Crowdfunding continues to be a hot topic in the media and especially in real estate circles. However, some still don’t quite understand how crowdfunding works. Others are using it to raise millions of dollars in working capital, as well as launching projects that otherwise would have never been possible. So how can you use crowdfunding for real estate?
The process of crowdfunding is relatively simple. Essentially, it is raising funding from a ‘crowd.’ Syndications and partnerships have been using this technique for decades. Aside from the fancy new name, the only real difference is the technology based platforms being used to raise money publicly online.
Thanks to the JOBS Act, crowdfunding options now include donation and equity based crowdfunding, with more and more platforms popping up to launch campaigns every day.
Here are six ways some of these crowdfunding platforms might be used for real estate:
1. Acquiring Income Generating Properties
Crowdfunding can be used to acquire income investment properties. It can be used to take down high end properties that would otherwise be out of reach or lock up too much personal cash.
2. Funding Flips
Crowdfunding can even be used for flipping houses and office buildings. This could be especially attractive in luxury markets where others are investing 6 figures or more in renovations.
3. Build & Develop Real Estate
As we enter into an extended growth period, this is a great time to develop properties that can be sold quickly. This could be a new condo, co-working office spaces, hotels, luxury homes on spec, resorts, or entire ranch communities.
4. Buy Mortgage Notes
Theoretically, crowdfunding could be used for acquiring mortgage debt too. There is certainly still a lot of it out there. This can be a path to picking up prime properties at steep discounts. With markets improving, non-performing notes could easily be converted into very profitable ones with a few modifications.
5. Start a Real Estate Company
While there might be some challenges in trying to crowdfund a company or project without specific goals, it’s not impossible. This is especially true when armed with a strong business plan or with the production of a new product, real estate service or technology in mind. It could be a new web platform, gadgets to make real estate agent’s jobs easier, drones, or patented building feature.
6. Charitable Projects
Charitable and nonprofit initiatives may benefit the most from a crowdfunding campaign. There are virtually endless options to choose from. Even brand new investors and kids working with their parents can launch powerful and meaningful campaign.
Before You Start…
Crowdfunding has certainly made it far easier to raise funds for virtually anything real estate related and beyond. However, this doesn’t mean that every idea is going to be an instant winner and get funded overnight. Unfortunately, this seems to be the extent of the planning some people are putting into their campaigns.
Before you launch, take the time to review some of the successful and failed campaigns of others and note the differences. What was done to promote the most successful? In other words, make sure you know what you are getting into.
