Real Estate Crowdfunding vs. P2P Loans

Real Estate Crowdfunding vs. P2P Lending

We’ll explore the difference between P2P lending and investing of real estate.

P2P Lending

The key discrepancy between crowdfunding real estate and P2P loans is that P2P financing is focused on unsecured debt and crowdfunding real estate will be backed with secured debt or equity depending on the form of investment.

P2P sites such as Prosper and Lending Club usually provide borrowers with an incentive to invest in unsecured loans (for debt restructuring, car financing, medical bills, among other uses) that are higher grade but eventually produce a lower return of 6-8%. If you are prepared to take a chance, these firms would have higher cost loans at a decent return. Often the returns will be 12-14 percent. What are the forms of spending on higher risk notes? They are usually home development loans or business loans. In relation to the type of debt, the risk is dependent on the credit rating of the borrower such that higher value loans are usually granted to lower credit scores, thereby raising the likelihood of default.

Real Estate Crowdfunding

P2P investing is mostly for debt finance, but crowdfunding real estate has two forms of equity and debt. It will serve to make the consumer more diversified. Apart from the difference in the type of investment, the class is also different. For example, REIT’s real estate crowdfunding websites now have different types of focus. For example, Realty Mogul has two multi-family and debt-investment funds. Rich Uncle also has a program that works on student accommodation.

Now that you know that there are different funds and forms of investing, what are some of the differences between this and P2P? The greatest distinction is seen when you collect your investment. With crowdfunding funds for real estate, you may not receive your distributions until monthly or quarterly. Also, it may take some time to sell your investment on a crowdfunding real estate platform. As a result, P2P lending has more liquidity because you can opt not to reinvest the money and borrow from your notes on a biweekly basis. However, if you were to sell all of your notes, it might be a challenge. Lending Club has a folio website to sell your notes, but it may take some time to sell your notes, so you may have to do so at a discount.

Which One Is Better Then?

From my experience, I’ve had better profits from my crowdfunding investment in real estate. I love monthly and quarterly returns that are regular. I compare this to my Lending Club portfolio, which had a poor return to the point I began withdrawing from it. This year, I’m going to spend some of my time on crowdfunding real estate. There are people who are going to argue that P2P lending is great, of course, but to each their own – shape your own reasons after careful research.