It’s no secret that real estate crowdfunding (RECF), or marketplace lending, has become one of the top ways for real estate developers, rehab managers, fix-and-flippers, and other real estate project owners and managers to raise capital to fund their projects. There’s no wondering why, either. Real estate platforms are very effective and provide borrowers a direct path to capital sources while reducing costs associated with fund raising. If you’ve decided to pursue this path to raising the debt or equity funding you seek, follow this step-by-step guide to preparing your property project for a real estate crowdfunding listing.
- First, decide whether you intend to pursue debt or equity funding. Debt funding allows you to borrow money from the crowd while retaining 100% of the equity in your project. Equity crowdfunding means you’ll lose some of the ownership in the project itself, but you don’t have to pay back any of the money you raise for your project.
- Review a few real estate projects of your own. Consider this a market intelligence initiative. Seeing how other real estate professionals similarly situated to you can give you some ideas on how to move forward with your real estate crowdfunding project.
- Decide on a platform. Every real estate crowdfunding platform is different. Some only provide equity fundraising opportunities while others specialize in debt fundraising. Many platforms, however, offer both types of investments. But they are all different in how they approach the underwriting process, how they structure deals for investors, and the requirements in place for borrowers and fundraising companies. Do your due diligence and pick the platform that is best for your real estate project and fund raising goals.
- Structure your real estate deal to attract investors. You may want to talk to a representative at the marketplace platform you plan to sponsor your investment project through to get feedback on the best way to structure your project. You might also seek advice from a financial adviser or other financial specialist related to your real estate expertise. For example, if you deal in commercial real estate, you may consult with an expert commercial real estate adviser to assist you in structuring your project for crowdfunding. At any rate, how you structure your project for fundraising will determine whether your fund raising efforts are successful or not.
- Submit your application. Be thorough in answering each question on the marketplace platform you choose. If you withhold information, it could delay the launch of your fundraising project. A solid real estate crowdfunding platform will be as interested in performing due diligence on you as they will on your project. Be sure to include any paperwork requested, such as tax forms and proof of development expertise, and do so in a timely manner. If additional information is requested from you after you submit your application, make sure you provide that information quickly. Finally, be honest about your achievements. This is the first step to building trust in your and your project.
What are Investors Looking For in a Real Estate Crowdfunding Investment?
Investors in real estate projects are primarily interested in returns. Debt funders want to see a solid return on their investment on the back end so that their money performs well and isn’t tied up too long in a single project. Equity investors want to see monthly dividends, but they are also interested in growing their investments for the long-term.
While returns are most important, investors are also interested in lowering their risks. That means not investing in shady, untrustworthy companies and projects. It also means analyzing each project to ensure their investments have a decent chance at success.
Another concern is liquidity. Real estate crowdfunding investors don’t want to tie up their money on long-term investments. They want to see solid short-term gains and a return of their original investments within a year or two at most.
If you want to attract investors who will fund your real estate project and help you promote your project to find other investors, keep these investor concerns in mind as you prepare your real estate project for its crowdfunding debut.