When it comes to investing in real estate, most would-be buyers have a significant decision to make about how they’re going to source the right finance. In recent years, the real estate finance industry has seen increased pressure on risk retention rules and reserve requirements. This has pushed alternative lenders, like real estate crowdfunding platforms and real estate investment trusts to rise to the service and offer other forms of capital.
Real estate crowdfunding offers deals for investors online by raising various amounts of cash from several investors and pooling it together into the right capital amount for a purchase or refinance. To eliminate crowdfunded transactions not being fully funded until the full amount is supplied by investors, most platforms will pre-fund a loan.
Through many of these platforms, lenders and borrowers are matched, leading to quicker access to funds at better terms than those traditional lenders can offer.
Online Real Estate Financing and the Tax Reform
While the options available for online real estate financing have seen an increase in popularity in recent years, the recent tax reform of 2018 could mean that this officially becomes the year of online investment. Thanks to the new tax plan, real estate crowdfunding platforms”RECF” have plenty of reasons for celebration. Similarly, so do real estate investment trusts “REITs”.
REITs are the companies that make profits by financing, owning, and operating in real estate. A REIT functions similarly to a mutual fund. The only difference is that instead of bringing together a portfolio of stocks, people invest in a selection of real estate assets, including mortgages and buildings. These solutions pay no separate business tax but instead are asked to pass their taxable income over to shareholders who pay the tax when they file their returns.
The Change in Online Marketplace Lending
RECF is a great example of how people can benefit from online real estate financing this year, thanks to the improvement to marketplace lending strategies. The tax proposal will lower the top tax rate on the income that REIT and RECF platforms, and similar lenders, pass onto shareholders and owners. In fact, the rates have gone from a maximum of 39.6%, down to 29.6%. That’s a huge saving for potential property investors.
People who borrow money to invest in RECF can even deduct the interest paid on the loan at the highest individual rate. This creates new shelters in the tax world for people who might be interested in getting deeper into the real estate investment or development market.
As the market for alternative lending platforms and online real estate financing continues to grow, it’s worth considering all your options before you put your money into a real estate option. These platforms are filling a significant void in the marketplace, by making sure that people can put their money into profitable real estate solutions, without having to worry as much about the issue of taxes.
When executed properly, online lending platforms are an efficient and effective way to fund loans for commercial real estate and bring capital sources that were traditionally unavailable into the marketplace.