Marketplace lending started as a very simple idea. It started as “peer-to-peer lending,” as it was called back then, because it allowed individuals, through the use of technology, to lend to each other under their own terms or terms mandated by the platform through which transactions were made. However, once institutional investors took an interest, the terminology changed to the current “marketplace lending,” although the concept remained the same.
In the last few years, real estate investing has integrated more with the marketplace lending model such that there are now over 100 real estate crowdfunding platforms in the U.S. alone. But why? What makes real estate investing and marketplace lending such great bosom buddies?
Technology, The Law, and Supply-Demand
I believe there are three reasons why marketplace lending and real estate investing have hooked up and make a perfect match. In short, it boils down to the law, technology and the law of supply and demand. First, let’s talk about the law.
JOBS Act of 2013
It wouldn’t be incorrect to say that lending started trending toward the marketplace model long before 2013, but the JOBS Act has certainly led to the proliferation of real estate crowdfunding platforms since its inception and implementation.
The Jumpstart Our Business Startups Act updates the Securities Act of 1933 by allowing emerging growth companies, job creators, and startup enterprises including real estate firms the ability to raise capital by publishing public calls, which was previously not allowed, and by raising funds using technology that did not exist in 1933. As a result, the JOBS Act paved a new path for equity crowdfunding, debt, and equity real estate fundraising, and similar fundraising methods by recognizing the validity of a business model—the marketplace lender.
How Technology Makes Real Estate Investing Simpler and More Affordable
Technology has a way of streamlining processes. By cutting down on the cost of capital acquisition for real estate projects, marketplace lending platforms like Sharestates provide developers, flippers, and other real estate sponsors a less expensive means of obtaining the funding they need to see their projects through to completion. By the same token, platforms offer real estate investors bigger returns by making investments public, accessible, and more secure through a centralized dashboard equipped with analytics, built-in risk assessment protocols, and trustworthy underwriting procedures. As a result, more people have access to real estate investments at greater returns.
The Law of Supply and Demand
The marketplace itself creates its own opportunities. When investors seek a service that doesn’t exist, savvy entrepreneurs go to work to supply the growing demand. Likewise, when an experienced entrepreneur pioneers a new service using existing technology that lowers costs, creates opportunity and fills a marketplace demand, investors flock to those platforms. The law of supply and demand is as natural as commerce itself.
Marketplace Lending Makes Real Estate Investing More Accessible
Real estate investing existed long before marketplace lending, but marketplace lending has made it more affordable and more accessible to more people. This reality coupled with changes in securities law and the rise of technology has created a whole new real estate investing industry that before did not exist.
The real estate investing ecosystem in place before marketplace lending was available only to those investors who could afford it. Marketplace lending platforms provide similar opportunities to more people and, as a result, those investors can get in on the ground floor of great opportunities for less investment than they would have been able to in the past. Sponsors of real estate projects can get their deals funded faster and by more investors than before. It is for these reasons that marketplace lending and real estate investing are a match made in heaven.