industry to learn from each other and make sense of this new world. Join LendIt Fintech Digital to connect and learn all year long from your peers and from the fintech experts. Sign up today at digital.lendit.com.

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Podcast 255: Vishal Garg of Better

The CEO and founder of Better.com discusses the state of the mortgage market, why Better has thrived during the crisis, what will it take for 100% digital closings, his thoughts on the IPO market and more

July 10, 2020 By Peter Renton Leave a Comment

Views: 1,220

The mortgage industry has been through a lot this year. From a liquidity crunch to booming demand to record low rates along with mandatory work from home orders and digital closings. Many mortgage lenders have struggled to adapt to this new normal amid record loan demand.

Our next guest on the Lend Academy Podcast is Vishal Garg, the CEO and founder of Better.com (we last had Vishal on the show back in 2018). Better has met these challenges head on and has flourished as you will discover in this episode.

We recorded this podcast on Zoom so you can watch this interview on YouTube or view it below.

In this podcast you will learn:

  • The crazy ups and downs in the mortgage market over the past few months.
  • How Better has been able to navigate the crisis and keep lending when others couldn’t.
  • The astounding number of people Better has hired in the last three months.
  • The increase in customer demand they have seen and the level of originations they are doing.
  • How dominant the 30-year fixed rate mortgage is at Better.
  • An explanation of their unique business model and how they make money.
  • Why consumers get a lower rate at Better than even many of the largest banks.
  • How they have adjusted their underwriting given the changes in the market.
  • Better’s philosophy for user experience in trying to add value throughout the application process.
  • How their investors have adjusted their credit box.
  • How Vishal thinks about their B2B platform and third party partnerships as growth areas.
  • What he learned as CEO of a lending platform in the last financial crisis.
  • Where we are on the path to a digital closing of a real estate transaction.
  • Vishal’s thoughts on the IPO market and what going public would mean.
  • What is most exciting for Vishal over the next 12 months.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech USA 2020. The world’s largest fintech event dedicated to lending and digital banking is going virtual in 2020.

Download a PDF of the transcription of Podcast 255 – Vishal Garg.

Click to Read Podcast Transcription (Full Text Version) Below

PODCAST TRANSCRIPTION SESSION NO. 255-VISHAL GARG

Welcome to the Lend Academy Podcast, Episode No. 255. This is your host, Peter Renton, Founder of Lend Academy and Co-Founder of LendIt Fintech.

(music)

Today’s episode is sponsored by Lendit Fintech USA, the world’s largest fintech event dedicated to lending and digital banking is going virtual. It’s happening online September 29th through October 1st. This year, with everything that’s been going on, there’ll be so much to talk about. It will likely be our most important show ever. So, join the fintech community online this year where you will meet the people who matter, learn from the experts and get business done. LendIt Fintech, lending and banking connected. Sign up today at lendit.com/usa

Peter Renton: Today on the show, I am delighted to welcome back Vishal Garg, he is the CEO and Founder of Better.com. Now, we last had Vishal on the show about two and a half years ago and, obviously, a lot has changed since then at Better, a lot has changed really in the last three or four months. I wanted to get him back on the show….they’ve been in the press quite a bit talking about how they’ve been hiring like crazy, things that have been growing like gangbusters and we talk about that, we talk about the reasons behind that and the broader mortgage market, in general.

We talk about how their underwriting has changed based on the current environment, we talk about the technology they’re using to be able to do underwriting and loans applications so quickly, we talk about lessons he’d learned from the previous financial crisis, what he’s excited about in the future and what his thoughts are on a future IPO. It was a fascinating interview,  hope you enjoy the show.

Welcome back to the podcast, Vishal!

Vishal Garg: Hey, Peter, how are you? Thank you for having me back.

Peter: Okay, you’re welcome. So, first question I want to ask is where are you today? You’re outside, it looks like. I know you’re based in New York so let us know where you are.

Vishal: Well, Peter, I didn’t know that this was going to be a video podcast and so I was going to do an audio podcast. I have been using COVID as an excuse to start to get out more and travel and walk around the city so my wife and I have a regularly scheduled walk and so I said, oh, you know, I’m going to have this breakaway and do this podcast so, now that it’s on video.

So, we are actually….I’m in the Meatpacking District, as you can see, it’s totally empty, there’s a restaurant that’s opened up so I’m frequenting it. It’s a Mediterranean restaurant and they were kind enough to offer me a table and a place to video, so here we are. COVID is the era of improvisation.

Peter: It is indeed, it is indeed. Speaking of which, let’s just ….why don’t we get started by ……obviously, you guys have been impacted dramatically, as has everybody. Obviously, the impact on Better seems to have been mainly positive, but before we even get into that, let’s just take a step back and look at the mortgage market over the last three months. I mean, just tell us what the state of the mortgage market is and what’s changed.

Vishal: The mortgage market is gone from near death to bursting with activity over the course of the past three to four months since COVID struck. So, in the beginning, COVID struck and the Administration unveiled the capacity for consumers to get a forbearance for up to 12 months and, you know, laid that out in law which I think was just awesome. But, what that meant is that mortgage servicers and mortgage investors were inundated with calls for forbearances because the level of unemployment and the ferociousness with which it hit was just completely unanticipated and in mortgageland, servicers are expected to advance principal and interest and taxes and other things to the investors while consumers might be on forbearance.

So, suddenly, you saw major firms like Quicken, United Wholesale Mortgage, loanDepot suddenly stop originating because they did not have liquidity available to be able to service the consumers who wanted to have a forbearance in place. People who were buying mortgages didn’t want to buy mortgages that were being originated by the market because they were unsure what percentage of people will apply for forbearance. People were thinking it might be 20/25% so, to be out principal and interest on a loan in which, you know, for a year on 25% of your production, that is just billions and billions and billions of dollars and these are not companies that have been well capitalized to do that. And so, fundamentally, it just put a grinding halt to it.

At the same time, interest rates started coming down and COVID started to have a real impact in people not being able to go to the office and so, many, many, many large chunks of the mortgage market was just taken out of commission. At the same time, consumers’ capacity and willingness to refinance their mortgages…they’re sitting at home themselves like working from home, they all want to refinance their mortgages and bring their monthly cost down.

So, it’s just created this triple whammy where liquidity dried up, the consumers’ need for mortgage was greater than ever before and the traditional industry players sitting in their bank branches or the mortgage broker branches all around the country were unable to go to the office and log on to their mainframe system. And so, it’s been absolutely the perfect storm and, you know, the mortgage market is only now really recovering from that.

Peter: Right, right. And so, for your company, specifically…..I mean, I’ve read articles saying that you’ve been hiring like crazy, why don’t you just take us through the specific impact on you guys.

Vishal: What was interesting was, you know, so much of what we do was validated in the past three months. People have been saying, well, I heard everyone else is a digital mortgage company too, everyone else is, you know, doing this other stuff with home finance, people have platforms and, you know, we have been saying, that’s lipstick on a very, very old pig (Peter laughs), but it’s very hard to prove it until things like these happen.

So, one, COVID happened, the forbearance rate on our mortgages that our consumers have taken, we’d always thought, oh, if we give people a better mortgage they’ll be able to better afford it. And, yes, they were able to better afford it and so the forbearance rate on our mortgages was 1/8 that of the traditional conforming loan forbearance rate.

Peter: Wow!

Vishal: And so, it was less than 1% compared to 8% for the average Fannie Mae direct originator. So, that gave us market access to liquidity when almost no one else had it so literally, it was like the top three mortgage originators in the country had access to liquidity and us and that allowed us to stay, keep the lights on and continue to satisfy customer demand.

Two, we actually have a really amazing workforce now, you know, it was 1,500 people before COVID started, it’s 2,700 people now and because this platform is entirely built from scratch, the first new loan origination system for the mortgage industry, the 15 Trillion industry built from scratch in the past 25 years, everything is capable of being done in a browser window or your mobile, including all the work that our own team does. So, we were able to adapt to work from home really quickly and we were able to keep everything going.

And then, the third thing is through this, we’ve learned that we can actually onboard and teach people how to become experts in mortgage really fast on our machine, something that’s not possible actually on your traditional mortgage software system where you have to learn seven different systems, all the hot keys, literally a servicing system that charges per key stroke so people learn all sorts of control, F9 like type a key stroke just to learn how to like use it. We’ve been able to do that so we’ve been able to rise to the occasion and meet our customers’ demand which has been really gratifying and fulfilling for our team as they’re all working from home, other than the people who are most necessary like on the closing team to be able to close home mortgages.

Peter: Right, right. So, how much of an increase in demand have you seen?

Vishal: Since COVID started, we have seen a 3x increase in demand. Since last year, we’ve seen an 8x increase in demand and growth. I think the last time I spoke to you was about two years ago, we are 15 times bigger than we were two years ago. You know, I get the question a lot, how do you know it’s a tech company? Well, you know, it’s a tech company when you can scale 15x in two years.

Peter: Right.

 

Vishal: We’re not even a tech company, we’re a growth company, that’s really what we are and we can satisfy our customers’ demand, but customer demand has been through the roof and we are just working very, very hard. Our teams are working 24/7 to be able to satisfy that customer demand.

Peter: I’m curious about….you know, you’re getting a lot of inbounds, what about conversions? Are you finding that people are just out there just shopping around, are you finding conversions maintaining what they were before?

Vishal: Interestingly, we are at 40% organic traffic now, 40% from zero two years ago. So, part of that is people are just getting to know us better, but more and more people…I think 18% of users type in Better.com and they’re starting to search on Better when they are looking for a refinance rather than search on other platforms that have traditionally been places where they’ve searched because they know that we have the better price guarantee, we can deliver.

Maybe they’d consider the refinance six months ago, nine months ago, hadn’t gone through with it, now rates are really, really tempting and then conversion has held still. This month, we’re going to fund about $1.8 Billion of mortgages. We are at north of a $20 Billion a year origination rate and the percentage of people going and visiting the site and actually following through into applications and locking continues to grow.

Peter: Okay, okay, interesting. What type of loans are consumers trying to lock in today? Are they locking in, you know, like a 30-year fixed, 15-year fixed, are they doing like 7-year arms, I mean, what are they doing?

Vishal: For all the product differentiation that the rest of the industry talks about and the need to have all these different complicated products, we have like the world’s largest product catalogue of US mortgage products across our 32 investors, but 90% of people go for a 30-year fixed rate mortgage because, fundamentally, consumers are seeking the benefit of longer amortization which lowers their monthly payment which allows them to live….you know, save money and live a better life with all of the other money that they can use.

Fundamentally, the usability of the asset is a long-dated asset, it’s not a car that’s going to go away in five years, seven years, ten years. It’s going away….the house is going to be there for 30 years or longer so it makes sense to borrow money to match. We’ve seen people….on the other side, we’ve seen a demand for cash out refinancing so people are consolidating all their other loans, their car loans, their personal installment loans, their credit card loans and leveraging the value of their homes to be able to do that.

So, we’re seeing demand for that and most surprisingly, we are continuing to see month-on-month growth so we had a pause in March/April for COVID, like the depth of COVID and now, we’re starting to see massive uptake in demand to buy a home, first time home buyers, 40% higher for first time home buyers coming on to the platform. The average age of someone getting a pre-approval on Better has gone from 40 years old to 36 years old in the space of three months and all of that is just indicative that COVID has surfaced this long hidden desire. We thought, you know, the millennial generation, the Airbnb generation, they want experiences not assets. Well, fundamentally, you know, I think now they’re staying at home, they’ve gone to the suburbs, they’re living with family and the hidden expression of desire, the object of desire to own your own home is manifesting itself in a way that we thought was going to take a lot longer.

Peter: Right, right, okay. So, before we go any further, I do want to get you to describe your business model because it’s somewhat unique and the fact that you don’t charge fees, no commissions. Why don’t you just describe how Better makes money.

Vishal: Sure. So, our business model is actually very similar to the business model of companies like Amazon or Kayak or Alibaba is that we are actually a multi-sided marketplace. So, consumers log on to the website, they don’t get charged any commissions or any fees, we don’t have any commissioned employees, you know. So, you get on to the site, you can find your rate in three seconds, you can get approved in three minutes, you can lock your rate and know what your cost of housing is going to be for the next 30 years in 15 minutes and then you can fulfill the rest of the process entirely online.

If you want to talk to someone, there’s someone sitting and waiting to be able to talk to all the time, you have a dedicated loan expert. But, separately, you can also just go through the process entirely by yourself and you’re able to do that with certainty, with speed and backed by the Better price guarantee which means that we will match anyone else’s price out there in the market and then beat it and give you something extra. That provides consumer certainty that they’re not going….they can rest easy on price and focus on process and savings and know that they’re going to be able to close on their new home.

So, we think what we’ve done is taking the most stressful element of the home ownership experience which is how to pay for it and how to like translate a $300,000 house, which very few of us have $300,000 walking around, right, that’s a lot more commas and zeroes than most of us are used to, and turn that into what we can actually digest which is $1,520 a month and that’s our unique, unique value proposition. We turn $300,000 or $400,000 or $700,000 into an affordable monthly payment. That’s what I think consumers can understand.

And because of the way we do it, by getting rid of the commissions, by automating the process, by taking things like homeowners’ insurance and title insurance and putting it all in one seamless, fast, easy flow guaranteed by the Better price guarantee, what we’re able to do is help them basically afford a better house, in a better school district with a shorter commute to work and, therefore, live a better life. I think that’s the consumers’ value proposition on the front end.

On the back end, the way we do it is we built a matching engine that takes consumer attributes, property attributes and matches it with investor criteria. We have 32 investors on our platform that make up about 80% of the value of all mortgages originated in the country. What we’ve done is eight of the ten largest banks are there, many of the largest insurance companies…these are end investors in mortgages and what they’re able to do is buy a cash flow stream with more detail and more data off the Better platform, they submit pricing and requirements to them.

We’ve built a rules engine that’s not like one lender, one warehouse line, one set of underwriting criteria. We take all of their criteria and we are able to match them effectively like a massive, awesome, recursive like VLOOKUP table, right, for all the Excel like, you know, aficionados here. And by doing that, we’re able to give a consumer the best price that they qualify for across the entire range of products that they could possibly qualify for, whether it’s non-QM or jumbo or prime or conforming or Fannie or whatever it is instantly. I think that’s what’s so powerful is that the back end….at the front end we’re basically Charles Schwab e-trade for mortgage and at the back end, we’re basically NASDAQ for mortgage.

Peter: Right. So, you’re making money on selling of these loans, right, that’s the revenue stream.

Vishal: Investors pay us a premium for the stream of cash flows that a Better mortgage produces and that premium is, effectively, not even paid for by the consumer because the consumer is getting a lower rate than they can get anywhere else. It’s being paid for by the commission sales people that we’ve cut out of the picture, it’s paid for by the automation that we’ve done to reduce the cost of like data verification and underwriting and then it’s paid for by the surplus spread that we’re earning the investor by getting the consumer a better house that they can better afford which then leaves the out performs.

Peter: Right, right. One thing I’ve always wondered about your model and I’d love to hear you explain it. You said you got eight of the top ten largest banks all of whom, I imagine, are also providing mortgages direct to their customers. Why do they buy your mortgage at a mark up what they are doing themselves. You know, they’re obviously competing with themselves in some fashion so explain that sort of dichotomy.

Vishal: Yeah, and it’s getting even weirder now because two years ago, we didn’t have a B2B platform. Now, we basically have like Amazon, AWS/third party seller marketplace where for Ally, for American Express, for Northwest and Mutual Pro, a whole bunch of very large consumer brands that are financial services companies, we are their mortgage partner.

So, literally, their customers are actually coming to us and getting a mortgage powered by Better, but, you know, like the way that mortgages work is most banks, whether you look at Wells Fargo, Chase, Citi, their branches don’t produce enough mortgages for their investment box. They actually need like …..Wells Fargo let’s say has a Trillion dollar mortgage book, about $150 Billion is paying off per year and the branches are only producing $60 Billion of mortgages so those 42,000 loan officers and mortgage brokers that Wells Fargo has aren’t producing enough mortgages so they’ve got to go find $60/80 Billion of mortgages.

What’s more, the average bank spends $15,000 to make a mortgage between the commissions, the people, the process, the paperwork, the fax machine, all that stuff, all the old systems and so if they have a choice of paying $15,000 to make a mortgage the old fashioned way, or they have a choice of paying $10,000 to Better to get a better mortgage with a better consumer who can afford a house better and live a better life, they are choosing to buy mortgages on Better.com.

So, we don’t compete with the banking system for their customers and, you know, it’s reverse in some cases like you go to some of our bigger partners like banks, you can get a cheaper mortgage as a Wells Fargo or a Citibank or Chase customer on Better.com funded by Chase, Citi, Wells then you can…at Chase, Citi, Wells.

Peter: Yeah, that’s kind of funny isn’t it? (laughing) Yeah, okay, I get it, I get it now. Now, I do want to talk a little bit about how the underwriting is changing because obviously we’ve got ….there’s a lot of unemployment happening, people that did have a job when they might have started to fill up a mortgage application no longer have a job, I mean, how are you managing that? Are you doing more when it comes to employment verification or other forms of underwriting.

Vishal: The employment verification that we have traditionally done, because it’s API-driven, has always been nearly real-time. So, when your mortgage broker is asking you to fax pay stubs, yes, those are dated, right, because you need to get the physical pay stub and fax it to them or take a picture and email it to them. We’re getting it directly off the API’s so for us to accommodate some of the changes that Fannie Mae has put in place which is to effectively get employment verification right before you close, for us that’s like an API call.

For others, it’s a really Herculean task which is why we’re able to continue to close whereas others have had to literally shut down because they’ve got to shut down the assembly line so like put the process in and then re-tool it and take it out there and then cost a lot of money. The other thing that has changed in small businesses…. Fannie Mae and the FHA have changed their guidelines around small businesses and now they’re asking people, consumers specifically, to provide a year-to-date financial statement so P&L and things like that so, that’s been a pretty huge change.

The mortgage industry software in the industry is not built to underwrite small business income and so like your traditional systems, for them that main frame system to actually go and be able to like effectively integrate Quickbooks into that system, that’s just like a Herculean task for them. It will take them a year, two years so, they’re basically saying, no, they are not underwriting small businesses or for getting a mortgage. Now, imagine you’re a small business owner, you have a nice business and, actually, you want to get cash out of your home to go and to continue to keep that business going or to re-start that business.

We are, fundamentally, not serving the American public by …..look how broken the mortgage industry is with that. And so, we’re able to continue to do that because we were able to integrate a P&L statement and a template for all of our consumers who are small business owners in a day. So, in a certain way……you know, one of the CEOs of a big mortgage bank said this to me, we are able to short the past.

The banks are long the past, the mortgage brokers are long the past and we are able to short the past and the banks and the mortgage brokers are short volatility and we are long volatility. So, volatility is good for us because if rules change, we can move and create and change our rules engine. To change them, they have to change 42,000 employees, underwriting guideline book, it’s just totally different.

Peter: Yeah, yeah, that makes sense. So, before I talked to you, I went back and I went through Better.com and I went into the refinance application and it really was quite impressive to me because I timed it and I spent just over two minutes to basically …..I kind of knew what I was doing, of course, and I had everything ready. It was just over two minutes to go through from start to finish through your process.  I did not lock in a rate though because I am actually not looking to refinance, but I wanted to see how it works. So, explain the…I’d love to hear a little on it, I know you touched on it, but talk about the tech that you’re able to put in so someone can go from start to finish, almost finish in two minutes.

Vishal: So, I think there’s a couple of principles that we’ve always thought about, right, and it’s always been a consumer first, consumer focus company. So, the first thing is, how do you get the consumer something of value every single time you ask them to do something. So, when I ask you to fill out a page on a form, what value am I returning back to you, right, and so you might have seen we are flow, we are returning value and providing information and guidance through the flow.

We’re asking you what you’re paying and I think we can still be 10x better about it, but like literally through that entire process we are engaged in transparency and communication with the consumer as to what is happening. That is how, over time, we can possibly displace the traditional mortgage loan broker. The traditional mortgage broker, for all their flaws, has empathy, understands the situation, you know, humans are very good at that, our software system takes that data. What the software system is able to do that any person is not is that immediately starts getting data so when you put in your address, we immediately know a lot about your property, it’s automatically through API going and figuring that out.

When you enter in what the value of your property is, it’s automatically checking whether actually that’s a reasonable value for your property or not and if it’s a flag, it’s not stopping you and saying, hey, you’re lying about the value of your home, it’s actually saying, well, let’s check this, it might be flag a little later in the process and we’re going to have a communication about it. So, we’ve had to not just build an API layer, which a lot of people have been doing or aggregating…so we started in like 2015/2016 aggregating the API’s, then we started figuring out what is data that is not required but helpful.

Then we started figuring out how to order the data around and what we do that, you know, is so that we reduce the number of branches of dependencies and branches of dependencies for a consumer or for a consumer type and stuff like that. And then from there, how do we get the customer in and out on a refi because refi….you know, the consumer already has a mortgage, they are looking for savings, how do we identify that savings amount for them as quickly as possible and give them certainty that they can qualify for it. So, like on refi we think about, you know, “add a click, kill a kitten”, and you know, you can see that it’s like streamline in and out, really helpful for a consumer to be able to see that.

I think there’s more we could do like in terms of surfacing other options, maybe you have other debts that you should be consolidating, maybe there are other things that you should be doing. But I think, you know, the technology behind it and all at the same time, it’s pinging, each unit of data that’s collected from you, it’s pinging the back end engine and fulfilling criteria for 32 investors and saying there’s a check box in that VLOOKUP table equals true for these investors and we’re matching you with a group of investors and then their bids, and then their bids, and then their bids.

Peter: So, are there any of the group….like how wide is that credit box today? Are you finding that’s there more that simply don’t match those 32 investors that maybe would have matched six months ago?

Vishal: So, the non-QM marketplace has shut down a lot and we’ve worked with some community banks and some CDFI’s to continue to provide funding for that product and we’ve actually entered into two financing agreements; one with one of the largest life insurance companies in the country, one with a major, you know, top five bank to be able to continue to finance those because they know that the process is much less error-prone and much less prone to fraud and moral hazard with better than it is in a traditional real-world context.

But, that’s really where we’ve seen shrinkage in the market is in non-QM, then also in the jumbo marketplace. So, we were never actively doing $5/10 Million loans for people, but generally, it’s become much harder to get a mortgage on anything that cost more than $3 Million.

Peter: Right, right, that makes sense. So then, I’m curious about the……you’ve talked about sort of this “powered by Better” product where you’re powering the mortgage origination systems for a lot of these banks, do you see….I mean, when you’re looking at the opportunity in front of you, do you see that as the bigger opportunity or is it just growing your traditional business that’s farming out to 32 investors?

Vishal: I think Better will take 5, 10, 15 years to become a household name and I think, fundamentally, our goal is to give consumers a better life and a better mortgage and a better homeowner insurance policy, life insurance policy, title policy, connecting with a better realtor, allow them to do all these things. The power of multiple brands will always be greater than the power of one singular brand and through the power of multiple brands, through our partnerships with Ally and American Express we’re able to reach consumers that are not necessarily going to go with the new fintech, right, we’re able to do all that.

To give you some context, 68% of the products that Amazon sells are from third party sellers and those tend to be the most stable and margin-lucrative products that are sold. What they get the benefit of is the customer base Amazon has compiled and also all of their fulfillment technology. So, we think, again, you know, we’re going to continue build products, but we think our B2B platform and our third party partnerships are going to be an enormous part of our growth going forward.

Peter: Right, right.

Vishal: I wouldn’t be surprised it it’s 70/80% of our business going forward.

Peter: Okay, we’re running out of time, but there’s several questions I really want to get to.

Vishal: Totally, should I shorten up the questions?

Peter: Yeah. You’re one of the few entrepreneurs that actually was running a company …in the last financial crisis running a lender, a different vertical, obviously, you were with MyRichUncle, it was student loans, but I’d love to hear what you learned from that experience with the last financial crisis that you can take and make and implement into Better in this financial crisis.

Vishal: I would say never get high on your own supply. MyRichUncle was winning, it was winning, it was winning. I even remember like our delinquency rates were 50% better than like Sally Mae’s and the competition and a lot of our competitors went out of business in 2007, early 2008 and we were continuing to win. I thought we would just win and we would make it, but our financing partners didn’t make it. Merrill and Lehmann didn’t make it and so we went down with them so, fundamentally, that’s why we created a marketplace.

It’s not enough to have two warehouse lines, three warehouse lines, five warehouse lines, five partners. We really actually need to come out and find capital, we actually need to create a full, whole loan marketplace and…..you know, that’s the last thing any of these investors were buying yield one, they wanted to take up all the loans. No, we’ve created that true marketplace and I think that desire and that willingness to work so hard in this dark corner that we actually created where we were getting no credit for at Better for a long time, I think that was the hard stuff. I think my experience from MyRichUncle helped me do that.

I think the second thing is liquidity. We just simply ran out of money because our investors stopped funding us and so, what we’ve tried to do this time is we have just had the best financing partners and have continued to be very liquid. You know, we went into COVID with over $250 Million of liquidity and that just allowed us to be bold when others were fearful.

Peter: Right, right, okay, that makes sense. I want to talk about electronic closings because it’s something that’s been on the Holy Grail for real estate, everyone in the real estate ecosystem for a while, but suddenly, we have been forced to have electronic closings. Are you conducting 100% electronic closings end-to-end today and do you see that as sort of the way….when is it going to become standard, I guess, is my question.

Vishal: So, in certain states today, it’s still not possible to do remote notarization. Why? Because there are constituents, local, statewide constituents, that want to have a physical notary present, a physical title agent present and maybe the future is coming fast and COVID has accelerated the future. There are all these very large incumbents, almost operating, you know, operating as someone who wants only….this is a very tribal business, right, like the local lender is key, the real estate agent is key, the local title agent is key.

What COVID has rendered that locality, local proximity nearly useless and so the industry is forced to adopt the future. There are 12 states that still don’t allow remote notarization. We are working with regulators in those states to kind of do that. As much as we can do e-online and e- closing we are doing, but I would tell you, we are very long from 100%.

Peter: Right, right, okay. So, you have been also pretty vocal about saying…..it was last year, so before the crisis you were saying that you wanted to do an IPO sooner rather than later and, obviously, things have changed since you made that comment. So, are your plans on hold, do you still want to be conducting an IPO in the near future or has it sort of been pushed out aways?

Vishal: Well, I’m not allowed to speak about our plans, but all I can say is the future is coming faster (Peter laughs) and I have always held a personal belief that there is a social contract between America’s household brands and the consumer and that the consumer should have the ability to own a stake in the company whose products they use. I use Apple products, I get to buy shares of Apple stock, I understand the product, I understand the company and it creates loyalty.

I think this last ten years of startups have bred this complacency about staying private and, effectively, making a few rich at the expense of the many. So, most of these companies should have gone public when they had the chance. If you think about the big fintechs that have succeeded like Square went public, had a rocky ride, but, I mean, look at that valuation today and then look at all these other guys that…..you know, being public is a good thing. Having your consumers be able to taste the soup and to participate in it is a good thing. So, I firmly believe that and I think, actually, the benefits of being public are better than ever before.

The venture capital community has three to five years of mistakes that they’ve made in the past three to five years of over valuing companies that are going to be paid for by the founders that they’re going to be investing in the next three to five years. (Peter laughs) So, you know, the cost of capital used to be cheaper in the private markets, I think the public markets are going to be far cheaper in the next decade.

Peter: Right, right, that makes sense, okay. So, last question then, what are you excited about most when you’re looking at what Better’s got on top for the next 12 months? What’s the most exciting for you?

Vishal:  The ability to transform home ownership for a new generation, one that isn’t used to doing it the old way. I think, you know, millennial home ownership rates are at 35%, whereas like traditionally, most populations as they’ve entered this age have had 75% home ownership, right. The idea that our generation and below, we can double the rate of home ownership, double like make the place that they call home really a lot better, that’s super exciting.

Peter: Okay, Vishal, we’ll have to leave it there. It’s always great chatting with you, thanks for coming on the show.

Vishal: Thank you, Peter, for having me, always a pleasure to chat with you.

Peter: Okay. See you.

You know, it seems to me the mortgage industry is still clinging desperately to the 20th century as many companies are still trying to do things exactly the same way they’ve always done them. Now, with the pandemic it’s not been possible to do that, but as Vishal has shared, there’s some things that, from a regulatory perspective, you simply can’t do digitally and that, I believe, is going to change.

I feel like one thing the pandemic has taught us is that …if it is possible to do something online, then it will be moved online and I think there’s certainly customer demand to do that. There’s no reason why we can’t have an end-to-end digital mortgage closing process for almost all mortgages today. I feel like people may have thought we were five years away from that, my opinion is we’re going to see this move a lot quicker than it has in the past.

Anyway, before I sign off, I just want to remind everybody, if you listen to the show regularly, thank you and I’d really appreciate it if you would leave a review, a 5-star review would be great, but leave an honest review on Apple Podcast, Stitcher, Spotify, whoever you listen to the show, I would very much appreciate it.

So on that note, I will sign off. I very much appreciate your listening and I’ll catch you next time. Bye.

Today’s episode was sponsored by Lendit Fintech USA, the world’s largest fintech event dedicated to lending and digital banking is going virtual. It’s happening online September 29th through October 1st. This year, with everything that’s been going on, there’ll be so much to talk about. It will likely be our most important show. So, join the fintech community online this year where you will meet the people who matter, learn from the experts and get business done. LendIt Fintech, lending and banking connected. Sign up today at lendit.com/usa.

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Filed Under: Lending and Fintech Podcast Tagged With: Better, home mortgages, real estate, Vishal Garg

Views: 1,220

Where Does Real Estate Crowdfunding Stand in 2020?

Real estate crowdfunding fell short of its original promise but a handful of companies are still flourishing

January 8, 2020 By Ryan Lichtenwald Leave a Comment

Views: 823

The real estate crowdfunding space has been an interesting one to watch. Just a few short years ago, in 2015 and 2016, there were many companies that seemed to be doing well with funds flowing into some large financing rounds. Today, there are just a handful that have stood the test of time. The rest? Some have gone out of business and others have gone quiet. The most notable companies which have shuttered in recent years include RealtyShares, which raised $60 million and iFunding.

The Wall Street Journal recently published a piece highlighting some of the success stories and what has differentiated some of these companies from the pack. Fundrise was founded back in 2012 and is probably the most unique when it comes to the investors they serve and how the investments are structured. The different investment offerings spanning more diversified eREITS to eFunds which focus on a specific city. For instance the Washington DC eFund aims to capitalize on how Amazon’s HQ2 will effect local real estate.

AlphaFlow and PeerStreet are well known names in the crowdfunding space. PeerStreet is a marketplace for individual accredited investors to access short duration real estate loans. AlphaFlow partners with online platforms along with offline real estate lenders to offer investors access to real estate backed loans. Up until recently Alphaflow, was also open to individual investors but have since shifted their strategy to focus on institutional money.

One of the factors that perhaps stalled the growth of pure play real estate crowdfunding is simply the massive amount of capital entering real estate in recent years. The rebound of the economy has meant that real estate developers have had many options when it comes to financing. This doesn’t mean that these companies haven’t been successful though. Besides those previously mentioned, and not included in the WSJ article, LendingHome and Sharestates are two that have achieved significant scale in the market today. Sharestates crossed $1 billion in loans in 2018 and LendingHome recently shared that they have crossed $5 billion. Besides their short duration loans, LendingHome is also getting into the single family rental mortgage space. New York based Cadre is also a quiet achiever, requiring a $50,000 minimum investment.

Many companies as evidenced above who originally focused on accredited investors have since shifted to institutional money, a much more efficient way to grow a lending business. The exception being Fundrise and Groundfloor which have stayed true to focusing on retail investors. Overall, while many of these companies were born at a time when many thought real estate crowdfunding was the future, they continue to resemble less and less platforms to democratize real estate investing.

Filed Under: Peer to Peer Lending Tagged With: AlphaFlow, Cadre, crowdfunding, Fundrise, LendingHome, PeerStreet, real estate

Views: 823

The Current State of the Real Estate Fintech Sector

We share recent news as it relates to innovation across real estate crowdfunding, digital mortgages and buying/selling homes.

August 29, 2019 By Ryan Lichtenwald 3 Comments

Views: 1,612

One area of fintech that doesn’t get as much attention as it should is real estate. It’s the largest lending category in the United States that still relies significantly on decades old technology. Over the years we’ve seen this sector transform from companies in the real estate crowdfunding area to companies tackling all sorts of interesting opportunities in real estate today. In this post we’ll provide a breakdown of each area and some of the interesting trends we’re seeing.

Real Estate Crowdfunding

Real estate crowdfunding has benefited significantly from the rebound of real estate since the financial crisis. These firms, although perhaps not as hyped as they used to be, are still a very interesting part of fintech. At the time when many companies in this space were founded, it was the first time that investors had direct access to real estate investment opportunities online, most notably in the fix and flip market. From my perspective we’re in a more mature phase as there has been some consolidation over the past few years with RealtyShares being the largest platform to cease operations. However, there is still very much an interest in income producing assets as we continue to be in a low interest rate environment.

The most recent news comes from Fund That Flip which recently raised an $11 million round from Edison Partners. Other notable achievements for platforms include LendingHome completing their first securitization. We also recently heard that PeerStreet, another popular platform crossed the $2 billion origination milestone. Outside of providing debt and equity to an online platform, a company called Roofstock is worth mentioning here. I recently had the chance to speak with CEO Gary Beasley to discuss their original offering which allowed for direct purchase of single family rentals and their new offering Roofstock One, which offers direct fractional ownership in income producing real estate.

iBuying and Improving the Buying/Selling Process

Many consumers are all too familiar with the pain points associated with buying and selling a home. This is the area that companies like Opendoor, Offerpad, Knock and Zillow Offers have targeted. These companies all fall under of a term which is being called iBuying. The individual business models of each company varies slightly, but they all focus on giving you a no hassle offer for your home so you can quickly sell your home without having to worry about realtors, showings etc.

Over the past few years a number of these companies have raised enormous amounts of money due to the capital intensive business they are in. While clearly there is significant investor interest in this category, Steve Eisman of The Big Short fame recently went on record stating that Zillow is over its head in their home flipping platform and doesn’t understand the real risks. It’s an interesting contrast to the success we’ve seen these platforms report. Not surprisingly, Zillow is currently one of Eisman’s shorts.

Other companies I’d lump into this category are those which help with home affordability. As real estate prices have increased, companies have stepped in to take the burden of large down payments off of the borrower. One relatively well known company is called Unison which co-invests with a homeowner when they are looking to purchase a home. Other newer companies include ZeroDown which recently raised $30 million. This platform is tackling high cost of living locations like the Bay Area and allows homeowners to buy a home with zero down.

Digital Mortgages

The most interesting area that fintechs are covering in real estate is the mortgage process. If you’ve bought a home recently I’m sure you would agree that there are areas for improvement in the mortgage process. Companies like Better, Blend and Roostify all have traction in this space. Most recently, Better closed an astonishing $160 million Series C round which included some interesting investors like Ping An, Ally Financial, Citigroup, American Express Ventures among many others. The company has now raised over $250 million for their growing business. The company expects to originate $4 billion in loans in 2019.

Blend, which raised $130 million back in June has taken a different approach, working with 150 lenders around the country. The company processes around $2 billion in loans every day. Personally, I can’t wait for new technology, no matter which fintech it is from to reach lenders small and large across the country. With all of the potential for API connections out there today there is no reason for so much manual work when it comes to the mortgage process. Over time, I expect that closing costs will come down as a result and that the actual mortgage process will no longer be the holdup to closing on a house. While I believe we’re on the right track there is still a long way to go with some of the largest mortgage lenders in the country today.

Conclusion

The above companies featured are just a handful of the ones that have traction in the US today and it’s going to be interesting to see which ones transform into household names. If you’re interested, some of the rounds highlighted above are tracked in our 2019 fintech funding Google Sheet which tracks fintechs that have raised over a $10 million this year. If you know of other companies doing interesting things in real estate I’d love to hear about them in the comments below.

Filed Under: Peer to Peer Lending Tagged With: fintech, innovation, real estate

Views: 1,612

The Story of Sharestates: From Startup to $1 Billion in 3 Years

Sharestates is one of the most successful companies in the real estate crowdfunding space.

May 14, 2018 By Ryan Lichtenwald Leave a Comment

Views: 1,139

Last year I wrote a piece about many of the companies who have participated in LendIt Fintech’s startup competition over the year. For that article we reached out to each company to get an update on the company’s progress. We shared that, given the information we had available, Sharestates was the most successful company to participate in PitchIt @ LendIt. Here are the stats they provided in March 2017:

  • 300+ loans funded
  • $250+ million in origination
  • 10% net return to investors
  • Zero loss of principal
  • 7 defaulted notes since inception (1 foreclosure)
  • $1.3 billion in debt capital commitments

All this was done in two and half years and what is more they were self funded and profitable.

$1 Billion Milestone

Now, just over a year later, they have announced they recently crossed the $1 billion mark in originations. The company did so in just over 3 years, having officially launched in February 2015, just before LendIt USA that year. They are the second company in the real estate crowdfunding space to do so and are on our list as one of the ten options available for accredited investors in the marketplace lending space.

Originations in the lending space is only one metric. Any lending company’s survival depends on the quality of the loans they are making. According to the Sharestates’ website, investors have earned an average 10.54 percent annualized return. They also report 0% loss of principal for their investors. As of last year when we checked in the company was profitable which sets them up for continued success going forward. We’ve seen very few companies in the marketplace lending space broadly achieve this goal.

Along with their press release, the company also announced a $100,000 giveaway which will be awarded to one of their current or new investors investors. Investors earn entries by referring new investors and these new investors are also entered into the giveaway.

Looking back it’s amazing to see how far Sharestates has come having watched them compete in PitchIt @ LendIt all of the way back in 2015. They have solidified themselves as one of the leaders in the real estate crowdfunding space and have showed continued growth as some other companies have struggled. Congratulations to the entire Sharestates team on this milestone!

For additional background on the company, you can listen to our podcast with Sharestates CEO Allen Shayanfekr which was recorded in late 2016.

Filed Under: Peer to Peer Lending Tagged With: crowdfunding, Originations, real estate, Sharestates

Views: 1,139

What is Blockchain and Why Should the Real Estate Industry Care?

In this guest post Tobias Briegel explores the intersection of blockchain technology and real estate.

February 6, 2018 By admin Leave a Comment

Views: 130

[Editor’s note: This is a guest post from Tobias Briegel, a cryptocurrency and blockchain enthusiast and National Account Manager at Chetu Inc. As an experienced leader and communicator, Tobias offers commentary on the changing tides within the finance industry, offering predictions on how emerging technologies will rattle the pre-existing system.]

Blockchain, the decentralized ledger behind the cryptocurrency curtain, is a force to reckon with, offering a compelling alternative to traditional exchanges of all kinds. Rather than compiling transaction records in a central hub, blockchain technology fragments this information and keeps records across an immense network of hard drives and servers—keeping a transaction as public record, but keeping the exchange anonymous.

In its infancy, blockchain represented an anti-establishment movement, putting a microscope to the deficiencies of centralized banking systems and building bridges where those gaps exist. Blockchain operates with a less is more ideology, keeping risk low by reducing the parties involved and increasing transparency.

Transactions are encrypted and verified in one of two ways: Proof of Work (PoW) or Proof of Stake (PoS). Crypto miners verify transactions through a series of sophisticated computations before the transactions are added to the public ledger. The miners are then compensated with fractional ownership of recently mined cryptocurrency.

Blockchain and Smart Contracts Save Real Estate

In 1996, over a decade before Bitcoin came to market, digital currency pioneer and computer scientist extraordinaire, Nick Szabo, introduced a contractual protocol that was entirely self-executing. We call this protocol a “smart contract,” an encrypted and trackable agreement between consenting parties.

Since the dawn of organized property exchanges, real estate brokers and legal entities have existed in pairs. Sometimes they coexist productively, but more often than not, the cross-industry dialogue is a pain point. We need legal representatives to outline the terms and ensure these terms are met by all parties—land registry, mortgage providers, surveyors, the buyer, the seller, an agent. With a high-value exchange dependent on the compliance of such an immense web of people, the process frequently encounters long-term setbacks and unexpected tribulations.

Smart contracts eliminate the number of hands involved by cutting out extraneous third parties. Who remains? The buyer, the seller, and the agent. The conditions are established and then coded into blockchain technologies. Met conditions (dollar amount or date of execution) trigger a reaction automatically, and the contract self-executes.

The process remains relatively similar to traditional contracts: property selections through blockchain MLS, negotiation of letter of intent, smart contract pre-lease, smart contract lease agreement, automated payments and cash flow, plus real-time statuses. However, this all happens without any legal involvement. [Read more…]

Filed Under: Peer to Peer Lending Tagged With: Blockchain, real estate

Views: 130

Innovative Approaches to Expanding Home Availability and Affordability

We look at two companies that are taking a unique approach to building new homes and providing down payment assistance.

November 29, 2017 By Ryan Lichtenwald Leave a Comment

Views: 26

It seems like almost every day I see a story about increasing real estate prices in the major metropolitan areas of the US. Prices in cities like San Francisco, New York, Seattle, Washington DC have made homeownership unobtainable for many people. Some even call the current state of the market a housing crisis as housing prices outpace growth in wages. However, there are some companies that have made inroads into helping people buy homes with creative new products. I recently spoke to two companies who are taking a different approach to expanding home ownership and affordability.

SoFi comes to mind with their jumbo mortgage which allows borrowers to put just 10% down and offers loans up to $3 million. The product doesn’t require PMI like other mortgages would. For people who work in high salaried positions like tech, it is easier to make these types of loans because the borrowers have an income to support it. SoFi has certainly had success with this product, but some still argue that lowering down payments allows borrowers to stretch themselves too thin which could result in problems down the road.

Landed is taking a different approach. I spoke with Alex Lofton who is Head of Growth and Co-founder at the company. They first came on my radar this summer when TechCrunch profiled them. They are similar to companies like Unison (who recently was on the Lend Academy podcast) and Point with a slight twist. Currently, the company focuses on teachers to help purchase a home, providing up to 50% of the down payment. Like other similar products, Landed participates in either the upside or downside when the home is sold.

It’s interesting problem that many areas face. While essential professionals once sought out areas with higher wages, there is now little incentive beyond location to live in a high cost of living city. This is unlikely a problem that will go away by itself so it’s important for companies like Landed to exist. The Chan Zuckerberg Initiative (created by Mark Zuckerberg and his wife Priscilla Chan) committed $5 million to Landed which will help about 60 educators at three schools near Facebook’s headquarters purchase homes.

Fundrise is taking a completely different angle with their relatively new offering called eFunds. They aim to expand the amount of housing available in cities and they are taking a unique approach to getting it done. The investment functions similar to their eREITs where investors can purchase shares in a fund, but the investment goes towards developing new housing in urban areas. Investors are purchasing equity in residential real estate. Beyond personally purchasing a home, this asset is something new available to the retail investor market. Historically, debt investments have been the focus of most investment opportunities.

Their thesis is that millennial home buyers aren’t interested in buying homes in the suburbs and that their needs are not being met. Traditional developers focus on larger scale buildings whereas Fundrise is creating homes on smaller lots that developers may not be interested in.

Fundrise is also encouraging investors to become active in lobbying cities to change zoning laws, something which is a big problem in Los Angeles where Fundrise has focused one eFund. Besides being able to further Fundrise’s efforts in expanding housing, an investor can complete the circle so to speak. Investors will have an option to buy a property that they have invested in, saving on costs associated with the transaction. While expanding access to housing is a good thing there is still the question of affordability. If you’re interested in learning more about what Fundrise is doing I recommend listening to our podcast with Co-Founder and CEO Ben Miller. He is truly passionate about this space.

Conclusion

As a millennial and an owner of several residential properties it is always fascinating to follow the trends in the major US markets and reports on millennial home buying. Clearly there is somewhat of a crisis going on in these cities as real estate prices have continued to climb faster than wages. Both Landed and Fundrise are taking action to do something about what’s happening and it’s going to be interesting to see how it shakes out.

Filed Under: Peer to Peer Lending Tagged With: Fundrise, Landed, real estate

Views: 26

P2P and Marketplace Lending Options for Non-Accredited Retail Investors

We share the platforms across consumer, small business and real estate that allow for retail investors.

March 29, 2017 By Ryan Lichtenwald 4 Comments

Views: 2,131

For online platforms there is considerable cost to be able to accept retail dollars. This is one of the reasons that Lending Club and Prosper were the only two platforms that allowed for retail investor participation for many years. Since many firms are just a few years old it’s much easier to target accredited individual and institutional investors due to the capital those investors have to deploy. However, there are now online lending platforms spanning almost every lending vertical that are open to retail investors. Below we share all of the opportunities retail investors should be aware of.

Lending Club – Consumer Lending

Lending Club allows retail investors access to consumer loans and has the most loan volume out of any other platform on this list. Investors can purchase fractions of loans starting at $25 and so can build a diversified portfolio with a relatively small investment. Borrowers are given loan grades from A-G and investors can decide which grades they would like to invest in. Lending Club advertises historical returns between 5%-7% with 99% of investors with over 100 loans achieving positive returns. In addition to the primary market, investors can buy and sell loans on Lending Club’s secondary market FOLIOfn which provides liquidity to investors.

Lending Club’s state and financial suitability conditions can be found on their website.

Prosper – Consumer Lending

Prosper’s platform is similar to Lending Club’s. Investors can purchase consumer loans ranging from grades AA-HR. One difference is that Prosper shut down their secondary market recently which means investors must hold notes to their maturity once purchased. Estimated returns vary from 3.83% to 13.04%

There are additional suitability standards for certain states which are outlined on Prosper’s website. [Read more…]

Filed Under: Peer to Peer Lending Tagged With: consumer, online platforms, real estate, Retail Investors, small business

Views: 2,131

Potential Applications of Blockchain For Real Estate

Blockchain technology could have a large impact on how real estate is transacted.

March 24, 2017 By Ryan Lichtenwald Leave a Comment

Views: 111

Last week I spent the week at MIPIM, the largest conference in world dedicated to real estate. The conference is focused mostly on traditional real estate, but a portion of it was dedicated to what is often referred to as PropTech in Europe. What’s most interesting to me is how companies are applying technology to real estate and one of the big opportunities is bringing blockchain technology to real estate.

The session I enjoyed the most was dedicated to this, titled “Blockchain: What are the opportunities & challenges of peer to peer real estate?”. Although the general consensus was that we are still early when it comes to widespread adoption of blockchain for real estate there were several interesting takeaways.

One of the panelists was Achim Jedelsky, who works for Daimler Real Estate, a division of the auto company. The company is currently looking at what improvements can be made for existing processes, including transactions. While it was clear they are only exploring a few use cases internally and he didn’t get into specifics it’s interesting that a company that focuses on automobiles is exploring blockchain. Daimler is a company that may not strike you as an innovative company, but they are clearly forward thinking even in their auto business having recently invested in auto finance startup AutoGravity.

One of the companies focused on blockchain applied to real estate that is making more progress is velox.RE. Founder Ragnar Lifthrasir spoke on the panel explaining his company’s open real estate platform that includes property transfer, recording, and payments. He is also the Founder & President of the International Blockchain Real Estate Association which aims to help the real estate industry adopt blockchain technology. [Read more…]

Filed Under: Peer to Peer Lending Tagged With: Blockchain, real estate

Views: 111

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