Perhaps the oldest form of entrepreneurship, real estate investors have been buying and selling property long before there was a high tech sector. For generations, notes and real estate has been considered a less volatile investment, and a steady way to grow wealth. It is a well understood and established asset class. Crowdfunding provides entrepreneurs and projects in the Note and Real Estate industries with a new vehicle of finance.
Real Estate-based Crowdfunding — pooling money online to purchase individual properties — opens up real estate investments to many more people than traditional deal “syndication,” crowdfunding’s offline predecessor.
Crowdfunding offers the potential to become the newest form of note and real estate syndication. One of the biggest reasons that investors use traditional syndication is access to deal flow and the ability to invest in asset based projects without the hassles of management and operations. Crowdfunding as a finance vehicle serves the same purpose.
Through Note and Real Estate-based crowdfunding, investors can pool money together and buy notes and interests in real property like apartment buildings, office buildings and retail centers, so that with as little as $100.00 they can a buy small percentage of a number of individual properties.
Rather than buying the entire property and dealing with the hassles of management, investing through crowdfunding, investors do not have to deal with any of the day-to-day operations that comes along with ownership. Investing in this manner enables an investor to get a more direct ownership in particular projects.
This is different than a Real Estate Investment Trust (REIT) where most investors have little or no information regarding actual properties the REIT invests in and they cannot invest in their own backyard. Today, the only way most Americans can invest in real estate outside of their home is through a REIT. Purchasing a share of a REIT allows an investor to buy into a management company with a portfolio of existing real estate investments. Through crowdfunding investors can invest in individual notes and indiviual properties allowing for added transparency and control over investment selection and location.
Before your launch, you need to fully understand the workings of crowdfunding. Here is a list of basic crowdfunding strategies, terms, and ways to succeed.
1. The Name Of The Project
What will your proposed project be called? You should always use the address and location of the project, as in real estate location is key, but a catchy description can also help.
2. Short Videos or Images of the Project
Your video or images should be concise and explain the basics of your project and good reasons for investing in it. Lots of folks only learn visually. For this reason, you should include schematics of the project, architectural drawings, along with computer models, diagrams and photos, if possible. Keep it short and less than 2 minutes in length if possible as people do not have a long attention span for videos like this.
Visitors to your crowdfunding profile will look at your project video first thing. A video is the most compelling way to present your concept, communicate your passion and connect positively with potential backers. Viewing the matter from a perspective based on statistics, campaigns with videos have greater success than campaigns without videos.
You are probably imagining that the creation of a video is hard but it doesn't have to be today. Costly software or upgraded equipment is not required. You can get great results using your smartphone or a regular digital camera that has video enabled.
An effective project video can be created in a number of ways. You can use your iPhone to create a "one-shot" video, or you can hire a professional crew to create a complicated montage complete with music and professional narration.
Remember these important points regardless of the simplicity or creativity of your video:
- Tell Your Story: What was the inspiration that led you to the project? What problems are you planning to solve? What milestones have you reached? What obstacles have you overcome?
- Provide An Overview: Demonstrate to a possible investor your big dreams for how your project will be successful. Your target audience will be better able to envision your project when you provide illustrations. These can be simple or complex.
- Let Your Potential Investors Get To Know You: Those giving money want to see the person receiving their money. They will want to see what you look like. Be sure to have a good, friendly, cheerful portrait taken.
- Describe How Funds Will Be Used: Tell exactly how the funds raised will be utilized.
- Create A Sense Of Urgency: If your fundraising fails, your project will not commence and the opportunity will pass from your control. Make sure you stress this significant concept in the video you create. Be sure to stress that each and every pledge matters to you.
- Highlight the Terms of your offer: Give details regarding the terms. Make sure to present them as being compelling and lucrative. Explain them clearly.
- Be Thankful And Polite: It's cool to thank folks for supporting you!
- Ask For Help With Your Promotion: Post updates about the campaign on various social media website feeds that permit people to email the information to their acquaintances or notify others; make sure you let people know that you need their help.
3. Describe The Project
It should include anything that an investor may want or need to know. For example: Is this a rehab, or a new construction project? Include blue prints, surveys, and other project details. Clearly describe what this will mean to the investor upon completion of the project. Include a description reflecting that your project is well-planned and emphasizes characteristics such as quality and function.
Provide complete details regarding what you plan to do with the money you raise. You must let investors know exactly what will happen, step-by-step, from the time they pledge to the time you repay them their money and interest.
Provide A Realistic Timeframe: Be reasonable when estimating the amount of time necessary to see your project through is key when in the planning phase to establish a timeline that is attainable so that adjustments are not needed post funding.
Outline Challenges That Might Arise: Every project has some challenges. So, identify your choices and have conversations about them. This shows your investors that you have given thorough thought to this project and that your goals are realistic.
Include Positive Reviews: If you already have some satisfied customers, ask them to write testimonials for you.
Provide Alternatives For Assistance: Near the bottom of your project description, you should also include information that will enable people who cannot contribute money to help in some other way. This should be very detailed. Don't underestimate the power of non-monetary assistance. Often, the word of mouth coverage you get from social media, referrals to local reporters and community organizers and so on are far more valuable than a monetary pledge.
Offer investors terms that are market based and realistic. You can also offer earlier investors a premium return for being an early backer. It encourages a quicker decision and creates an urgency to commit.
Financial backers can use their credit cards or banking information for electronic funds transfer to make campaign investments. These funds can then be applied to your specific project.
Crowdfunding Terms You Should Know:
Here are a few crowdfunding terms you need to recognize and understand.
“Promoter”, “Sponsor” “Creator” or “Issuer”: These are the names that are interchangeably used in the industry that identifies the person or group who attempts to raise funds for projects, new businesses or charitable causes.
“Project”: The company, creation or piece of real estate for which you are soliciting funding is known as your "project". The timetable for funding the project should be clear cut, with a definite beginning and end date.
”Campaign”: A campaign is a description of your planned and all encompassing effort to raise funds via your crowdfunding Funding Portal profile.
“Supporters”, ”Investors” “Backers” or the “Crowd”: The person(s) who pledges funds and invests in your campaign in order to get some sort of reward, equity, or other financial return.
“Reward”: When a backer makes a pledge, he or she does so with the promise of an incentive or "reward". For instance, a movie maker who wants to make a movie could give a tee-shirt to any backer pledging $100. One of the best things about rewards is that you do not need to provide them until your project is well underway.
“Funding Portal or Platform”: The SEC defines a Funding Portal as a crowdfunding intermediary that does not: (i) offer investment advice or recommendations; (ii) solicit purchases, sales, or offers to buy securities offered or displayed on its website or portal; (iii) compensate employees, agents, or others persons for such solicitation or based on the sale of securities displayed or referenced on its website or portal; (iv) hold, manage, possess, or otherwise handle investor funds or securities; or (v) engage in such other activities as the SEC, by rule, determines appropriate. You can find crowdfunding "platforms" via one of a number of websites (e.g., Fundable, IndieGoGo, and KickStarter) that work to connect a project sponsor with funders and help collect the funds using credit cards and other electronic funding sources like bank accounts.
“Profile”: Your profile is actually a designated web page that you set up on your crowdfunding Funding Portal. You use the web page to post updates about your campaign, upload campaign videos, pictures, data, documents and accept monetary pledges from investors.
“Social Network”: Anyone that you know. Anyone that they know. Anyone that they know, and so on. You don’t know who your network knows, or what they know about. The Internet enables you to connect to your social network and beyond.
“Media”: This is no longer TV, radio, and newspapers. Today, the media consists of not only traditional outlets like local, national and global radio, TV, magazines, and newspapers, it now includes independent journalists, bloggers, and online outlets writers/contributors who have access to their followers.