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