Constitution Lending is a recent entrant in the real estate investment crowdfunding ecosystem, parlaying prior experience as a fund investing in real estate debt into an online investment portal. Constitution Lending operates as a “hard-money lender”, offering developers short-term loans for various types of real estate projects, then selling the loans fractionally to investors. All of the Constitution Lending investments are “pre-funded”, which means Constitution Lending funds the loan with its own money, and then recoups those funds from investors. That can mean that as an investor, you’d begin receiving payments sooner than if the loan had to wait to be fully funded by investors, as is the case with some other platforms.
While the public track record shown on the platform itself is sparse, according to Constitution Lending, they previously funded more than 30 projects prior to launching the platform.
Types of investments Constitution Lending offers
Constitution Lending only offers real estate debt investments, used to fund a variety of project types, including residential rehab (“fix and flip”) as well as AirBnB rentals. Most of their loans have 6-18 month terms. Borrowers apply for loans directly with Constitution Lending, and if approved the loan is pre-funded by Constitution Lending. That means the borrower can start the project right away without waiting for the loan to be fully funded by investors (it also means some offerings remain underfunded once the loan term starts, which means you may be able to find loans with shorter terms than the original loan).
Once you’re logged-in and have verified accreditation status, you can review details of each prospective investment. It would be nice to see more detail about the borrower and the project.
What do you get when investing with Constitution Lending?
One of the appeals of real estate investing (especially debt investments) is that the investment is backed by a tangible asset that can be sold off to recover investor money if something goes wrong. But as with many of the crowdfunded real estate investment platforms, your investment is, strictly speaking, not actually secured by the underlying property. Instead you receive what’s known as a “Borrower-Dependent Payment Note” which entitles you to a specific share of the principal and interest payments received from the borrower on the mortgage.
How does Constitution Lending make money?
Constitution Lending does not charge any direct fees to investors. They do charge borrowers various fees, and there is a “spread” between the interest rate charged to borrowers and what is paid to investors. For example, the borrower may be paying 12% on a loan, while investors receive 10%. Constitution Lending also earns the full interest on any portion of a loan not funded by investors.
Constitution lending also deducts a 0.5% “servicing fee” and a 0.7% “Payment guarantee fee”, so the net yield is typically about 1.2% lower than what’s shown as the headline on the offering page.
Potential returns and cashflow
The open investments on Constitution Lending at the time of this writing show yields between 10-11% (though as noted above, the net yield is lower as a result of fees). Payments are made monthly, and Constitution Lending notably offers a “payment guarantee” ensuring investors receive at least the first 6 months of payments in full and on time (though there is a 0.7% fee to help fund that guarantee).
Breadth of offerings on Constitution Lending
According to Constitution Lending, they funded more than 30 projects before formally launching the platform. As of this writing, only 3 projects are live for investment, all with terms of 12 months or less.
Regulatory framework and due diligence expectations
Constitution Lending offers investments only to accredited investors, under SEC Reg D. They are not a registered broker-dealer or investment advisor.
On the borrower side, Constitution Lending promotes their ease of application and approval, with no income verification. They do require a personal guarantee from borrowers, as well as “equity pledge”, intended to circumvent the standard (and often costly) foreclosure process. According to their FAQ, “In default, the lender can foreclose on the LLC interest that owns the property instead of directly foreclosing on the property thus circumventing the judicial foreclosure process. Typically this means a significantly faster principal payback process for investors.”