Is Crowdfunding A Solution For Your Commercial Real Estate Ventures?
Published on:August 5, 2016
Crowdfunding Commercial Real Estate Ventures

The list of new types of industries and businesses created because of the Internet is long and impressive. While the idea of crowdfunding is not something that the Internet created, it is certainly something the Internet helped to perfect. As a real estate developer, it is in your best interests to understand all of the funding options available to you, and it is also important to understand how your lawyer can help you to stay out of trouble when it comes to funding options.

What Is Crowdfunding?

In its simplest form, a crowdfunding website acts as a bridge between people who need investors, and people who want to be investors. Right off the bat, any commercial real estate investor or developer can see the value in a platform like that. But as valuable as the platform looks to a developer, it can look equally as dangerous to the developer’s attorney.

Always Get Your Attorney Involved

Before you decide to get involved with crowdfunding, have your attorney look over the website you are considering using to see if there are any red flags that should be dealt with. When you open up your funding to the general public, you are going to have issues that will need to be resolved. Each website handles transactions in its own way, and you need to have a strong legal understanding of the website you are using to make sure that you get the right results.

When Would I Use Crowdfunding?

Many real estate developers use crowdfunding to fill in missing pieces of the funding they need for a large project, or to act as the sole source of funding for a smaller project. The fragmented nature of crowdfunding might make it impractical for larger projects, but it is worth askingyour attorney to see if you might want to open up that large project you have to an open platform.

Why Would I Use Crowdfunding?

A crowdfunding website gives you the chance to lay out your project in detail, and then talk to interested investors. It is one of the simplest way to find people with genuine interest in your project, and it can also be a way to find regular investors in future projects as well.

When your project is put up on a crowdfunding site, it becomes a bit easier to find new investors when current investors drop out. The rules for crowdfunding are not as strict as they are on exchanges or in large financing agreements. You can use that to your advantage and make sure that your funding is always in place, even when investors drop out.

Be Careful

Crowdfunding attracts two general types of investors; serious investors with resources, and investors who want to be serious but lack a depth of financial resources. You can try to qualifying your investors in advance, but that option is not always available. You may find that working with crowdfunding is a little too exciting for you, and that is a normal reaction from real estate developers who want stable financing.

If you have had problems getting commercial real estate projects financed in the past, the consider looking into crowdfunding. But, as with any other type of project investment vehicle, you should never commit to anything until you have had a chance to discuss the details with your attorney.