Real Estate Made Simple

Category: News

Co-Founder of PayPal Launches New Credit Startup

Max Levchin, one of the co-founders of Paypal, has announced that he has raised an impressive $425 million of funding for his newest venture, Affirm, the mission of which is to replace credit cards with micro-loans at a point of sale.

The startup’s service, which is called “Buy With Affirm,” allows shoppers to pay forgoods online in a series of monthly installments, in lieu of one lump-sum payment that is often beyond the customer’s means. By submitting your name, cell phone number, birthday and the last four digits of your social security number, you can apply for membership, at which point Affirm’s algorithm considers a number of variables – like the regularity with which you receive paychecks and how liquid your finances are – to determine how much risk is associated with your finances and whether you are a suitable candidate to receive Affirm’s micro-loans.

W. Darrow Fiedler

With Affirm, PayPal co-founder Max Levchin is hoping to disrupt the credit industry completely.

Describing the motivation behind his new company’s mission to Fortune Magazine, Levchin pointed to the fact that many Millennials not only feel no sense of loyalty towards their banks, but actually possess a marked distrust of large financial institutions. This was shown in a research study conducted by Viacom Media, in which 10,000 Millennials were polled about Big Finance and agreed across the board that all four of the biggest banking brands were on their list of the ten least-loved brands in the USA. Levchin’s solution, then, is to provide these Millennials with a banking alternative that offers increased transparency, in addition to assistance paying off larger amounts of money.

Since Affirm’s launch, the number of merchants they’re partnered with has increased steadily. Last year, they were only used by 100 merchants, and this year, they are used by 700. According to Levchin, users are also hopping on the Affirm bandwagon in impressive numbers, and many are coming back again after their first use.

Clearly, some heavy-hitting investors agree with Levchin that when it comes to Millennial banking and credit, something’s got to give. Founders Fund, Affirm’s newest investor, just contributed $100 million to the company’s financial backing, and they have already received investments from Lightspeed Venture Partners, Spark Capital, Khosla Ventures, Andreessen Horowitz and Jeffries.

It will be interesting to see if Levchin is successful in doing for credit what PayPal did for online payments; only time will tell.

How Crowdsourcing is Changing the Face of Real Estate Investing

The process of crowdsourcing, or collecting information or funds from a variety of people to complete a project, has gained increased popularity in the past few years with the creation of a number of online crowdsourcing platforms, like Kickstarter and GoFundMe. Originally used to solicit donations to cover the cost of creative endeavors, like recording an album or shooting a movie, crowdsourcing’s applications seem to be multiplying by the day. Now, sites exist to help patients defray the cost of their rising medical bills, to help pet owners get assistance to pay off their animal’s healthcare costs, and even to help students pay for their tuitions.

As a real estate professional, I am particularly interested by a new trend in crowdsourcing that may very well change the face of real estate investing as we know it. Since Congress passed the JOBS, or Jumpstart Our Business Startups, Act in 2012, 80 companies have now thrown their hats into the world of real estate crowdsourcing in the hope of lowering the barrier of entry to real estate investing by opening the industry up to investors who have not have the credentials or financing to have gotten involved before.

W Darrow Fiedler

When it comes to crowdsourcing for real estate investments, a little bit of cash goes a long way.

Real estate investment crowdsourcing works like this: instead of one investor ponying up the high amount of money traditionally required to claim an investment, many people contribute smaller amounts of funding, thereby distributing the ownership and control of the investments across every person who contributes. Then, crowdsourcing real estate investment firms, like a company called Fundrise, work with these investors to counsel them on best and wisest investment practices, brokering the deals as a company and divvying up the profit amongst the investors. In the case of Fundrise, specifically, a layman can become a real estate investor simply by paying a thousand dollar minimum investment. Other firms are stricter about who can participate in these deals; some limit participants to investors who are what the SEC defines as “accredited investors,” or people who make an annual income of $200,000 or more or have assets worth more than $1 million in addition to their primary home.

Of course, there are some pitfalls to this new method of real estate investing. The companies behind real estate investment crowdfunding do charge their investors fees, both on total investments and again if the property in question sells. And traditional real estate investment firms have expressed concern about allowing inexperienced investors to participate in such large-scale deals, largely because they feel such arrangements open the door to unwise investing and the potential for tremendous financial loss if the investors aren’t given good advice.

Regardless, the invention of real estate crowdsourcing is ushering in a new era of investing and may very well turn out to be a major disruptor to an industry that has been virtually impossible to break into without the right connections in the past. And, as always, as long as you make a point of educating yourself about your financial health and options for investing, the better the likelihood will be that you’ll make informed investment decisions and end up turning a profit as a result of your hard work and efforts.

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