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    February 2016
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    Why peer-to-peer investment is gaining momentum

    Norma Walton

    With real estate prices reaching new highs all across North America, many investors are turning to alternative investment strategies to gain entrance into the real estate market. Peer-to-peer marketplaces are one of these alternative investment avenues.  In fact, these marketplaces have grown into a multibillion dollar industry in the United States and Canada, as an increasing number of investors look for new avenues for investing and financing.

    What are peer-to-peer marketplaces?

    Peer-to-peer marketplaces allow investors to ‘passively’ engage in a variety of investment sectors.  In part, that means they can dip a toe in to test the waters of a particular investment avenue to see if it meets their comfort level and risk/reward balance. Investors who participate in peer-to-peer investing are often looking to put up a small amount of surplus capital to invest in new and growing areas.  Peer-to-peer investing is also applicable to active investors who may want a new source of financing or capital.

    The peer-to-peer real estate investment marketplace is attractive to a wide range of investors. Case in point, real estate investors who need a bridge loan to help with a renovation project can turn to these marketplaces to obtain their financing.  Moreover, these marketplaces offer more than just investment potential — peer-to-peer marketplaces also offer a community of investors who have capital to lend and who many times have in-depth knowledge and experience in the real estate market. 

    Peer-to-peer marketplaces aren’t only relegated to residential real estate. Investors who want to help finance commercial real estate loans or participate in ownership positions in commercial properties can do so through peer-to-peer investment and lending. 

    These more large-scale investment groups can invest in a wide range of commercial properties, including shopping centers, self-storage facilities, office buildings, medical centers and plazas.

    Commercial real estate projects tend to involve relatively large properties – retail centers, office buildings, apartments buildings with more than 50 units, etc.  A major disadvantage that smaller investors find when trying to gain access to this market is the sheer size of investments required to gain access to commercial real estate investment opportunities.  A sponsor looking to raise five million for a commercial project, for example, is not likely to be interested in an investor unless that investor can inject 10 percent or more. 

    Peer-to-peer real estate marketplaces allow investors to pool together smaller investment amounts into a single larger investment that is attractive to a sponsor.  Plain and simple, a smaller individual investment amount means that a greater number of investors can participate in larger commercial property transactions.

    An additional benefit to these marketplaces: peer-to-peer investing provides investors access to real estate investment opportunities in other cities and even in other countries. Equity investments in such properties can provide peer-to-peer investors with all the associated tax benefits of real estate ownership, without the associated management headaches.   

    “The financing model of high street banks is outdated, and they are too slow to change the course as fast as the market demands. Recent years have shown that alternative finance solutions are reshaping the industry, and a major change on stage is inevitable,” Andris Rozenbahs, CEO of the Prestamos Prima Group, a Spanish financing firm explains.

    “So, Norma Walton, how do I get involved in a peer-to-peer marketplace?”

    With increased interest in this kind of investment, that’s a question I’m encountering ever-more frequently.

    Firms like Peerstreet and Patch of Land have been established with the mandate of facilitating peer-to-peer transactions quickly and efficiently. These sites also provide information for new investors looking to get involved in this new industry. 

    Peer-to-peer investing isn’t just for small capital investors – these marketplaces offer diverse investment opportunities that can bolster a large portfolio or allow investors to get involved with a variety of investment potentials.

    This is definitely a way of investing in real estate that merits more investigation.

    The MONEY® Network