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Fintech Brings Residential Real Estate To The Web

Over the past several years, the impact of technology on financial services has become increasingly significant. It’s now possible to conduct complex transactions like buying a home completely online. Firms like Quicken’s Rocket Mortgage — which rose to prominence after a controversial ad during the 2016 Super Bowl — even offer loan approvals in as little as 10 minutes. Though critics of Rocket Mortgage claim it promotes lax lending standards like those that contributed to the 2008 housing crisis, the fintech revolution is in the process of radically reshaping the residential real estate sector.

Applying for a Mortgage Online

Conducting the mortgage application process online saves time and effort. Though it requires the same documentation as obtaining a traditional mortgage, entering your credit, residence, and employment history in an online form is far easier and less time-consuming than acquiring hard copies of the necessary documents and then forwarding them by mail to your mortgage provider. Additionally, with an online mortgage provider, you can grant digital access to your pay stubs, bank information, tax returns, and other financial information from your bank and the IRS.

The process is relatively simple: You create an online account with your mortgage provider, fill out the required documents, authorize your lender to access your pay records, bank statements, and tax returns and get a credit report. With a solid profile, you can be approved for a mortgage in as little as 10 to 30 minutes.

However, there are a number of limitations that come with completing the mortgage application process entirely online. You likely won’t be able to complete the process online if you’re applying for a jumbo mortgage (for which the limit is $417,000 in most of the United States); if you’re self-employed with various sources of income; if you or a tax advisor manually prepared your taxes; or if you don’t have online accounts with all of your financial institutions. In these cases, you are going to have to take some additional offline steps to provide the documentation your mortgage lender requires to complete your application.

Should I Really Sell / Buy a Home 100% Online?

Prospective buyers have been able to locate and view photos of homes they may be interested in online for quite some time now. However, in the last few years, a number of forward-thinking residential real estate firms have developed web-based platforms where the entire home buying or selling process can be conducted online.

Buying a home 100% online is not for everyone. Many homebuyers today still want the hands-on experience of actually seeing the home and getting a feel for the neighborhood. Some less-experienced buyers may feel more comfortable working with a traditional real estate agent to serve as a knowledgeable advocate in the buying process.

Still, the option to purchase real estate quickly and easily online is very attractive for foreign buyers, investors, and modern, web-savvy homebuyers. Although completely online real estate transactions only represent a small fraction of the more than $2 trillion in annual real estate transactions worldwide today, the demand is growing, and it seems likely that a substantial percentage of homes will be purchased completely online within just a few years.

Selling a home online offers a number of notable advantages. Perhaps most importantly, you avoid using a real estate agent so you don’t have to pay the usual 3% to 6% commission. Additionally, taking care of the search and financial qualification process online saves a lot of time and energy for both sellers and buyers.

The key disadvantage of a fully online transaction, of course, is the possibility of making some kind of mistake during the process that could cost you a chunk of money, or even the chance to purchase your dream home. Unless you’re getting advice from someone with experience in buying or selling a home, a completely online transaction may not be the best idea for first-time homebuyers.

Fintech startups such as SideDoor, Door, Trelora, and House Simple (based in the U.K.) have all developed their own online process for real estate transactions, including qualification, detailed individual listings of properties for sale (with 3-D video viewings available for many homes), and even contract negotiation and closing services. Other firms, such as, use an auction-style model to sell both residential and commercial real estate, and also offer related financial services to both buyers and sellers.

The Internet really has changed everything, including how we buy and sell our homes. Although online real estate transactions are not for everyone, a growing number of people are already embracing the efficient and lower-cost web-based model for real estate transactions. That said, online transactions still require due diligence before making what likely will be the most significant purchase of your life.

You can read the original post here.


Fintech firms become mainstream as “democratization” of finance sector continues

You can only be the new kid on the block so long. At some point, you are no longer the new kid because you have become one of the gang. Sometimes it’s hard to pin down exactly when it happens, but it’s often more obvious in retrospect.

Observant industry insiders will tell you the fintech sector is just now reaching this liminal point. What began as a few online lenders with a new business model and low overhead has blossomed into an almost complete financial services ecosystem offering a plethora of loans, new investment products, and a wide range of consumer banking and payment services.

Fintech firms are giving consumers what they want – transparency and full access to data. Creating this transparency and giving customers all the data they need, together with a convenient easy-to-use online delivery platform, has led to general public access to many areas of the financial markets that have long been the sole purview of professionals. This “democratization” of the financial markets is unquestionably the key driver of the ongoing success of the fintech revolution.

Product development drives democratization as fintech creates new markets and reshapes financial services

Product development in fintech is as much about the process as the product. Given what clients want inevitably changes over time, the goal is to educate the client as quickly and painlessly as possible, and fintech firms create transparency about their products and business models through client education. You don’t have to “sell” somebody a product if you educate them enough that the benefits are obvious.

It’s important to note the low-overhead online business model also plays a critical role in how the fintech industry is managing to democratize the financial sector. Lower expenses keep service fees down and help make these new investment products more accessible to the retail investor.

Technology really comes into play in three ways in the fintech business model. First, modern customer experience design and visualization tools make it possible to more clearly educate potential investors and clients in a very short period of time.

Second, modern technology also enables complex financial products to be sufficiently simplified to be understood by and accessible to smaller retail investors. Related to this, technology obviously plays a central role in creating a “one-stop shop”, which is an essential part of an ideal customer experience today. Technology also underpins the ability of fintech firms to “customize” their products to meet a broad range of client needs/preferences.

Third, technology provides additional transparency, in that customers can access information about current investments or prospective investments 24/7. Ongoing electronic ledger developments like Blockchain will continue the trend toward increasing transparency in financial markets in the future.

You cannot create an ideal “customer experience” for all customers at all times. Instead, the goal is to provide a flexible, easy-to-use interface, and give the customer all the information she needs about your products to easily select investments and maintain ongoing transparency to those investments. We’ve done that with our mortgage-based PRIMOs by making our interface simple and easy to understand.

Focus on providing client education helps create sustainable business model

With PRIMOs, we’ve noted two general types of clients, the “buy quickly” client and the “dig deeper” client. The “buy quickly” client might spend as little as an hour or two in research before jumping in and buying PRIMOs, but the “dig deeper” client may spend weeks doing research before pulling the trigger. Our business model is to make information and education available to both types of clients so that each can do their own thing.

A commitment to providing data/education to clients also helps create a sustainable business model. Providing more extensive data is what helped the “dig deeper” client to invest, and providing more high level information is what led the “buy quickly” client to invest.

Offering investment products that deliver the expected returns and less risk, and continuing to provide data, educate clients and create transparency is what will bring customers back and makes the business sustainable. Even when using technology, there is a learning curve to any investment, so providing in-depth information in customer accounts enables them to continue to interact with and assess your products, and notably increases the chances of repeat business.

Fintech is revolutionizing the way business is done in the finance sector. The ongoing process of democratization is like a snowball on a hill that has just begun to gain momentum. As long as fintech companies continue to develop products that are easy to understand and meet 21st century consumer expectations for transparency and ease of use, this revolution giving the masses broader access to financial services will continue and thrive.

Read the original article here.


Real Estate Adds Stable, Long-term Growth to Your Investment Portfolio

Modern communication networks have effectively shrunk the size of the planet. Information can now travel in seconds rather than the hours, days or even weeks it took data to cross the globe just a couple of generations ago.

This rapid flow of information means that a “bargain” never lasts for long in today’s financial markets. Once a promising investment opportunity has been identified, the money flows that direction until the asset price reaches (or often exceeds) perceived value equilibrium.

When you throw in ultra-low interest rates and sluggish macroeconomic conditions in the US and Europe holding bond yields down and central bank stimuli overheating global equity indices, investors cannot find many low-risk, reasonable-return investments today.

Astute investors understand that the beginning of an interest rate cycle is not the time to be investing in bonds and that that the risk-reward ratio is simply not attractive with stocks at historic highs on the strength of smoke-and-mirrors political promises.

Fortunately, the alternative investment class has grown notably over the last decade or two to include private equity, futures, commodities/precious metals and real estate. Recent surveys also suggest that real estate is the fastest growing category of alternative investment, with sovereign investment funds worldwide projecting an almost 10% increase in real estate investments in their alternatives portfolio over the next five years (from 38% to over 41% of total alternatives portfolio).

Overview of 2017 US Housing Market by Region

Although millions of Millennials have been living with their parents for the last few years, many financial analysts say this trend is winding down. They argue that Millennials and even older Gen-Xers are just now reaching prime home buying ages, and that many of these now not-so-young adults will be moving into their own places over the next few years.

The analysts argue this bodes well for the US housing market, especially as the ongoing economic recovery is also producing more jobs and driving up wages.

Most well-known housing market analysts expect housing prices nationwide to be up by at least 3% in 2017. January clocked in with a 3.3% annual rate increase in existing home prices, so we are on pace to meet that projection. That said, growth will vary dramatically by region and by city, with many second-tier cities leading the way as growth slows down in major markets like San Francisco, LA and Boston.

With notable exceptions like NYC, housing price growth in the Eastern US and the Midwest is expected to lag growth in the other areas of the country listed below.


The Southeastern US has been experiencing solid growth in home values for almost a decade. According to Zillow, Orlando, Florida is one of the hottest cities in the country, and will see home prices increase by an average of 5.7% in 2017. Knoxville and Nashville, Tennessee appear on Zillow’s top ten list with a projected home price growth of 4.4% and 4.3%, respectively.


Utah is a housing hot spot in the Southwest part of the country. Zillow anticipates home prices in both Salt Lake City and Provo will move up by 4.3% in 2017. Denver is also seeing strong demand for housing, with home prices expected to climb by 3.2% this year.


Seattle continues to be an economic powerhouse and a magnet for new residents. Zillow is projecting that home prices in Seattle increase by 5.6% in 2017. Portland is just 170 miles south of Seattle, and Zillow is projecting housing prices move up by 5.2% in 2017 in this dynamic city. Sacramento, the capital of the Golden State, is also experiencing a real estate boom these days, with home prices expected to appreciate by 4.8% this year.

Medium to Long-term Investments Make Sense for Most Baby Boomers

Baby Boomers have different investment needs than earlier generations of retirees.

Up until the Great Recession, demographers and economists projected that most Baby Boomers would retire and move south much like the preceding generation. However, the stock market crash of 2008 decimated the retirement plans of many Baby Boomers as well as savaged their home values.

The net result is that a lot more Baby Boomers are working longer than they or the demographers expected to try and make ends meet. Related to this, an increasing number of boomers are staying in their family homes to remain near their jobs, children and grandkids.

Moreover, those Baby Boomers who are retiring are increasingly opting to stay in their homes rather than downsize. Part of the reason for this is their children (Millennials) have had a hard time finding decent jobs and moving out. Some surveys have suggested that 20% to 33% of the adult children of Baby Boomers are still living at home and one in three is still getting some kind of financial support.

These surveys also suggest that even when their children have moved out, BB parents want to have a big place for their kids and grandkids to come visit. For a large number of BBs, that means deciding to stay in the family home.

Whether you want to call it postponing retirement or reinventing it, it is clear that BBs have a different idea of how to spend their “golden years” than their parents and grandparents did. Given that pensions are disappearing, Social Security payments only cover a fraction of the cost of a middle-class lifestyle in a major city, and interest rates are so low, BBs have to think out of the box to support their “retirement”.

As mentioned above, many older Americans are choosing to stay in the workforce longer, but that’s not possible for everyone, and age does place limitations on the ability to work. Improvements in medical care also mean BBs can expect to live longer, so most can afford to take a longer-term perspective on their investments.

When you put all the pieces of the retirement puzzle together for BBs, a thoughtfully selected portfolio of real estate investments emerges as an ideal solution. No investment is risk free, but BBs who seek steady long-term income and appreciation have many low-risk real estate investment vehicles to choose from today.

Read the original article here.

Why W-2 Employees and Gig Economy Workers Should Customize Their Pitch to Mortgage Lenders

Owning a home is part of the American Dream, and mortgage lenders are motivated to do everything possible to make sure Americans of all ethnic, educational and professional backgrounds qualify for a mortgage. That said, the current system for determining who qualifies for a home mortgage is not perfect.

Mortgage lenders are highly constrained by regulations, especially since the financial crisis, and have to stick to certain criteria in determining creditworthiness if they want to participate in the federal mortgage system (Fannie Mae, Freddie Mac, FHA and so forth). This means that lenders can’t just rewrite their lending standards, and have to justify making a loan by confirming objective criteria demonstrating the creditworthiness of the borrower.

The key issue here, of course, is that not all borrowers are alike. Although many mortgage applicants today are still traditional W-2 employees who work directly for an employer, the number of “gig economy” contract workers has been increasingly steadily for years, and this trend is very likely to continue.

Mortgage lenders have been working hard to develop new risk assessment models for the growing number of self-employed mortgage applicants today, and some progress has definitely been made.

Management of these firms are leading the charge to make their business processes more flexible, with the goal of offering a loan to anyone who can demonstrate the cash flow to be able to repay what they borrow over a reasonable loan term.

Note that smaller FinTech firms are breaking new ground with innovations in several segments of the financial industry, including mortgage lending. Bigger players have been buying up these innovators or else snagging talent to develop their own products aimed at the expanding pool of gig economy workers.

Tips for Qualifying for a Mortgage in 2017
Like anything else in life, you need to put your best foot forward when you are applying for a mortgage. Whether you are a traditional W-2 employee or an independent contractor in the modern gig economy, you can take steps to make yourself a more attractive borrower.

W-2 Workers
In most cases, the down payment, debt-to-income, and credit requirements to qualify for a mortgage are virtually the same for W-2 borrowers and the self-employed. The difference is that the self-employed typically have a significantly higher documentation burden.

Employed applicants generally just have to provide W-2 forms to prove income, but self-employed borrowers are often required to produce two years of tax returns, including all Schedules.

This means that debts and credit record are especially important for W-2 workers. You can’t change the numbers on your W-2 (although you should tell your lender if you just got a raise, as they will usually increase your income in their assessment formula), but you can take steps to improve your credit score (and your chances of qualifying for mortgage).

Keep in mind that even though it’s more income, having a second job on the side as a contractor can actually make it more difficult to qualify for a mortgage. Some experts suggest you might be better off not even listing the income from the second job unless you need the income to get into an acceptable debt-to-income ratio.

Self-Employed Gig Economy Workers
Even if you can come up with two or three years of complete tax returns, gig economy workers often still have a problem qualifying for a mortgage based solely on returns. That’s because self-employed filers frequently write off expenses that W-2 employees do not (cannot). Therefore, your net income after the write-offs is much lower than it would be without the write-offs.

This lower net income makes it hard to qualify for a mortgage as you often do not meet lenders’ preferred debt-to-income ratio. The preferred range for a debt-to-income ratio today is around 36-43 percent.

If you are considering buying a home in the next couple of years, it may be a good idea to talk to a tax professional to discuss alternative strategies relating to various tax write-offs, given the potential for sabotaging your debt-to-income ratio.

Another strategy is to set up your contracting work as a business and pay yourself as a W-2 employee, instead of taking your income from the profits of the business.

A number of smaller mortgage lenders are developing new credit risk models and rolling out programs designed to assist self-employed individuals in qualifying for a mortgage. These companies are considering a number of new factors in their underwriting models, including social media behavioral analysis, spending history, and the “reputation” of the borrower.

Last, but not least, an increasing number of lenders are now looking to see if self-employed borrowers have significant cash reserves and look more positively at borrowers with at least a couple of months’ worth of expenses sitting in a savings account.

Read the original article here.

Marketplace Lenders Are Viable Mortgage Competitors

The era of self-service online mortgages has arrived. The challenges these new mortgage lenders faced in creating a functional compliance and reporting infrastructure were great, but have been largely overcome (at least regionally). Multipoint, data-driven lending is clearly superior to lending decisions based solely on a credit score or a couple of meetings between banker and client. It boils down to the fact that humans may be more biased than algorithms.

The financial crisis of 2007-2008 badly hurt nonbank mortgage lenders that once profited handsomely from originating loans and then securitizing them. Many firms small and large closed their doors or reorganized from 2008 to 2011.

However, the nonbank mortgage lending sector has bounced back over the last couple of years, and now represents close to 70% of Federal Housing Administration loans. That said, nearly all of these loans meet the FHA’s new stricter rules for qualification.

The relatively high costs of relationship lending encourage bankers today to seek large customers instead of smaller ones. This has resulted in a situation where new businesses and borrowers on the periphery of the banking system are left without many options.

Peer-to-peer lenders and crowd-sourcing firms have developed new ways of assessing risk. Kabbage and OnDeck use information on everything from social-media reviews to usage of logistics firms to assess the current state of small businesses. Avant has developed a unique machine learning system to underwrite consumers whose credit scores were hurt during the financial crisis.

The peer-to-peer segment continues to evolve beyond marketplace lenders. Successful firms like SoFi have morphed into hybrid online banks that raise capital and run hedge funds. Despite an established track record of success in the personal loan and commercial lending sectors by the still-evolving P2P segment, penetration into the mortgage lending sector has been limited, largely due to the regulatory complexities and expenses.

Marketplace lenders are also finding innovative methods for dealing with regulatory compliance in their sectors. For starters, a fully online loan application process literally eliminates paperwork and notably simplifies proof of regulatory compliance.

Note that as of this past summer, nonbank lender Quicken (with their online lender Rocket Mortgage) has moved up to the No. 3 U.S. home lender after Wells Fargo and Chase, originating just under $80 billion in mortgages in 2015.

The online lending and fintech space is maturing from a markets and regulatory standpoint. The Consumer Financial Protection Bureau has taken steps towards additional regulation of the online loan sector, including online mortgage lenders. Of interest, some executives in the expanding segment are actually calling for more regulation to set the stage for the next wave of growth in the industry.

One of the more well-known online lenders, SoFi began in the student loan segment in 2011, allowing recent graduates a chance to consolidate and refinance their loans at better rates. The firm began moving into personal loans and mortgages a couple of years ago. SoFi will sign off on home loans up to $3 million with down payments ranging from 10% to 50%.

SoFi uses a fully online application process where you apply and upload documents online. As of October 2016, the firm is licensed to originate mortgages in 28 states and Washington, D.C.

Better Mortgage has streamlined the mortgage experience into a seamless online process using data science, artificial intelligence, and user experience design. The firm is based in New York, and originates mortgages that they then sell to investors. The entire process from an initial quote through to the ultimate house purchase occurs 100% online. Better Mortgage has originated more than 11,200 mortgages to date.

Fintech is here to stay. Mainstream financial institutions, including Wells Fargo and JPMorgan, have been investing in and acquiring small marketplace lenders and other fintech firms over the last few years. Not surprisingly, some analysts are suggesting that mortgage industry-focused fintech firms are likely to be involved in the next wave of fintech-related investment and M&A activity.

The interest in acquiring these new mortgage industry innovators is not just about new business models and access to relatively untapped markets, it’s also about acquiring regulatory expertise in a highly regulated sector. Acquiring a firm like Better Mortgage includes a core team of knowledgeable mortgage professionals with demonstrated regulatory competence. These professionals understand how to leverage technology to improve the customer experience and simplify regulatory compliance, and larger firms will pay to bring this talent in-house.

You can find the original story at National Mortgage News


Demonstrating Cash Flow Is Key for Self-Employed Seeking Mortgages

The number of self-employed individuals three or four decades ago was just a tiny fraction of what it is today, and the vast majority of business processes in the financial industry were developed under the assumption the consumer was an employee with a regular, predictable income.

These circumstances have made it difficult for participants in the modern gig economy to access important financial services. One key problem is the difficulty many self-employed individuals find in getting loans, in particular mortgages.

This less-than-ideal situation for the self-employed is, however, starting to change. Financial institutions of all types are beginning to recognize that they need to adapt as the number of participants in the gig economy continues to grow. Management understands they need to improve their business processes to be more flexible, so they can provide a full range of financial services to anyone who can show they’ve got the cash flow to pay back what they borrow.

The good news is that this process has already begun. Recognition of the ongoing demographic and economic transition to the gig economy was the first step, and smaller fintech firms are leading the way with innovations in several segments of the financial industry. Larger firms have already begun snapping up these innovators or poaching talent to help develop their own products for the growing self-employed market.

Fannie Mae also revamped several underwriting/documentation rules last year, making it easier for the business owners without W-2’s to be approved for mortgages. These policy updates make it easier for three categories of self-employed borrowers to be approved for mortgages:

  • Self-employed borrowers with no history of “taking paychecks” (no or irregular business distributions)
  • Self-employed borrowers without two years of tax returns to support their claims
  • Salaried borrowers with a second independent contractor gig for which the income is not needed to qualify

The Documentation Dilemma

Significant regulatory oversight over the mortgage industry has led to the fact that documentation is the name of the game today when it comes to qualifying for a mortgage. The documentation requirements for a mortgage can be daunting to any borrower, but the requirements are particularly burdensome for most self-employed individuals. This means that the self-employed must either jump through a veritable maze of hoops to qualify for a low-rate mortgage or pay a higher interest rate on their loan.

For the most part, down payment, debt-to-income and credit requirements are the same for W-2 borrowers and independent contractors, but the difference in documentation requirements for the self-employed is notable. Employed applicants typically only need to provide W-2 forms to prove income, whereas self-employed borrowers typically must submit two years of tax returns, including all schedules.

The tax return approach, however, often leads to problems as non W-2 filers usually write off various expenses that W-2 employees can’t. This means that their net income after all the write-offs is a lot lower than it would be without the write-offs. This makes it hard to qualify for a mortgage, because your debt-to-income ratio appears low.

Mortgage experts say the crucial factor is to demonstrate a net income, after write-offs, that results in a debt-to-income ratio in the preferred range of 36% to 43%.

If you can’t meet the preferred debt-to-income ratio, your only other options at that point is to opt for a SISA or no documentation mortgage, where you will certainly have to pay a higher interest rate.

New Research Using Multivariate Modeling Shows Self-Employed Are Not Worse Credit Risks

New research using “multivariate” modeling of credit risk (using data besides traditional income-related data) for the self-employed shows it is superior to the typical “discriminant” modeling in avoiding bad loans. This suggests lenders using multivariate assessment of credit risk can make loans to the self-employed that would be no more risky than loans to W2 borrowers.

One key reason for this is that if a W-2 employee loses her job, her income will drop to almost nothing immediately (assuming no unemployment insurance benefits), potentially creating a major risk of loan default. On the other hand, gig economy workers typically have multiple clients and are unlikely to lose all of them at once, giving them more job security than is commonly perceived.

Documenting Cash Flow Is Key to Mortgage Approval

Cash is king, and nowhere is that aphorism more apropos than the mortgage industry loan approval process.

Cash flow, not credit score, is increasingly becoming the primary consideration in mortgage credit risk assessment today. This means bank account balances, spending patterns and loan records are now as important to the process as credit reports and income tax returns.

According to financial experts, you can maximize cash flow and improve your chances at qualifying for a low-interest loan by:

  • Registering and/or licensing your business.
  • Paying yourself a W-2 wage (obviously this has tax implications).
  • Lowering your personal or business debt load.
  • Although it may sound counter-intuitive, you should consider reducing your tax deductions.
  • Always maintain separate business and personal accounts.
  • Making a larger down payment.
  • Working with a small business where you already have a good relationship, such as a local credit union, independent bank or mortgage firm.

Read the original article HERE


3 Tips for Investing in Residential Real Estate in 2017

Aside from owning your home, it used to be that only the wealthy and well-connected were investing in real estate. Unless you knew the right people and were willing to put up a big chunk of money, there were relatively few methods for the average person to invest in real estate aside from just buying properties and renting them out for income.

Real estate investment has, however, changed dramatically over the last couple of decades. Today individual investors have access to many different real estate-related investments. Moreover, new platforms for investing in residential real estate (that don’t involve the headache of being a landlord) have also proliferated in the last few years.

Here are three ways for individual investors to make profits in real estate today.

Invest in REITS

Real estate investment trusts (REITs) are an increasingly popular option for real estate investing. You can purchase shares in a public REIT just like you buy mutual funds or stocks. The business model of a REIT is owning and/or developing income-producing assets in a particular segment of the real estate market. For example, you can invest in a REIT focusing on commercial real estate, maybe malls or office buildings, or a REIT specializing in residential real estate like apartments or condos.

Many investment advisers suggest using REITs in your portfolio to balance out stock and bond funds and mitigate portfolio risk as this asset class often does well when other investments are performing poorly.

Before investing in a REIT, make sure to understand how the trust is designed and how value is derived from its holdings. Keep in mind that the performance of a REIT is based on cash flow and profits from selling properties, and may not be impacted much by factors that typically drive the performance of stock and bond funds.

While most investment advisors today suggest considering real estate as an alternative investment, the majority suggest it should represent no more than 10-20 percent of your portfolio.

Take a Closer Look at Real Estate Investment Partnerships

Another way to invest in real estate is real estate investment partnerships. Current laws allow investment partnerships to be structured in a number of ways, including tenant in common projects, general partnerships, or limited liability partnerships (LLP) or limited liability corporations (LLC). These structures each have their own advantages and disadvantages, so always do your due diligence on your partners and potential liabilities before investing in a partnership.

Take a close look at how decisions will be made, and how managing partner/partners will be selected (and how they can be removed). Always insist on a written real estate partnership agreement, which should be reviewed by an attorney with experience in real estate transactions.

Limited liability partnerships are frequently established having an experienced property manager or real estate developer as the general partner. Investors are used to provide financing for the projects, and they are typically brought on as limited partners.

Diversify Your Portfolio with Peer-Based Residential Real Estate Platforms

You can also invest in residential real estate through peer-to-peer lending platforms. Just a few years ago, almost all P2P lending platforms making real estate loans focused on commercial properties.

Fundrise (equity crowdfunding) was one of the first firms to offer residential real estate loan products, launching in mid-2014. SoFi has also recently begun mortgage underwriting. With SoFi, however, nearly all of these P2P home loans are for larger amounts to borrowers with excellent credit.

Other broader peer-based lending platforms based on residential real estate and mortgages that have launched recently include Elevate (UK), LendInvest (UK) and Income& (US).

Academics argue the real estate investment sector has matured enough to become a new asset class along with stocks, bonds and cash. That’s why it’s not surprising that most investment advisors suggest real estate should be a substantial part of all larger portfolios today.

Original article here

New Rules for Chinese P2P Lenders Designed to Minimize Fraud, Slow Industry Growth

Chinese authorities finally promulgated the long promised new rules for P2P lenders in October. These new regulations are designed to minimize fraud, and to tamp down the rapid, uncontrolled growth of the sector by flushing out the numerous fly-by-nights and bad actors.

Financial regulators in China have issued regulations to put the brakes on the fast-growing P2P sector a couple of times in the last year or so, but have seen limited success. China watchers have noted that the relatively minimal efforts at regulation of marketplace lenders by authorities to date may relate to the fact that lending to small businesses has largely dried up outside the P2P sector, and Chinese economic planners don’t want to see economic growth drop too low.

That said, these new regulations are more comprehensive, and represent a more serious effort by Chinese regulators to slow growth and crack down on the notable amount of fraud in the sector. Financial analysts also suggest that these new rules will help standardize offerings in the sector and discourage P2P platforms from making excessively risky business decisions.

The new regulatory schema was published by the State Council on October 13th. The plan is designed to curb risk-taking and fraud across the Chinese fin tech sector, and applies to online finance sectors other than P2P, such as third-party payment firms.

“The launch of the plan is of great significance. It shows that the chaos in China’s Internet finance sector will be rectified,” Yang Dong, a professor at the Renmin University of China law school, explained in an interview.

Details of China’s New P2P Regulatory Scheme

For starters, the new Chinese government Internet finance sector regulations create a new category of restricted businesses for China-based P2P players, including illegal fundraising, forming capital pools and false advertising, among other prohibitions. Moreover, P2P firms may not offer other financial industry services such as asset management and share transfers without being fully licensed and approved by the authorities.

These prohibitions alone will winnow out a lot of the newer entrants into the field, as many firms were basing their business models on making substantial profits from providing other financial services besides facilitating loans between peers.

The new plan also mandates P2P firms deposit customers’ funds with a third-party institution in order to guarantee the safety of investments.

The new regulations also limit borrowing to Rmb 1m ($150,000) for individuals and Rmb 5m for businesses. Note that this limit applies to total borrowing from multiple platforms. For lenders the limit is Rmb 200,000 for individuals, and Rmb 1m for companies per P2P lending platform.

Although some regulatory agencies and legal precedents have already put forth many of the latest rules in various forms, the new regulations are the first comprehensive schema for regulating Chinese P2P lenders.

The new rules also set out authority among Chinese regulatory agencies. Somewhat surprisingly, financial regulators at the provincial and city level will be primarily responsibility for registering and overseeing marketplace lenders. Local regulatory authority offers the benefit of more direct supervision, but China experts highlight graft and fraud among mid-level bureaucrats is still relatively common at the local level.

While the new rules for the internet finance sector in China are a big step in the right direction, it remains to be seen what degree of enforcement and compliance we will actually see.

Keep in mind that China’s economy is clearly slowing down as the government is transitioning from a manufacturing-based economy to a consumer and services model. Slowing growth and mounting losses in many sectors of the Chinese economy means stagnant equity prices and a major flow of investment capital into the lending sector seeking higher returns.

All of this added liquidity in the last year or two is the biggest reason the Chinese P2P sector is growing so fast and risks are increasing.

However, the government crackdown on the P2P sector earlier this year and various earlier regulatory efforts have started to have an impact. Of the 2,417 marketplace lenders registered in China as of September 30, 2015, only 2,202 were in operation by the end of September 2016.

That is still a large number of firms even for large economy like China, and this new regulatory plan will shrink that number further. However, given the current glut of investment capital and strong demand for loans for small- and mid-sized businesses, the total amount loaned out by Chinese P2P firms may not shrink appreciably and even rebound to new highs as consolidation occurs and major players emerge.

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Foreign Buyers Widening Range of US Real Estate Investments

People of notable wealth from other countries have been interested in buying prime US real estate for some time. The trend actually stretches all the way back to the mid-19th century when wealthy Europeans first began buying homes in the US in some numbers. In recent history, the oil boom in OPEC countries led to significant commercial and residential real estate investments in the US in the mid to late 1970s. By the 1980s, the economic boom in Japan was generating billions of dollars of surplus cash, and a good chunk of those funds ended up invested in US real estate and infrastructure deals.

It wasn’t until the mid-1990s, however, that we started to see sustained large scale investment in US real estate by a range of foreign buyers. According to the National Association of Realtors, foreign investment in US real estate moved up from $2.763 trillion in 1992 to a remarkable $8.144 trillion in 2001. That is a tad under a 200% increase within a decade.

The trend toward greater foreign buying of US real estate has continued to pick up steam in the 21st century, especially in the last few years.

At 16%, foreign purchases as a percentage of total investment in U.S. real estate in 2015 was almost double the 8.1% average in the 10 years through 2012 (data from Real Capital Analytics Inc.).

Over the last few years, residents of Canada, China, and Mexico have bought the most US real estate assets, with China increasingly leading the way.

Foreigners Broadening Real Estate Investment Portfolios

Although New York City and San Francisco remain the most popular locations for foreign real estate buyers (with LA, Washington DC and Chicago in the next tier), the last few quarters have seen foreign investors purchasing more properties in secondary markets. Charlotte, N.C. has enjoyed a huge boom of investors from abroad, boasting a 29.8% boost in transaction volume in the first quarter of this year.

Rick Sharga, executive vice president at Ten-X, an online real estate marketplace, noted in an interview with CNBC that foreign buyers are starting to geographically broaden their US real estate investing portfolios. “We’ve seen at least some evidence that foreign buyers — both investors and people just looking for a home — have begun looking beyond expensive markets like San Francisco, New York City and Washington D.C., and buying properties in smaller, less-expensive cities in the Southeast and Midwest.”

So far this year, investors from Singapore have focused most of their buying in Los Angeles and Phoenix, while Swiss investors have bought the most property of all nationalities in Portland, Oregon. Also of interest, real estate purchases by foreigners in Philadelphia were dominated by buyers from the UK.

Recent statistics also suggest that foreign real estate buyers ex-China are purchasing less expensive homes on average. Reflecting this trend, the dollar value per transaction from Q2 2015 to Q2 2016 was down 1.3%, but the total number of US properties purchased by foreign buyers was up by almost 3%.

China Buying a Piece of the US

Chinese investors have been major buyers of US real estate for some time, but the pace of purchases has quickened dramatically over the last year or so. The surge of purchases of both residential and commercial real estate in 2015 brought the five-year total for buyers from China to over $110 billion, based on data from the Asia Society and Rosen Consulting Group.

Moreover, even though there has been a slowdown in buying of US real estate due to a government crackdown on capital outflows, the Asia Society/Rosen Consulting study suggests purchases of American real estate by Chinese buyers in the second half of this decade will double to $218 billion.

Path Act Further Opens Floodgates to Foreign Buyers of US Real Estate

In a rare piece of bipartisan legislation passed during President Obama’s term, the PATH Act rolled back a law passed back in 1980 that was designed to put curbs on foreign ownership of US real estate assets.

The Protecting Americans from Tax Hikes (PATH) Act was signed by President Obama in December of last year.

While the PATH Act has been publicly touted as a permanent extension of a number of tax provisions benefiting U.S. taxpayers, it also rewrites a law that forced most foreigner real estate investors to pay an extra tax.

The Foreign Investment in Real Property Act of 1980 mandated additional tax on any gains when a non US citizen sells U.S. real estate, but that tax was in effect rolled back by exceptions provided in the PATH Act.

Real estate industry experts note these changes give buyers from abroad additional incentive to buy US real estate, especially Real Estate Investment Trusts (REITs), and is a likely a contributing factor in the ongoing US “land rush” by foreign buyers.

On a cautionary note, several of these same experts also point out that this flood of buying by foreigners the last few years has been a major support for the US real estate sector.

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