Real estate crowdfunding might be a newer concept, but it’s growing like wild fire.
Believe it or not, Patch of Land has originated over $100 million in short-term loans and has returned over $25 million to investors in the form of principle and interest.
Realty Mogul, one of the leaders in real estate crowdfunding, is very close to hitting the $200 million milestone and has returned $20 million in principle and interest to its investors.
Venture capitalists also see the potential in this industry! CrowdStreet just recently raised nearly $5 million in a Series A round.
But, real estate crowdfunding is not like traditional crowdfunding. It’s not like launching a Kickstarter or Indiegogo campaign. True, there are some similarities, but there are also some stark differences.
In this post, I’m going to go over some tips that real estate developers or sponsors can use to get started financing their property on a crowdfunding site.
1. Demonstrate a track record of success
Every real estate crowdfunding platform that I’ve interviewed will only work with sponsors that have a proven track record of success. They’ll turn away the majority of firms that approach them about launching a crowdfunding campaign.
This is because real estate crowdfunding sites (like these) are curated platforms. Their reputation as an investing and financing marketplace depends on the quality of their offerings. They must do due diligence to preserve a healthy crowdfunding ecosystem.
You have to show that your firm is capable of managing a property, dealing with investors, and executing on your vision.
2. Choose the right crowdfunding platform
You’re going to have to get ready to do a bit of research to find the platform that’s a right fit for you. Each website differs in a few ways:
- Type of financing. They could offer debt or equity financing. Some offer both.
- Fee structure. Not every platform operates on a strict percentage fee structure. Some charge per listing or will license their crowdfunding software so that you can host the campaign. Also, fees vary across the industry. Some only charge the sponsor, others charge both the sponsor and the investor.
- Real estate property class. Some platforms only deal with commercial real estate. Others specialize in residential real estate. At the time of writing, I haven’t found any that finance real estate developments from the ground up.
A lot of these real estate crowdfunding websites have an FAQ section and learning materials to get you started. I’d recommend taking advantage of them. You should also browse through some of the completed deals on the website to familiarize yourself with the type of properties they’re interested in.
To help you on your path, I’ve put together an Amazon ebook to get you up to date fast on this new industry. It brings together all of my knowledge, along with interviews of some of the key players in the the niche.
Thus far, I’m excited to hear that a lot of readers have found it to be very helpful!
“I got into crowdfunding and soon after stumbled upon Sal’s website/blog, crowdcrux.com. I’ve been looking into and hearing about real estate focused crowdfunding for a while and this book was a great resource in brining that field into greater focus, with clarity. It’s good!” – Eric Najjar.
If you still have questions, I’ve included my email address in the ebook so that you can contact me directly!
3. Think long-term when building your profile
Finally, there’s a phenomena that happens when a new marketplace emerges like Kickstarter, YouTube, or the iTunes podcasting marketplace.
The gains go to a small handful of players that get in early and establish credibility on the platform. The quicker you establish competency, the easier it will be to finance future properties. Just like everything, trust is a currency, and it’s a very important one in the online world.
If you work hard at building a great profile and establishing a positive relationship with the platform and your investors, it will benefit your firm in the long run for a few reasons.
- You’ll become an example of success. Your property or firm will be the one that the crowdfunding platform talks about in the media or features on their homepage.
- You’ll be seen as having authority. This is a great position to be in. You can leverage it in many ways. Having authority in a new financing route can lead to speaking gigs and great networking opportunities.
- The cost of capital will decrease over time. Remember, investors value two things. Security of capital and a great return. I like to measure the acquisition of capital in terms of time and money. The higher your trust on a platform, the less time you’ll spend acquiring new capital for new properties. You’ll have already established a relationship with a core base of investors.
Don’t be afraid to ask questions!
Right now, there aren’t many places online that you can go to get your real estate crowdfunding questions answered. I do have an Ask Sal show, where you can submit your questions to be answered on my podcast.
If you decide to check out my ebook, Real Estate Crowdfunding Explained. I’d appreciate a review on Amazon. Be honest and tell me what you think! I hope you’ll see how to get in on the explosive growth of this new industry.
You can also leave a comment on this blog post with any questions, and I’ll get to them when I can.
