A peer investor can be defined as someone who chooses to invest in a peer-to-peer lending program. When you decide to participate on a peer lending platform, you select a project that you would like to invest in and reserve the opportunity to exclusively review the supporting documents.
Upon your approval, the borrower signs off on your term sheet; disclosing the loan terms and interest rate. A title company will review and approve the deal for lender insurance, an appraiser will then value the property and write a valuation report. Loan documents will be drawn and a closing occurs at the title company, including the recording of the first lien against the property filed at the County Recorder’s Office.
The beauty of the whole arrangement is there are multiple levels of due diligence and security for these loans. Real property is put up as collateral against the loan amount (usually significantly greater than the loan), so they become secured investments. If anything goes wrong with the loan, you will have the collateral to recover your investment and any outstanding interest.
When the arrangement continues as planned, the peer investor earns monthly interest payments. The interest rates are higher than those offered by your typical bank account, earning you 6%–11% annual return – or possibly higher. Additionally, you decide how long you would like to lend for, which typically ranges from 12–24 months.
The best part about peer lending is that it takes place online. The vetting and credit check is completed online and whoever you end up selecting is pre-vetted and preapproved for the program, which reduces doubt and financial risk. You won’t have to go through a great deal of paperwork or lengthy meetings with your potential recipients.
The loan’s recipient gets flexible terms in comparison to that of a bank and the interest rates are higher than a bank and lower than a hard money lender. Additionally, borrowers can get their loans quicker and with less bureaucracy. The application process is simple and seamless as well.
Peer lenders benefit from the terms of agreement and loan recipients get to leverage their real estate investment opportunity using credit that is available outside the bank.
With peer-to-peer funding everyone is a winner.