As the real estate market has evolved, so too have its financing strategies. Traditionally, real estate investors looking for funding had few options beyond large-scale investors and private banks.
Today, however, there has been an influx of new ways to fund projects that are more accessible to traditional small-time investors.
One such option is crowdfunding, which allows you to get capital from several people in exchange for your project’s success—or failure! We’ll cover what crowdfunding is and how it works below:
What is crowdfunding?
Crowdfunding is funding a project or venture by raising many small amounts of money from many people, typically via the Internet. Crowdfunding has been used to fund various projects, including films, music, journalism, video games, and technology development.
Crowdfunding to finance real estate transactions began in 2007 when RealtyShares raised $1 million for its first deal under Regulation A+. In 2010 Prosper Marketplace launched as an online lending platform focused on financing residential mortgages.
It later expanded into other types of loans, including personal and small business loans. In 2012 Kickstarter was launched as a crowdfunding platform for creative projects, and Indiegogo followed suit in 2008.
Real estate syndication is pooling investors together to finance a real estate property. An investor group purchases a property, then sells shares in that property to investors looking for exposure to real estate with less risk than traditional investing.
This allows real estate developers, who might otherwise be limited by their finances, to build projects they couldn’t afford alone.
Also See: The Pros and Cons of Commercial Mortgages
The rise of crowdfunding
Crowdfunding is a form of financing that allows individuals to pool their money and invest in projects, businesses, or ideas that they believe in. It’s a way for people with little capital to get involved in the real estate market, even if they don’t have the funds to purchase outright.
Crowdfunding can be used in many different ways: from raising money for your next home purchase until you’re ready to sell it and move on down the road!
There are dozens of platforms where investors can donate or lend their dollars towards your project – and many also offer perks like tax deductions (if you itemize) or interest payments at rates higher than those offered by banks.
How it works
The process of crowdfunding is simple: you pitch an idea, and if enough people like it, they’ll invest in your project. You can use this money to buy real estate or another asset – it doesn’t have to be a business.
Crowdfunding comes in two primary flavors: rewards-based and equity-based.
- Rewards-based crowdfunding offers perks for investors (like T-shirts) but no equity stake in the company or project itself; it’s more like preordering something online than investing in its success.
- Equity-based crowdfunding gives you your shares in exchange for funding the venture’s development costs upfront.
Pros and cons of crowdfunding
Crowdfunding has a lot of potential benefits. For one, it’s a great way to test your idea and see how people respond before spending money on development.
It also provides an opportunity for entrepreneurs who might not otherwise qualify for traditional financing because they lack collateral or business experience; this is especially helpful for startups run by women and minorities.
However, crowdfunding isn’t without its downsides. For one – it can be challenging to raise money through crowdfunding. You will have wasted time and money, if you fail to meet your goal or the campaign fails to generate enough interest.
In addition, since equity-based crowdfunding is a relatively new phenomenon, there isn’t much data available on how successful these campaigns tend to be in practice.
There you go!
Crowdfunding is the future of real estate investing. It’s a great way to get started in this industry, especially if you don’t have much capital to invest.
The rise of crowdfunding has also led to more investors who know how to manage their money better than ever before, which means that they can make smarter decisions when it comes time to buy or sell property too!
