What is peer to peer lending, and why is it so “awesome” for real estate investors?
Hey there, Lee Arnold here.
So, most people who know of me in the real estate investing industry see me as a leading national private money lender for real estate investors.
And I often encounter newer investors who are a little unclear of what private money really is — and even some more experienced investors who aren’t clear on its immense value in the real estate investing world.
So, I’m coming at you with a concise understanding of what private money is and why it’s even more valuable today than ever before.
What is Peer to Peer Lending? A Brief History
OK, peer-to-peer lending is important to the real estate industry because it fills a gap that was pretty gaping. The chasm between what banks could provide for investors pre-crash 2007 was already rather limited.
Now, those of you who were investing in real estate before 2007, if you’re like me, you remember the glory days of 2003–2007: We could walk into any bank and get 100% financing (and if you got it at a good price, you could even get 125% financing).
I can’t even think of a handful of deals that I closed on between 2000–2007 that I didn’t leave closing with cash. But, we don’t see that anymore.
So, what was driving that?
Well, let’s look at what was going on with Wall Street — they were pooling together all of these different mortgages, securitizing those mortgages and essentially selling the loan against a $100k house 30 times. So that one $100,000 mortgage was worth $3 million in the sale of stocks, bonds and securities on Wall Street.
Because of this, Wall Street was coming back to companies like Wells Fargo, Washington Mutual and Countrywide. If you were doing deals in ‘04, ‘05, ‘06, ‘07, you remember these names. Newer investors to the marketplace, might be saying: “Who?”
So, what you need to know is that these were some of the largest mortgage lenders on the planet. Countrywide by itself was doing $12 billion a month in mortgages. A MONTH!
Why did we experience this bubble? Why was there a massive crash on Wall Street? Why were all real estate values nationwide depleted to the tune of 30%, 40%, 50%, 60% in some markets? Phoenix had 70% reductions in value!
Why?
Well, the answer is simple.
When Wall Street has an appetite for something, it can pump so much cash into the marketplace that it can create spikes and bubbles all over the place.
And, peer-to-peer lending fills a void that was created when Wall Street went under. I’m sure you remember when Lehman Brothers crashed and then everything else began to implode with it.
When that happened, Frank Dodd came in to write new policy about who banks could lend to in 2010. And, if you’ve been investing from 2010 to now, you most likely have not gotten a bank loan. As far as I know, banks don’t lend the old way since the crash of ’08.
So, pre-COVID, I travelled the country, speaking to tens of thousands of people each and every year, and I always asked every audience the same question: How many of you in the past four years, post-crash and post-Frank Dodd, have gotten a bank loan on an investment property that you didn’t have to designate or classify as a second home?
Know how many hands raised?
Zero.
And that means if you’re an investor and you want to build a portfolio of rental properties, which you’re acquiring for cash flow, the only way you were getting access to money is through private sources.
Peer-to-peer lending isn’t a new thing.
We’ve been doing it for years…
I’ve always had a handful of investors I could call and say: “Hey, I just bought another property. I need you to wire $1 million to this title company.” And I would quickly close and buy the property.
But when you’re doing volume of any capacity, you will eventually outborrow your lender’s ability to deploy capital to you.
So what peer-to-peer lending has done and what my company does, in essence, is institutionalizing private money for real estate investors… because through volume, we can attract cheaper and cheaper and cheaper money.
And as we bring Wall Street larger capacities of volume, we can negotiate down lower costs of funds, which means we can lend investors like you more money.
So, whether you’re an affiliate of private exchange or a certified private money broker through my company’s private money broker certification training programs or whether you’re just somebody who wants to build an expanding portfolio of real estate… we need every single one of you because we have substantial volumes of capital flooding into our hands every single day.
And thankfully, we’re raising more money than we can possibly deploy.
So, if you’ve had the urgency to go out there and invest in real estate — private money could very well be your answer.
This is not the time to sit around and rest on your laurels. Now is the time to get out there and pound the pavement.
I’m convinced that more millionaires will be created over the next few years, if you go out there and hit it hard. And of course, my direct lending company will happily support you by making private money connections to make that happen.
So go make it happen.