The passage of the JOBS Act has helped transform the way that many firms raise money for real estate development. The act, first passed in 2012, allowed groups and individuals to pool funds together, a practice frequently referred to as crowdfunding. Since its initial passage nearly one decade ago, countless firms have been able to engage in larger projects, reduce firm-specific risk, and further diversify their portfolio.
Large-scale real estate projects are no longer limited to just institutions and extremely wealthy individuals. In fact, with minimum investments as low as $10 in some cases, crowdfunding has helped make commercial real estate investing more dynamic and accessible than ever before.
Furthermore, in an increasingly online world, we have seen many real estate development firms that were once concentrated in a single city extend their reach and enter into new markets.
Crowdfunding Challenges & Key Solutions
Naturally, one of the foremost challenges of crowdfunding is finding the right investors for the right projects. Social media, with billions of users worldwide, is one of the most useful channels for finding new investors, engaging them, educating them, and converting them into being investors with you.
The very fact that you are reading this article here, on BiggerPockets, is testimony to the power of the digital world. To succeed on social media, you will need to work diligently to test your messaging and create useful calls to action that are bolted together with marketing funnels that transport your prospects in their journey to getting to know, like, and trust you.
This year, the need for effective communication is even more important, due to the fact that many potential investors are being especially cautious in light of the current health crisis. However, this indeed presents an extraordinary opportunity for sponsors to raise money online while everyone is glued to their computer screens, working from home.
Navigating a Difficult Market
Ultimately, to be successful, real estate investors will need to think long-term and begin “planting the flag” in advance. Managing regulations, refining the messaging, and receiving positive affirmations of interest are just a few of the challenges of this competitive space. The so-called “democratization” of real estate is something that can be extremely beneficial—rather than just pitching your deal to single individual, one at a time, the power of digital marketing can be leveraged to pursue everyone at the same time.
In many ways, success in this competitive space is largely a numbers game. A firm can never know for sure which interested parties are most likely to invest. But what they can know is that by extending their growth and reaching a wider audience, they will be much more likely to get the attention they’ve been looking for.
Of course, communication is also very important. Being able to clearly express the value that is being added can help a firm develop a more effective messaging strategy. What kinds of words, phrases, and ideas do you want to have associated with your company? Are you just a real estate development team—or do you hope to play a crucial role in the ascendance of your community?
Again, it is easy to see why planting seeds is so important. You might not know who your next investor will be, but if you leverage your resources and are able to effectively pursue multiple potential investors at once, you will be much more likely to build the team necessary to achieve your long-term investment objectives.
See part of the author’s conversation with ($12 billion) Jamestown President Michael Phillips about the challenges of raising money online in this short video:
Using the Power of Information to Generate Results
Real estate crowdfunding is a natural outcropping of the information era. Due to new technological and legislative advancements, people can easily shop around and learn more about the investment opportunities that are right for them. Consequently, it remains up to the firms themselves to prove that they are different from their competitors and are capable of offering a unique value proposition.
The entire decision-making process is significantly different than it was even just 10 years ago. For example, a large portion of potential investors will explore, compare, and investigate their possibilities without ever actually speaking to a real person. Their only interface with the company will be the information that can be found online.
Keeping this in mind, it is easy to see how social media and digital marketing are not just optional but structural necessities for anyone hoping to raise capital for real estate. Often times, the greatest successes come from a highly diversified social media and digital marketing strategy. Creating high-level content that can be shared on LinkedIn, Twitter, Instagram, and Facebook helps give a “face” to the company that makes it easier to earn people’s trust.
Ultimately, the impact that these new strategies have had on the real estate industry is profound. Projects can now be funded using unconventional structures and real estate is now within reach for many people who were previously left out of the game. Real estate investments are now accessible not only to the old guard but also to up and coming investors, as well—including many members of Generation X and Generation Y (millennials).
As this industry continues to become more inclusive, building diverse teams and pursuing niche projects will become a much more real possibility.
Let’s discuss below.