Blog

Real Estate Crowdfunding

What is real estate crowd funding? It is a technique in which real estate companies reach out to people through social media and other platforms and get them to invest in something like a money pool. When people invest small amounts of money, there is a large pool of finance. This is to make people accessible to different areas of business which they cannot reach otherwise.

The process of crowdfunding

Before the process of crowdfunding came into existence, people were allowed to invest through real estate investment trusts or investment companies. They could invest only based on their individual credit worth and finances. They could not enter into expensive real estate investments. But with the emergence of real estate crowd funding, they could directly invest in the business. They could directly seek investments from wealthy investors and gain access to more business ventures. It is something like a shared business.

For investors it allows individuals as well as many smaller institutions to obtain a level of diversification that was not possible, or at least not easy to implement in years prior. An investor who wants to invest in real estate would have usually had to purchase a single property in the past, but now through crowdfunding is able to use that same amount of money to purchase a small piece in many different properties. This gives the investor greater security in numbers.

For real estate operators crowdfunding is a great way to raise capital that has traditionally been hard to get. Operators can usually get permanent financing fairly easily, but obtaining short term debt as well as equity capital was often very time consuming and inefficient. Real estate crowdfunding allows this process to be streamlined by allowing investors who are interested in these types of opportunities to contribute directly to them.

=================

Crowdfunding is the practice of funding a project or venture by raising monetary contributions from a large number of people, typically via the internet.

There are loads of platforms from where you can pitch for crowd-sourcing. Notably, Kickstarter, CrowdPress, Indiegogo, Crowdfunder etc. Each one has its own distinctive advantage.

Some of the things to keep in mind, while pitching for Crowd Funding are:

  • Make sure your project is Crowd friendly – meaning easy to understand, useful to them and innovative
  • Define your problem – Many crowd funding projects fail for this exact reason. You need to make people understand and make them feel enthusiastic
  • Market your idea – Create a website, run a social media campaign
  • Add market research, don’t come across as someone who just has an Idea. Learn, Listen and Innovate
  • Make the idea presentable – Videos, write ups etc. Basically, communicate with your audience at every level

There are three general categories crowdfunding can fall under: Equity, Donation, and Debt.

Equity-based crowdfunding is asking a crowd to donate to your business or project in exchange for equity.

Donation-based crowdfunding is asking a crowd to donate to your project in exchange for tangible, non-monetary rewards such as an ecard, t-shirt, pre-released CD, or the finished product.

Debt-based crowdfunding is asking a crowd to donate to your business or business project in exchange for financial return and/or interest at a future date.

===============

So I’ve helped a number of companies help raise money and here are some of things we did to help them grow.

Getting your project off the ground

A number of projects are already fairly far along the road in terms of creating their produt. They’ve done some leg work and have a final product, all they need is to raise to get it produced.

Enter contests

If you’ve only got the idea or want some more money why not enter pitching competitions or government grants? A number of projects do this to get to the stage of launching on a crowdfunding platform. Its also a good way of building up early awareness and fan base + you may get a chance to meet investors and press which can help you too.

Early Supporters

If you got people that love your product why not test if its something they really want. You can ask people for money upfront for the product, a $10 deposit just to see if people are willing to pay for it. This helps you not only raise some cash but helps build a group of early adopters you can than come to to help make your product even better.

Email list

To have a solid launch and to raise a good amount of money build up a fan base. From day 1 you should have a landing page that encourages people to sign up. Spend money on ads and build up a big enough mailing list. 5,000 – 10,000 is what you should aim for.

Social Media

Build up a massive social media following from day one and link it to your landing page. You can talk to potential customers and get their feedback, build up your social channels and invest your time/resources to this channel.

Email Marketing

People that sign up for product notifications, don’t leave them in the dark. Keep them fed with information and product updates. Don’t just save them for the launch of the product. Imagine if you didn’t launch for a year and then you sent them an email, would they even remember

Press Release

If you go to contest then you might already have some press contacts. If not you need to start engaging with them, before you even launch you should just share their work, RT them, message them about how good their articles are or ask them questions related to their work.

When you eventually decide to launch, they’ll remember who you are. You can see the guide on how to contact the press here.

Facebook Event & Thunderclap

When you launch you need to get your people organised. Make sure you create a Facebook event or Facebook group, add your friends and family. Lets you fans know and publish important information.

A Thunderclap even is another good way to turn it up, this automatically posts a message on the supporters wall or timeline. Great way to spread a viral message.

===============

Ryan makes some excellent points above

Specifics of a crowdfunding strategy can vary, but to paint the best possible picture, here are three important things the strategy must include:

1. Outreach – Up to a month or more in advanced (I suggest at least two), begin searching for the people who will most want your what your project is creating. If it’s a production, who shares those values, if it’s a product, who needs it. From there, get in touch with the people (bloggers/thought leaders) who they listen to. They can help you get in front of their audience, but think beforehand about what you have to offer.

2. A strong start – Don’t wait to tell your friends/family/connections that you are crowdfunding after you’ve set up the page and hit the timer. Let them know in advance so they can be the first ones to donate and get the ball rolling. Momentum is everything.

3. A constant commitment to updating your backers – Whether over social media or the actual page, daily updating is a necessity. Simply being active and present can work wonders. (By the way, crowdfunding is a lot of work). Look up the best practices for the platforms you are using. When do they have the most traffic, etc.

================

How to pitch your CrowdPress Crowdfunding Pitch in the Press

1. Personalize your press release pitch

Emails which are totally not relevant to you are annoying, to say the least. When reporters receive pitches that have nothing to do with their field, they see it either as spam or desperation. Both are bad for your reputation, as they will inevitably delete future pitches from you, even if they’re now relevant.

2. Use smart tools

One of the most frustrating stages of emailing pitches is not knowing whether the recipient has opened the email. Thanks to programs like Yesware, you can now know the exact moment when a journalist opens your email and how many times they do it. This is invaluable information. If a journalist opens your email, then you know it has reached the right person and that your subject line did what it was supposed to and got them interested.

3. Subject and Headline

It’s the subject of your email and its headline that will convince the recipient to open your pitch and actually read it. Make your subject specific and interesting enough to make the journalist want to see what’s inside. Your heading should immediately engage them, as they only have time to scan most of the emails they open.

4. Forget Buzzwords

Synergy. Thinking outside the box. Paradigm shift. Low hanging fruit.

All of these are terms that no longer mean much, and cause many to turn away in disgust. Yes, they once meant something. But now they serve as signs you have nothing new to say.

5. Build relationships with journalists

Even if you’ve followed every tactic in the book, there’s no guarantee your pitch will be opened. Many journalists are just too busy even to open only the interesting emails. Which is why there’s nothing more valuable than personal connections. You can build relationships at conventions and events, or keeping in touch with those who’ve responded to you in the past.

6. Pitch at the right time

Sometimes, getting the results you want is as simple as timing it to perfection. There are loads of statistics showing the best time to send an email. You probably know from your own experience how many emails flood your inbox every day. Those that come through during your lunchbreak get pushed to the bottom of the pile and, unless they’re from someone you know, will get ignored.

===============

Equity crowdfunding is the online offering of private company securities to a group of people to investment. Basically, you’re selling ownership of your company. There are actually three subsets of equity crowdfunding. Here’s a link if you want more info: Equity Crowdfunding Definition

Debt or loan based crowdfunding lets people approach others for a loan in return for interest. Those unable to acquire a traditional loan and/or wish to find a feasible alternative may wish to investigate debt-based crowdfunding further. Here’s a little more info on that:Loan-Based Crowdfunding Definition

Royalty crowdfunding offers backers a percentage of revenue from the project or venture the backer supports, once it is generating capital. A good example of this approach is a mobile app website where backers can support an app before it’s fully developed or launched, and then share in the revenue once the app starts selling to the public.

===============

The difference between Seed Funding and Crowdfunding:

Seed Funding is a form of securities offering in which an investor purchases part of a business. The term seed suggests that this is a very early investment, meant to support the business until it can generate cash of its own, or until it is ready for further investments. Basically, Seed Funding involves Equity.

Crowdfunding (Reward Based): Crowdfunding is an amazing new method to raise funds for any Idea, Project, Startup or Cause. In Reward Based Crowdfunding, people contribute to your campaign and you give them a reward in return. The reward could be a DVD of the Film, The Gadget, etc. Equity cannot be given as a Reward. Therefore, in Reward Based Crowdfunding, no Equity is involved.

Is it a good idea to invest in real estate crowd-funding?

First, you need to decide whether it’s a good idea to invest in real estate. I assume you’ve gone through that analysis already and are now deciding whether to buy a property outright or spread your money over fractions of many properties through online platforms.

Online platforms have the following properties:

Investment Diversification

If you only have a fixed amount to invest, instead of buying one property you could instead spread that fixed amount into various online deals.

Geo Diversification. 

Online you will find properties in locations you probably wouldn’t be able to access had they not been listed on these sites unless you’re a big firm or have local contacts in many cities and states and a lot of time to analyze them.

Property Type Diversification. 

When you buy one single-family house, you have one single-family house. But if you invest in shares of multiple properties, you could own multi-family units, retail, commercial, or industrial space and even invest in construction and other loans. These are all very different investment vehicles with different pros and cons.

No Day-to-Day Involvement. 

Any online platform you use will invest in someone else’s company and that company is the one who will perform (or hire) the day-to-day property management. So, you will never get a 3am call for a clogged toilet.

More fees. 

The item above does not come free. You will be paying the platform some fees and/or also to the operator of the deals you invest in. They vary, but it’s not uncommon to pay 1% to the platform, 2% to the operator and some other miscellaneous fees that the operator may charge. On the other hand, experienced operators may have much lower costs to handle the property management (the day-to-day stuff like clogged toilets I mentioned above) than if you hire a manager directly.

For example, a friend who hires a manager said it’s common to pay 8–10% of gross rent for a property manager. Most operators on the online platforms I know of, charge 3–5% instead, because of the business volume they have.

Reduced Accounting Burden. 

This is relative and depends whether you have properties already and have an accounting system in place. But when you own real estate directly, it’s up to you to report income, losses, depreciation, etc to the IRS. Online, you typically get a K-1 form for equity deals or, in some cases, a 1099 for debt. That does not mean your tax burden is any different. Just less bean-counting on a monthly basis (online, you get one tax form a year typically).

— The End —