Peer to peer lending has become a popular way to invest and borrow money. One of the significant advantages for you as an investor is that you can invest in anything where people need loans. There are a variety of loans in which you can invest, and the loan types are increasing over time. About 70% of peer to peer loans are business loans. However, p2p property lending is also becoming popular rapidly because it allows property investors to get quick funds without taking a mortgage or standard bank loan. By seeing the popularity of p2p bridging finance, we want to introduce you to the world of property lending so that you can invest and build your wealth.
In this article, we are going to describe real estate p2p lending, how it works and its comparison with consumer p2p loans.
Property Real Estate Lending Explained
P2p real estate lending allows you to start lending money to property investors. You can invest small amounts across multiple property loans with an intelligent investment strategy. Traditional real estate lending requires a huge amount of money, and it is also a complicated process. In contrast, peer to peer platforms make it simple for you to start an investment and show flexibility in terms of initial capital. All the platforms operate online; select a platform that meets your investment needs. Then, create an investor account, deposit funds and start investing.
Peer to peer bridging loan is becoming an alternative to traditional mortgages, and property investors consider them their mainstream funding source. As a result, investors can get exposure to the property market with attractive returns and lower costs. P2p platforms allow you to invest in buy-to-let properties, development projects, group buying opportunities and other property loans. Borrowers can be individuals or businesses looking for funds to build a new house or renovate a property.
Borrowing through these online platforms is straightforward and flexible. It helps borrowers to get funds quickly, and usually, there are no penalties on early repayment. As an investor, you get an opportunity to diversify your investment portfolio with property loans and earn high returns. You can even earn 10% to 15% returns per year.
How Does P2p Real Estate Lending Work?
When a property investor or a real estate company wants to purchase or renovate a property, they usually go to traditional lenders and banks to get funds. But banks have strict lending criteria, and most borrowers’ applications are rejected. As a result, borrowers look for an alternative to secure funds. P2p bridging loans can be an excellent alternative to conventional mortgages. If investors do not have huge capital to fund a loan, multiple investors can pool their investments to fund a large loan and get a share in returns.
Another good thing about p2p loans is that you can select the borrowers depending on their risk tolerance. Platforms give grading to the borrowers based on their creditworthiness. You can also get an idea of risk from the interest rate. The higher the interest rate, the more the risk of default will be. It depends on you whether you want to take a risk to earn high interest or want to invest securely. Platforms offer secured and unsecured loans. We suggest you invest in secured loans to reduce the risk of losing money due to borrowers’ default.
The risk rate can be higher or lower depending on the type of loan and the borrowers you choose.
Property Lending Vs Consumer P2p Lending
Both property and consumer loans are types of peer to peer lending, but they have some differences that you must know.
The most important thing for investors is their returns on any investment. You can earn higher returns from p2p consumer lending than from p2p bridging loans. Most well known and reputed platforms offer 11-14% returns on consumer loans per year. On the other hand, returns on property loans are 10% on average. Although it is a healthy return, it is still lower than the returns of consumer loans.
The liquidity usually depends on the platforms; some platforms offer a secondary market that helps you withdraw funds before loan terms end. However, real estate loans offer less liquidity than consumer loans. This is because property projects take a long time and require more resources, and you have to wait for some time to get the loan amount and interest. It is different for short term individual loans, where you can start receiving profit even after a month of investment.
Many experts believe that real estate should be a part of every serious investor’s portfolio. It is an asset that performs well with time and can bring attractive returns. On the other hand, when you invest in consumer loans, you will not get exposure to the property market. This asset will not be added to your portfolio. Therefore, if you are interested in getting into real estate, it is worth considering p2p real estate loans.
Real estate p2p lending is less risky than consumer loans. It is because bridging loans are usually secured against the property of borrowers. If a borrower defaults on the loan, the platform has a right to repossess that property and sell to get the loan amount back. In contrast, consumer loans are unsecured and have more credit risks due to borrower defaults.
Every real estate project is different. You have to read through it, understand it and be familiar with terms like the loan to value and financial ratios. Therefore, it is better to look at each loan and select loans manually when investing in p2p bridging loans. However, consumer loans are not very complex, and you can use auto-invest to choose borrowers and manage your portfolio. It saves your time, and you can sit back and let the platform do the hard work for you.
Peer to peer platforms have a minimum investment limit, and usually, it is £100. It is not a huge amount, but you must think deeply before making your first investment. You have to make commitments when investing in real estate lending, but it is not the case in consumer loans. Therefore, we can say that consumer loans are more accessible and an easier investment to get into.
Peer to peer bridging finance or property lending is an excellent investment if you research, understand the process and take measures when investing money. However, if you do not have time to do research and want to get returns in a short time, you must go for consumer lending. No matter which loan you want to invest in, always choose a well reputed, experienced, and FCA (Financial Conduct Authority) authorised platform to avoid any inconvenience.