If you’re a real estate company wanting to break into crowdfunding, you’re in good company. Crowdfunding sites are attractive to residential and/or commercial companies for a host of reasons, including their ability to help them conduct projects without bank bureaucracy, as well the opportunity to secure fast and fluid capital with a wider net of potential investors. But how do you get started? This post explains how real estate companies can get the most out of these sites, and what to expect during the loan approval and funding processes.
How to Get Your Project Added to a Crowdfunding Site
Your first step with any site will be to submit a loan request, which typically involves answering questions related to your company and project, such as:
· Purpose of your loan
· Term of loan
· Construction cost
· Requested loan amount
· Property type, value, and location
· Borrower information
· Guarantor information
· Past development experience
Platforms are usually very cautious in reviewing company requests. Believe it or not, most requests are ultimately rejected. To increase your chances for approval, be as specific as possible with the information you submit. Showing a positive record of development projects will enhance the likelihood of having your project(s) approved.
Attracting Investors to Your Projects
If your project is approved, it will be listed on the crowdfunding site with all of the information you’ve provided. Investors who are registered with the site will then be notified. Platforms frequently try to fund projects in less than two weeks, although this does not always occur. If your project achieves full-funding in the allotted time, it will close to further investors, and funds will be sent to you for the project. If the project fails to achieve full-funding in this time, it will most likely be removed from the listings.
Keeping Investors Informed: Reporting
Real estate crowdfunding platforms may require companies to report to investors on project progress—normally on a monthly basis. An account manager often handles this reporting, which may include the collection and distribution of:
· Project photographs
· Status updates
Honest and high-quality reporting creates transparency in projects and builds trust between you, your investors and the platform.
Crowdfunding platforms collect fees from companies for recouping expenses, marketing, and setting up projects. Specific fees may include a one-time origination fee, a recurring annual management fee, and promotion fees. Fees are normally a small percentage of a project’s rate, and are often collected after funds are raised.
Rewarding Your Investors: Distributions and Exit
Debt investments also pay out interest; which companies can pay out monthly and/or quarterly. If your project involves equity with waterfall distribution, you’ll pay the principle on the project in full when you exit.
As a real estate company, you want to raise capital easily, efficiently, and with financial stability. The best platforms want their companies to succeed. Knowing what to look for and what to expect from a platform when submitting loan requests, setting up projects, reporting to the crowd, paying fees, and making distributions, before finally exiting, will strengthen your performance in this bold new investment methodology.