Crowdfunding has now been around for a while and it appears as if it is here to stay. For all intents and purposes, it is not hard to see why it has caught on. For the most part, aspiring real estate investors need more capital. Even experienced investors can use more access to funding. Crowdfunding can be a great way to get more money for any of your viable real estate exit strategies. Even for those that already have significant capital of their own to put to work or established lines of credit can benefit from a promising crowdfunding campaign. Here are 12 reasons why:
Even though crowdfunding has really become mainstream in a very short period of time, there are those out there that don’t get it. Send them a link to your campaign, and no matter how great it is, they may just not get it. It may be far better to introduce the masses and key funders to this concept before it is really needed. Essentially, the more people the understand the concept of crowdfunding, the more traction it will gain. Take away any fears that they may have and the economy can receive a huge boon.
Crowdfunding offers easy access to credit and capital without all of the hassle of getting a loan. No credit checks, DTI ratios, job verifications, or limitations on other debt. In fact, real estate crowdfunding can benefit investors by keeping personal credit free and available for emergencies, while keeping personal credit scores up.
Go Beyond Debt Leverage
Debt leverage can be one of the best forms of leverage in real estate industry. However, while there is debt in crowdfunding, there is also opportunity to go beyond debt to donation and equity crowdfunding. Pick the best option for you and your respective business.
Fills A Lot Of Fundraising Needs
Virtually anything you can imagine can be, and is being crowdfunded today. From burritos for lunch to honeymoons, crowdfunding campaigns are serving as a great source of money. They can be used for all types of fundraising efforts: personal, familial, business, and real estate investing. You may wish to crowdfund a new home from family members, the launch of a new real estate business, to raise capital for expansion, or even just to invest in the real estate investing education program you need to get started.
It’s Easier When You Don’t Need the Money
Like borrowing from a bank, credit card company or lender, which typically only loan when you don’t actually need the cash, crowdfunding can be easier when you are more than solvent. Again, whether you need the money or not, crowdfunding is great. At the very least, it can free up other sources of funding.
Going live on a crowdfunding platform with millions of users can offer a lot of extra visibility. It also provides a good reason to make some more noise and conduct outreach. A good campaign can also open the doors to free PR, blogger coverage and social sharing, with great back-links.
Whether you are physically giving ownership in equity or as a campaign perk, participants will certainly feel a greater sense of ownership in the project. Among the many emotions it creates is loyalty, which can be invaluable over time. It is unlikely that Hard Rock needed the money when it launched a campaign for its Palm Springs resort. However, those that got in are sure to talk about it, recommend it to friends, stay tuned into ongoing marketing messages, and visit more often.
More People Invested in Your Success
Contributors and funders become invested in your success. If the project fails, they have failed. People are more likely to go the extra mile to make sure they aren’t seen as a failure. Imagine having a dozen, hundred, or several thousand partners – all personally invested in seeing you succeed.
Ensuring Success before You Start
Crowdfunding is a great way for real estate investors to ensure their success before they really even get started. It’s a way to take pre-orders and make pre-sales. For example; selling units of a new development based on the plans, or even reselling units from a bulk purchase of REOs.
Proof of Concept and Appeal
A crowdfunding campaign is a smart way to prove the appeal and financial viability of an idea or project. Most importantly, it enables this to be achieved at an early stage before massive investment and personal credit is put on the line. It instills confidence in your project. It can also be critical for attracting investors. Talk to some investors today and they’ll want you to test it out in crowdfunding first.
Attracting Further Investment and VC Money
A campaign is only one of many stages of possible fund raising. There are stretch goals, follow up campaigns, and a high percentage of successful projects are approached by VCs. Think of it as another notch on your resume, or an introduction.
Learning How to Crowdfund
Unless you already have the funds to hire an agency or team of crowdfunding professionals, there is a big learning curve. Peter Thiel, of PayPal fame, says banks are shrinking. Like outsourcing, in the future crowdfunding may be the first stop for funds rather than banks or mortgage lenders. It’s better to get a great handle on it now while you have the luxury of time. It requires work, strategy, effort, resilience and investment, and it’s smarter to start long before your campaign goes live.