Peer to Peer Lending for Investment Rental Property

Peer to peer lending is one of the hottest new trends in the loan industry and is well suited for rental property investment.

Sometimes abbreviated P2P, this type of lending bypasses traditional banks and other institutions. Individuals bid on your business at websites devoted to this business model. While banks will typically only look at your credit score P2P lending sites will allow you to "sell" yourself.

Some P2P lending sites include:

• Prosper
• Lending Club
• 40Billion.com - advertised to be for entrepreneurs
• Zopa

Wikipedia has a more extensive list of sites. I've used Prosper to borrow money. Payments were deducted from my bank account directly. I was able to get a pretty good interest rate comparable to a HELOC interest rate at the time.

How P2P sites work is that potential investors bid on your loan. They are able to see a credit rating that the site gets from the credit reporting agencies. You also write a "story" about what you need the money for. If you are sympathetic you often attract more investors which can drive down the interest rate of your loan. This is much like an E-bay auction where investors are bidding on your potential to pay them back.

Investors typically only invest small amounts of money for any given loan so that their risk is low if you default. If you fail to repay the loan it will show up on your credit report.

I like the peer to peer lending model for rental property investment. You might use it for a down payment or for rehab costs. I'm not sure how big the industry will grow and occasionally one of the sites may have to stop loaning money in order to satisfy some government regulation or another. But it is definitely worth a shot if you do not have other sources of funding.

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