What Is A Peer To Peer Real Estate Investment and How Does It Work?

Everyone has the dream of owning their own property someday. But the prime real estate is incredibly costly and few have enough capital to invest in a beautiful home or piece of land easily. Some might be able to scrimp and save for about five years before plunking down a pretty penny for real estate; others might never be able to get off the hamster wheel.

Things might seem rather bleak, but there is a way to accrue revenue, even if you have limited capital to invest. Peer to peer real estate investments and innovative marketing practices give investors a chance to grab a piece of the money pie without derailing their financial prospects or sucking up their time. Read on if you're curious to learn more about this smart yet little known tactic.

What is peer to peer real estate investment?

Peer to peer lending is a method of loan financing that gives individuals the opportunity to lend and borrow money without the need for the backing and mediation of a traditional financial institution. In the case of the borrower, the terms of payment may vary depending on the agreement of all parties involved. It works rather similarly to a crowdsourcing campaign for buying real estate in that more than one person pools their resources together to ensure their money works smarter. Also, the time commitment and level of management is fairly minimal, thus working in the same manner as buying and selling of stocks and bonds. 

Lack of red tape

One of the main pros of looking into peer to peer lending is that it allows for people who are looking to expand their portfolio, to not to be marked forever by a mediocre credit score or the bureaucracy of traditional monetary systems. The reams of paperwork are almost nonexistent, and one can connect with cash-flush individuals far easier with little drawbacks.

Researching platforms

There is no need to worry about peer-to-peer lending sounding too good to be true. In general, it is done through designated and verified platforms. The services match borrowers with vetted, private investors. Regardless, it is important to do research to learn more about these platforms before committing in order to fully understand what you're getting yourself into. While peer to peer loans technically function in the same way as personal loans, there is usually no contact between the lender and the borrower. The loan is approved and serviced via the chosen platform and both the investor and platform claim part of the loan's earned interest. 

The positives

While peer to peer lending is already starting to sound like a great idea, it would be good to briefly review and reiterate certain key points for the sake of clarity. 

For one, they make borrowing easy since there is no bank involved, and the paperwork is fairly minimal. Of course, there is an application, but it is not a drawn-out process. Proof of identity and income or employment is also required, after which you should find out about your eligibility fairly quickly. 

Second, peer to peer loans are more affordable than traditional financing options. They come with lower interest rates thanks to lower overhead costs than banks and official lenders. They also have fewer origination and closing fees. 

The negatives

So, peer to peer can be a mirage in the desert to some, but it's also not all roses. The biggest factor to be mindful of is that this process can be incredibly risky, especially if you do not plan properly. While you can take out a large peer to peer loan without diving into your finances or credits, doing so can be dangerous. You could run the risk of overextending yourself and borrow more than you can tangibly afford, forever harming your financial security.

The bottom line is that there are many benefits of peer to peer loans, especially if the borrower does their homework and research platforms properly. At the same time, they are not without fault and can be risky. If you are interested in taking on this kind of investment, then take into consideration the amount and ensure that you have enough long-term resources to repay your debt as not to shatter your credit score.  While not everyone is born with a silver spoon or earns the big bucks needed to buy the property of their dreams, there are some solutions out there to help you out, provided that one is financially responsible. Peer to peer loans are not a magic solution, but they are a safe and important steps in becoming financially solvent over time.