4 Tips For Successfully Crowdfunding Your Next Real Estate Investment
Real estate crowdfunding is exploding in popularity, making it easier than ever for many to raise more funds for projects and investments. However, only about half of all crowdfunding campaigns reach their funding goals. So how can more investors and campaign organizers ensure that they are successful?
The Rise of Crowdfunding
Crowdfunding continues to grow in popularity. Many new platforms are being added to the lineup, while the public increasingly embraces it both for fun and serious investing. New software solutions are even making it easy for real estate investors and campaign organizers to overcome SEC regulations by providing automated tools for verifying accredited investor status. Now, all types of real estate projects are being funded online. These include charitable projects to community revitalization, green farming, commercial development and pooling of funds for investing in residential real estate. However, major established crowdfunding platforms report that only 50% of projects hit their financial goals. This number is likely to get even smaller as more test it out.
So how can you increase your odds of being among those that succeed?
1. Strategy for Setting Funding Goals
Setting funding goals should involve some sort of strategy, as it is almost certainly to be set in stone, so to speak. Many platforms won’t allow goals to be changed. Whether you are successful or not, your campaign will remain visible online forever. Not hitting the stated funding goal may not make a difference if raised funds can still be collected and are sufficient for completing the desired mission. However, it certainly looks better on your record and for your brand if it did hit it.
With this in mind, it may be better to start off with a lower initial funding goal and use separate phases or rounds, or ‘stretch goals’ to raise more money and manage PR.
In determining how much is feasible to raise, A&E’s own crowdfunding portal and TV show recommends calculating social currency by determining how many fans and followers you have on social media and multiplying that figure by how much you believe is reasonable for the average follower to contribute.
Remember, not all cash for a real estate investment deal may need to be raised in the crowdfunding campaign. Consider putting out feelers in advance to see who else may be willing to get in and with how much, especially if you prove interest via crowdfunding. Perhaps you only need half or a quarter from the public and a lender will fund the rest.
2. Length of Campaign
Campaign length can definitely play a role in success. Some crowdfunding platforms may have several set options while one or two may even permit never ending campaigns.
However, setting too short of a time frame could make it difficult to raise money before it expires. People follow the herd. If a campaign is near to expiring and is far from its goal, many won’t want to be involved for fear of the failure rubbing off on them. Conversely, statistics show campaigns which reach at least half of their goal have better odds of full funding or even being over funded. However, set too long of a time frame and there may be less excitement and no urgency to contribute.
VIP Tip: Don’t forget to check the drag in time between ending a campaign and getting cash. This can take several weeks.
3. Recognize Crowdfunding is Just a Tool
Those most successful in crowdfunding don’t do it just for the money raised in the campaign. It is often a tool to going even bigger. For many, it is a brilliant PR move. New data also shows a huge number of successful campaign fundraisers end up receiving far more in venture capital from other sources within a few months after completion.
4. Plan Early
Start planning early and line up content, social posts, updates, press releases and outreach. The more planning you do prior to launching a crowdfunding campaign, the better prepared you will be to handle what comes next.