Your Own Real Estate Crowdfunding vs Third-Party Platforms
By Those familiar with crowdfunding, in general, might be wondering if it’s beneficial to have your own real estate crowdfunding vs. third-party platforms.
Most people generally understand that crowdfunding is a form of financing in which individuals or organizations seek small investments – some specific to real estate – from many people, typically via the Internet.
Join our crowdfunding software experts here at Fundraisingscript for an in-depth answer. We’ll first start with a brief takeaway, but we’ll go through many nuances of this question afterward.
The aim of real estate crowdfunding is to reach a fund target for your project. Fees are a major barrier when comparing your own real estate crowdfunding vs third-party platforms. Your own crowdfunding real estate platform yields greater returns due to lower fees, and the setup is relatively simple.
Crowdfunding for real estate purposes has become an increasingly popular way for individuals and businesses to raise funds for various real estate projects.
There are many benefits to crowdfunding, and you can explore more of the features of your own crowdfunding platform here, but to begin with, let’s go over a few of those.
Access to Capital
One of the main benefits of crowdfunding is that it provides access to real estate capital for individuals and businesses that may not be able to secure traditional forms of real estate financing.
This is especially true for small ones without established credit histories or collateral to secure a property loan.
Flexibility
Crowdfunding campaigns can be structured in various ways, allowing individuals and businesses to tailor their funding goals and rewards to fit their needs.
Some campaigns offer perks or rewards to backers in exchange for their support, while others are structured as investments with the potential for a financial return.
Community engagement
Crowdfunding campaigns can also be a great way to engage with and build a community around a project or idea. Perhaps a piece of real estate that benefits the community as a whole.
By inviting supporters to contribute and be a part of the process, individuals and businesses can create a sense of ownership and buy-in from their backers.
Validation
Successful real estate crowdfunding campaigns can also validate a project or idea. If many people are willing to contribute to a campaign, it can be seen as an endorsement of the project and may increase its chances of success.
Increased exposure
Crowdfunding for real estate can also serve as a way to gain exposure and publicity for a project or idea.
By sharing a campaign on social media and other online platforms, individuals and businesses can reach a wider audience and potentially attract additional investors or backers.
This is mainly consistent regardless of the platform you use, whether it’s a third party or your own platform.
Here’s more on how crowdfunding works and why you need it!
Risk reduction
Crowdfunding can also be a way for individuals and businesses to reduce the risk associated with a new project or venture.
By raising funds from many backers, the risk is spread out among a larger group, which can help mitigate the potential loss for any individual contributor.
Speed
Crowdfunding campaigns can also be a faster way to raise funds than traditional financing methods.
While it may take months or even years to secure a property loan from a bank or other financial institution, a crowdfunding campaign can be launched and completed in weeks or even days.
Regarding benefits, crowdfunding is a valuable tool for real estate individuals and businesses. It provides access to capital, flexibility, external engagement, validation, increased exposure, risk reduction, and speed.
These factors make it an attractive option for anyone looking to raise funds for a real estate project or venture, whether it’s your own real estate crowdfunding vs. third-party platforms.
Downsides of using a third-party crowdfunding platform
While third-party real estate crowdfunding platforms can be a useful tool for raising funds, there are also several potential downsides to consider.
These include:
No guarantee of success
One of the main risks of crowdfunding is that there is no guarantee of success. Fair to say this is the case whether you opt for your own real estate crowdfunding vs. third-party platforms.
Campaigns can fail to reach their funding goals for various reasons, such as a lack of interest in the project or a poorly executed marketing strategy.
This can be especially frustrating for individuals or businesses who have invested significant time and resources into preparing a campaign.
Limited reach
Crowdfunding campaigns are typically limited to the Internet, meaning they may not reach as wide an audience as more traditional forms of financing.
This can make it difficult to attract a sufficient number of backers, particularly for projects that are not well-known or have a niche appeal.
Fees
Many crowdfunding platforms charge fees for hosting campaigns, which can eat into the funds raised.
These fees can range from a few percentage points to as much as 10% or more, depending on the platform and the type of campaign.
This is a major concern as we’ve demonstrated with real-world data…
When we compared CS Crowdstreet, and Sunrise, two real estate platforms, we found that on raising $100k, you would receive as little as $92k after fees, compared to $97k dollars from using your own platform.
Reward fulfillment
Fulfilling these rewards can be time-consuming and costly for campaigns that offer perks or rewards to backers.
This is especially true for campaigns that raise a large amount of money, as the cost of producing and shipping rewards can quickly increase.
Legal and regulatory issues
Crowdfunding campaigns can also be subject to various legal and regulatory issues.
For example, campaigns that offer equity or financial returns may be subject to securities laws, which can be complex and time-consuming to navigate.
Competition
With the increasing popularity of crowdfunding, the number of campaigns on platforms has also grown.
This can make it more difficult for individual campaigns to stand out and attract backers, particularly for projects similar to others that have already been funded.
Dependence on crowdfunding
Relying too heavily on crowdfunding can also be a risk for businesses or individuals using it as a primary source of financing.
If a campaign fails to reach its funding goal, it can be difficult to secure alternative financing, which can be a significant setback.
Given some downsides, more so when using third-party crowdfunding, it’s important for individuals and businesses to carefully weigh the potential risks and benefits before launching a real estate crowdfunding campaign.
The benefits of using your own crowdfunding platform
There are several potential benefits to using your own crowdfunding platform, as opposed to using one of the more established platforms like Kickstarter or Indiegogo.
These benefits include:
Customization
By creating your own crowdfunding platform, you have the ability to customize it to fit the specific needs of your campaign or project.
This can include features like custom branding, customized reward tiers, and the ability to tailor the platform to the type of project you are funding.
Control
Building your own crowdfunding platform also gives you more control over the fundraising process.
You can decide how to structure the campaign, what rewards to offer, and how to market the campaign to potential backers.
Data Ownership
When you use an established crowdfunding platform, you are subject to its terms of service, which may include provisions around data ownership.
By creating your own platform, you retain full control over the data generated by your campaign.
Lower fees
Many established crowdfunding platforms charge fees for hosting campaigns, which can eat into the funds raised. By creating your own platform, you have the ability to set your own fees or waive them entirely, which can be especially attractive for non-profit organizations or charitable causes.
Customized user experience
By building your own crowdfunding platform, you have the ability to create a tailored user experience for your backers.
This can include features like personalized updates, a streamlined donation process, and the ability to track the progress of your campaign.
Conclusion and next steps
Overall, deciding to use your own crowdfunding platform versus an established one will depend on your specific needs and goals.
It may be a good option for organizations or individuals who want more customization and control over the fundraising process, but it may not be the best choice for everyone.
For more information, simply schedule a 1 to 1 meeting with one of our experts. Or watch our online demo and find out how your own real estate crowdfunding software can help your portfolio.
