How To Start A Crowdfunding Platform For Real Estate in 2024?

A Short Guide to Build a Real Estate Crowdfunding Platform

Starting a real estate crowdfunding platform in 2024 is no small feat, but it comes with large upside potential. The underlying factors are high demand for new housing stock, new technology and a growing market interest in alternative investments. In this article, we look at multiple key points that you need to consider if you are launching a platform in 2024.

Start with Market Research

The first step to clarify is market positioning, which requires a good amount of research. Look at existing data in your target geographies to find gaps in the market and underserved regions. Identify regions that are still underserved by new constructions. For example, many European cities – or even countries – are feeling the pain of a housing crisis, mostly since the housing supply cannot meet demand and population growth. These geographies could represent the best opportunities to build your platform’s supply side.

In Europe, the number of crowdfunding platforms founded has since increased since at a CAGR of over 32%. There are now more than 245 companies listed on Thecrowdspace

Learn from Other Real Estate Success Stories

Research successful platforms to understand what they did right. For instance, in the USA, Fundrise and RealtyMogul have established themselves by focusing on transparency, user education, and robust risk management. Analyze these platforms to understand what works and what doesn’t, then apply these lessons to your strategy.

Regulatory Compliance for Crowdfunding Platforms

Both real estate and online investing are heavily regulated industries. While each region has specific laws, the general basic rule is that all investment platforms must comply with the regulations of the financial authorities in their country of establishment. The most basic of such regulations are anti-money laundering (AML) and know-your-customer (KYC) requirements, which every investor must go through during onboarding on the platform. These precise requirements vary from country to country, but the good news is that there are a myriad of KYC providers out there with many years of experience and which can cover multiple geographies and guide you further in your compliance efforts.

Furthermore, in the European Union, there are several frameworks that supervise the operations of crowdfunding platforms. The most prominent one is the European Crowdfunding Service Providers Regulation (ECSPR). In a nutshell, the objectives of the European Crowdfunding Service Providers Regulation (ECSPR) encompass the establishment of a cohesive regulatory framework. This framework aims to achieve uniformity in requirements for Crowdfunding Service Providers (CSPs) within Europe, ensuring equal rules, obligations and transparency in their offerings and marketing communications, among others.

The regulation further strives to introduce harmonized investor disclosure practices, mandating the provision of a Key Investment Information Sheet (KIIS) to investors. Most importantly, ECSPR facilitates a uniform passporting process, allowing CSPs to operate seamlessly across the EU27. The regulation also delineates the conduct of business duties for CSPs along with specific prohibitions to enhance regulatory consistency and investor protection.

Choose Your Base Technology Stack

An online investment platform is a technology play. Since you will be handling people’s money, you want to build it in a reliable, scalable, and secure way from the get-go. Key components of the technology stack include:

  • Frontend and backend development: We recommend using easy and modern coding frameworks and languages like React or Angular for the frontend, and Node.js or Python for the backend.
  • Database management: Implement proven database solutions like PostgreSQL or MongoDB to handle user data securely.
  • Security features: Financial services require the highest degree of security possible. Implement measures such as SSL encryption, two-factor authentication, and regular security audits to protect user data and transactions.
  • Payment gateways: Integrate reliable payment processing systems like Stripe, PayPal, or specialized fintech solutions that support multiple currencies and payment methods.

You may decide to hire in-house developers or to outsource the development to external teams. There are several IT project teams out there that target crowdfunding services as one of their core audiences. In this case, the costs of development depend on the scope and features but can be reasonably estimated in the lower six-figures. Do bear in mind that hiring a third-party development firm for a set period of time could lead to a lack of flexibility in the website and features after the project ends.

Prioritize Basic Crowdfunding Platform Features

Although they are not quite enough to differentiate from competitors, each real estate crowdfunding platform must at least offer the following basic features to their users:

  • User registration and profiles: Onboard users, verify their identity (KYC/AML process), and manage their profiles.
  • Project listings: Provide detailed information about investment opportunities in real estate projects, including financial projections and risks.
  • Investment dashboards: Enable investors to track their investments, returns, and portfolio performance.
  • Payment gateways: Offer fast, secure and diverse ways (credit cards, bank transfers, etc.) for users to transfer their investment money to the project owners.

Administrative Processes: Ensure that you generate the required investor documents (e.g. for tax purposes) and offer responsive customer support in case of issues. Again, clients will rightfully be sensitive if they fear that something went wrong with their money.

Build a Minimum Viable Product (MVP)

Using some of the features listed above, and after you have chosen the team that will execute, you should agree upon the first public iteration of the platform. This is called a Minimum Viable Product (MVP). This version of the product will only include the most basic features, but it will be just enough to start providing user value and, most importantly, be enough to start gathering user feedback and learnings. From there, you will constantly learn, iterate and improve the solution without facing significant financial risk.

Add more Advanced Features

Once the basics are covered, you may consider adding more advanced and unique features to your platform. These can include:

  • Advanced search: Advanced filters for users to find projects that match them best, map search, and more.
  • Bulletin board: A bulletin board is a simple form of a secondary market that allows buyers and sellers to post offers for investments after their initial fundraising period. Although the platforms cannot actively match buyers and sellers, a bulletin board is a way to make investments more liquid and thus more attractive.
  • Tokenization: Tokenization is the process of representing an asset on a blockchain. This has several benefits, such as higher liquidity of the assets. We go into this in more detail in a dedicated chapter below.

Marketing and User Acquisition

While the supply side of the platform (i.e. finding the real estate projects to list) must be built first, it is arguably easier than building the demand side (the investors in said projects). This can be an often-overlooked aspect of the business. Thus, a good command of marketing strategies is essential. Consider trying the following:

  • Paid online advertising: Although costly, social media channels are easy to ramp up fast and can provide a steady flow of leads.
  • Content marketing: Create informative and useful content about real estate crowdfunding, investment tips, and market trends to establish your platform as a thought leader.
  • Search engine optimization (SEO): Optimizing your website to rank higher in search engine results requires significant investment in time and will only pay off in the long-term, but it can pay off handsomely. Once a certain ranking is achieved, every new lead coming through search engines is basically “free”.
  • Partnerships and collaborations: Partner with real estate agencies, financial advisors, and other relevant entities to expand your reach and add credibility to your name.

Customer Support and Community Building

While it can be overlooked in the first stages, customer support is vital for building trust and retaining users. Again, we are talking about people’s hard-earned money here, a sensitive topic that investors expect you to deal efficiently with. A poorly answered customer support request will surely mean investor disengagement with the platform. To differentiate from the pack, implement a robust customer support system that includes live chat, email support, and a comprehensive FAQ section. Engage with your users through regular updates, newsletters, and feedback sessions to create a sense of community.

Speaking of which, building a community of investors around your platform is an approach that not few platforms have undertaken. It is difficult to start off, but it can over the long term greatly increase user engagement and loyalty. Create forums, discussion boards, and social media groups where investors and real estate developers can share investing experiences, ask questions, and provide feedback. More commonly, hosting webinars and workshops on real estate investment can also enhance community engagement and be an additional source of leads on both the supply and the demand side.

Tokenization of Real Estate

Tokenized real estate refers to the process of representing ownership of real estate assets through digital tokens on a blockchain network. This innovative concept combines the benefits of blockchain technology with the traditional real estate market, revolutionizing how properties are bought, sold, and invested in.

Tokenization enables the division of large properties into smaller, more manageable fractions, allowing for increased liquidity and accessibility. Additionally, tokenization reduces the barriers to entry for investors, enabling them to diversify their portfolios and participate in the real estate market without the need for substantial capital.

Moreover, tokenization enhances transparency and security in real estate transactions. By recording ownership information on a blockchain, all token holders can easily verify their ownership rights. This eliminates the need for certain (if not all) intermediaries and reduces the risk of fraud or disputes.

Overall, tokenization has the potential to transform the real estate industry by making it more inclusive, efficient, and accessible. As technology continues to advance and regulations evolve, we can expect to see an increasing number of real estate assets being tokenized, offering new avenues for investment and wealth creation.

Do you want to start tokenizing real estate projects? Book a free consultation with us now!

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