Real Estate, Real Returns:

Getting Started in
Online Real Estate
Investing
Investing in Residential
Real Estate
Real estate is one of the most immediately understandable investments. This
asset class consists of the buildings we live and work in every day, offering a
daily familiarity that most investors simply do not have with stocks, bonds, and
other more exotic investment instruments. The investments are backed by real,
physical assets that are a vital part of the economy. U.S. households currently
hold more than $15 trillion in home equity, while the mortgage market is worth
approximately $9.5 trillion1.

In recent years, opportunities to invest have opened up with the creation of new,
online platforms that make it easier for investors to add real estate into their
investment portfolios in ways that were previously inaccessible. These platforms
offer a wide range of investments, from equity opportunities in big commercial
buildings to debt in the residential market. Here, we will take a look at some
of the benefits investing in real estate offers an investor and then undergo a
deeper examination of one specific type of investment: short-term debt for
professionals who renovate and then resell residential homes.

1 http://www.wsj.com/articles/net-worth-of-u-s-households-rose-to-record-86-8-trillion-in-fourth-quarter-fed-says-1457629307#:RmU0PcDafpsetA 2
Benefits of Investing
in Real Estate
One of the primary reasons that investors put money in real estate is to diversify
a portfolio from other investments. Diversification lowers the overall risk of a
portfolio by spreading out investments across different asset classes and, within
each asset class, across different investments, thus minimizing the effects of
a loss from any one investment on the overall portfolio. Real estate has a low
correlation with other asset classes like stocks and bonds, making it a popular
choice for investors looking to diversify. Historically, investing in properties and
buildings has offered strong returns with less volatility than stocks.

The benefits of investing in real estate are widely recognized—in a Gallup poll
released in April 2016, Americans selected real estate as the most desirable
investment opportunity available, above stocks, bonds, gold, and savings2.
However, traditionally the barriers to investing have been high. This is beginning
to change with online marketplaces offering solutions.

2 http://www.gallup.com/poll/190850/americans-say-real-estate-best-long-term-investment.aspx?g_source=real%20estate%20investment&g_medium=search&g_
campaign=tilessource=real%20estate%20investment&g_medium=search&g_campaign=tiles
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Traditional Barriers to Real
Estate Investment
Directly investing in property requires significant information gathering and
active management from investors. Minimum investments to buy an investment
property directly are high, and investors often cannot diversify within the
real estate investment class as a result. They are also generally restricted to
investing in their own local geographic area because it is difficult to spend time
in and gain enough knowledge about other areas to make informed
Real estate has a low investments. Once an investor has purchased a property, additional
correlation with other time is required to manage and run the investment.
asset classes.
A less direct option for real estate investment comes in the form of
a Real Estate Investment Trust, known as a REIT. An REIT invests in income-
producing properties, and makes its shares available to purchase on the stock
market. REITs offer up the diversification benefits and potential high
returns of real estate investment, but are professionally managed, removing
the need for intense involvement by the investor that direct investing requires.
Investments in REITs are also more liquid since they are traded on stock
exchanges. However, most REITs charge high management fees, offer low levels
of transparency into the actual investments being made, and since they are
traded as stocks—are still exposed to overall fluctuations in the stock market.

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Online Marketplaces
Over the past few years, a new option for investing in real estate has gained
popularity. Online marketplaces offer individual investors the opportunity to
access investments that range from equity in commercial buildings to debt in
residential properties, all with low minimum investments and
minimal fees. These marketplaces eliminate the hyperlocal
Online real estate offer
nature of real estate investing while also allowing investors
low minimum investments to spread their money across numerous investments and
and minimal fees. diversify within the class.

Unlike REITs, most marketplaces offer information about specific investments

online allowing investors to pick and choose their ideal portfolio. This ease of
investment combined with fractional investing has brought the best of both
worlds—direct access without the high minimum investment or significant time
required on a direct real estate investment.

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Opportunity in the
Residential Flip Market
The residential market is made up of houses and buildings that people live in.
An easy way for individual investors to enter into the real estate market is to
provide short-term debt to professional real estate investors who buy, rehab, and
resell residential homes, an activity sometimes referred to as “fix and flip.” These
flipped homes are currently filling a significant need in the U.S. housing market.
New housing starts fell dramatically following the 2008 housing crisis, from a
high of more than 2,000,000 in 2005 to a low of just 586,900 in 20093.

As of 2013, over half of the $28 trillion

New Privately Owned Housing Units Started worth of housing inventory in the United
States was at least 35 years old.
2,500K 2,068.3K in 2005

However, a 2012 Coldwell Banker

study found that 81 percent of first-
1500K
time homebuyers consider move-in
conditions to be very important when
choosing a home, and only 7 percent
500K would consider buying a fixer-upper
UNITS
554K in 2009 home4. This disconnect between the age
YEARS 2005 2010 2015 of the housing stock and the desires of
homebuyers leaves an important gap to be
filled by professional real estate investors who fix up properties that are older or
in disrepair and bring them to an acceptable modern standard.

Following decades of suburban growth and urban population decline, over

the past ten years cities have experienced renewed growth, a phenomenon
dubbed the “great inversion” by urban scholars. A recent study found that the
revitalization of urban areas is driven by the growth of high-wage employment
downtown5. As of February 2016, urban home prices were about 25 percent
higher per square foot than those of suburban home prices6. Due to the decades
of urban flight prior to the recent change in trends, cities have an older housing
stock than more suburban areas, creating a need for flippers to improve houses
to suit the needs of new city dwellers.

�
4
https://www.census.gov/construction/nrc/pdf/startsan.pdf
http://www.marketwired.com/press-release/coldwell-banker-real-estate-survey-first-time-buyers-demandnew-kind-of-starter-home-1391862.htm
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5 http://edq.sagepub.com/content/early/2016/03/18/0891242416638932.refs
6 https://www.zillow.com/research/urban-suburban-rural-values-rents-11714/
 Over half of the $28T U.S 2010-2013 (2%)
1969 or earlier (40%)
housing inventory is 35+
2000-2009 (15%)
years old

1990-1999 (14%)

1980-1989 (12%)

1970-1979 (17%)

Driven by the ever-increasing gap between existing and desirable housing

stock, house flipping increased by 75 percent in 2015, and nationwide gross
flipping profits were at a 25-year high7. Flippers add value to homes that are
aging or in disrepair by undertaking renovations that make homes desirable to
people looking to buy and live in them. Flipping houses can also add value to
neighborhoods and to other homes in an area by improving homes that were
previously vacant or unsightly. By renovating homes, flippers can help revitalize
communities.

7 http://www.realtytrac.com/news/real-estate-investing/2015-year-end-and-q4-u-s-home-flipping-report/ 7
Renovating and Reselling
Homes in Oakland
When Eduardo Axtle renovates houses in Oakland, California, his goal is to
create the nicest house in any given neighborhood. Eduardo grew up in East
Oakland and has a vast, deep knowledge of the city. He started investing in real
estate as a hobby and eventually built a business from his investments. He now
plays a major role in revitalizing Oakland’s urban neighborhoods by fixing up
homes that had fallen into disrepair.

Eduardo bought a property on West Oakland’s Chestnut Street in 2014 from

a family trust. He purchased the home in cash and then refinanced with
LendingHome. The house was unlivable at the time of sale, with a frame that
had been burned at its center and a destroyed interior. To start the renovation
process, Eduardo’s team had to remove seven truckloads of trash from the
house. They then set about completing a full reframing job, work that Eduardo
says will make the house last another 100 years.

Eduardo regularly has several construction projects underway at one time in

different parts of Oakland. While the Chestnut house is being renovated, work

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is also underway across town in East Oakland at a duplex. The previously
dilapidated property used to have rusted cars in its front lawn and faded siding,
all of which are now gone. Soon, a young family will likely move into the duplex
as a starter home.

In order to get the best value for his projects, Eduardo carefully sources
everything from the neutral paint he uses to construction supplies, buying in
bulk so that he can keep his prices low and deliver a high quality product. Back
on Chestnut Street, the formerly rundown home that Eduardo’s team has been
working on is now a four-bedroom, two-bathroom house with smart wood floors
and sparkling modern appliances. He has been able to sell the house before
work is finished to new owners who will move in and take care of their home,
adding value to their community. The purchase price will set a new standard for
comparable values in the the neighborhood.

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Investing in
Residential Flips
Real estate professionals who flip homes often use short-term mortgages
known as Bridge Loans to purchase and rehabilitate those homes, opening up
an opportunity for investors to finance this market. These mortgages have short
durations of just 6 to 12 months that last until the homes are resold. Interest
rates can range from 7 percent to more than 12 percent, well above those of
more traditional long-term residential mortgages. Bridge Loans help real estate
professionals grow their businesses while simultaneously offering strong returns
to the investors who fund them. Each mortgage is backed by a real asset,
and borrowers are required to put up a percentage of the purchase price with
their own funds (as is typical with the down payments experienced by most
homebuyers).

Individual investors can fund these loans via online marketplaces like
LendingHome, investing alongside some of the largest credit funds in the world.
These investments offer up a unique combination of short durations and strong
returns. Treasury bills offer similar short durations but with much lower yields,
while many other marketplace real estate investments provide high returns but
with longer investment terms. Previously, the Bridge Loan market was highly
fragmented, but new marketplaces now make investing accessible and easy.

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Investing in the
Residential Flip Market
with LendingHome
If you’re looking to diversify your portfolio with real estate and are attracted to
the high returns and short durations that come with the Bridge Loan market,
LendingHome offers high-quality investment opportunities through its online
mortgage marketplace.

LendingHome has originated more than $675 million in loans to date and has
returned over $305 million in principal and $30 million in interest to its investors.
Its mortgage platform is trusted and utilized by institutional investors thanks to
high quality and strong returns, which average more than 10%.

Every mortgage funded by LendingHome undergoes an extensive underwriting

process. Mortgages are offered to investors as fractional notes, allowing
investors to diversify their portfolio even further across a number of loans.
Investors can either pick their own portfolio through LendingHome or choose
to use AutoInvest, which does all the work and spreads out investments over a
variety of notes that suit an investor’s chosen criteria. And LendingHome funds
the mortgages prior to offering them out on the platform, meaning that investors
can start earning interest from Day 1.

To learn more about investing on LendingHome’s platform,

visit www.lendinghome.com/invest

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