Blockchain Crowdfunding Real Estate – How To Crowdfund Real Estate Projects Through Blockchain Technology
Regardless of the geographic market, you look at, the capital-intensive nature of real estate development or investment is a big barrier for many people. Thanks to recent advancements, blockchain technology is now making it possible for people to undertake and finance real estate projects with ease.
In other words, blockchain technology is making the entry barrier lower than what it used to be in the recent past. But before getting into the core details, let’s look at some of the most relevant basics.
What Is Blockchain Technology?
Blockchain is a decentralized and distributed digital ledger system used for storing, accessing, and sharing financial transaction records. In this digital system, grouped sets of information are often referred to as blocks. As more datasets or blocks are added, it enhances the value of the entire system.
In practical terms, blockchain technology is behind the emerging tokenization of real estate and real estate crowdfunding.
Given the sensitive nature of real estate transactions, many people use blockchain technology to enhance trust between transaction parties as well as stability.
Said differently, it is the digital nature of blockchain technology that accommodates the participation of multiple investors in a real estate project, even without meeting each other.
Real estate crowdfunding is the process of getting a large number of people to invest in smaller or varying amounts in a real estate project. Beyond what you can do personally, real estate crowdfunding platforms make it easier to reach like-minded people interested in certain types of real estate investments.
Interestingly, most reputable real estate crowdfunding platforms are powered by blockchain technology.
As a real estate developer, businessman or investor, you can leverage some of these platforms to raise money for your projects. Through this medium, you no longer have to depend on traditional sources of financing that may involve high processing fees and interest rates.
Benefits of using Blockchain Crowdfunding In Real Estate
Deep Portfolio Analysis
In the traditional context of real estate investing, analyzing some properties or portfolios often requires movement from one location to the other. And that consumes a lot of time and money.
Through a blockchain-powered real estate crowdfunding platform, you can be able to do some relatively deep portfolio analysis before investing.
The most interesting part is that these benefits can be explored either by a real estate crowdfunding deal sponsor or an individual investor. Through a deep portfolio analysis, you’ll be able to understand things like rental income trends across different geographic markets.
Deal Flow Management
Think about how these things work in the offline world. For example, managing real estate deals between familiar and unfamiliar investors is never an easy thing.
The main thing is that a low level of trust often breaks a lot of potential deals when the expected trust signals are not there. Through a real estate crowdfunding platform, it is easy to enable and disable deal flow, irrespective of the asset type or parties involved.
Seamless Investor Communication
Whether you are initiating a new deal or looking for one, communicating with other investors on the same platform is very easy.
Seamless communication on these real estate crowdfunding platforms makes it easier to verify investor profiles and build trust faster than what is obtainable in the offline world.
On these platforms, you can find investors interested or experienced in certain types of real estate properties and then start communicating with them right away.
Step By Step Guide To Using Blockchain For Real Estate Crowdfunding
Step #1: Choose The Type of Crowdfunding Campaign
Given that there are different types of crowdfunding campaigns you can use to finance real estate projects, this is the first decision you have to take. In most cases, you should consider your level of risk tolerance and the type of investors you want to participate in the deal. Generally, crowdfunding falls into the following categories.
Debt Crowdfunding – Through this type of crowdfunding, the money raised for real estate project financing is like every other type of debt. However, investors are entitled to receive back what they invested as well as the stipulated interest rate. Both the payback period and the specified interest are usually decided at the beginning.
Equity Crowdfunding – When people invest through this vehicle, they become part owners in the real estate project. In other words, investors are buying units of equity in the crowdfunded real estate development. Such investments will investors the opportunity to earn profit from the real estate enterprise.
Based on the lucrative nature of equity crowdfunding, investors can also benefit from regularized rental income, property value appreciation, equity build, and asset liquidation.
Step #2: Observe The Crowdfunding Rules
A low barrier to entry doesn’t mean that real estate crowdfunding is an unregulated financial activity. Irrespective of the geographic target market, it is important to observe the crowdfunding rules within your operating locations.
Without complete compliance with the prevailing laws, and regulations within your target market, you may find yourself in trouble.
To be on the safest side, you may want to consult an experienced real estate lawyer to put you on the right track. Before consulting a lawyer or other relevant professionals, try to check out the current rules within the US Securities and Exchange Commission.
Through these stipulated rules, you’ll find information about eligibility for offering, buyer, and selling equity in a crowdfunded real estate project. You will also find other relevant laws and regulations around crowdfunding
Step #3: Initiate A Crowdfunding Project
After you have decided to use debt or equity crowdfunding, you have to complete the paperwork. Then the next step is to initiate the project and start raising capital. Before you get into that, it will be helpful to clarify the types of real estate projects you want to fund and then create an action plan for that.
Doing this will make it easier for you to get everything ready before the money lands in your bank account.
All things being equal, your next step is to choose a real estate crowdfunding platform.
Choose the campaign type. And start your real estate crowdfunding project. At this stage, you need to specify the units of equity to be offered or the terms of debt crowdfunding.
Step#4: Invest The Capital
When you get the funds into your designated bank account, it is now time to start putting your plans into action. Depending on your choice, you may go first for short-term or long-term investments. What you choose will be dependent on your goals and what your investor prefers. At this stage, you need to answer questions like the following.
- What geographic areas are we starting with?
- What types of real estate properties are we investing in?
- Are we investing in new real estate development projects or existing properties?
- What is the investment maturity duration, and how do we appeal to investors?
Having these things clarified will put you on the right track.
Conclusion On The Use Of Blockchain For Crowdfunding Real Estate Projects
Unless you want to start a new real estate crowdfunding platform, the intricacies of blockchain technology don’t have to concern you as much. You can leverage existing platforms to crowdfund or finance your real estate projects. Whatever you choose, always remember that investors’ interests should come first.
Before starting the project, ensure that the existing laws within your preferred operating locations are followed properly. Finally, you may want to study some of the most successful real estate crowdfunding projects and learn from them.