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What's the basic end to end process for getting a deal financed via crowdfunding?

This is a Community Q&A post, where we share with you some of the common discussions we have with people on a daily basis, whether by email, phone call, on forums like Bigger Pockets, Facebook, Linkedin, Twitter, etc.

Q: Could someone give a basic end to end on the process for getting a deal financed via crowdfunding? I am interested in the concept for my next project, however have no idea how to put it together.

A: Each crowdfunding portal is a little bit different. You should probably first decide what is the best structure for your project. Are you interested in sharing equity in the project in return for funding, or are you more interested in a crowdfunded, peer 2 peer loan? With an equity play you generally don't have to worry about monthly payments on your loan, but you have to split or share the upside on your project, which could be a significant amount of money. A crowdfunded loan however would require you to usually make regular interest-only payments on the debt, but any resulting profit from the sale or lease would be all yours.

Another consideration is where the project will take place. Many portals only work in certain states. Minimums and maximums also change per crowdfunding company but these are usually fairly broad.

Once you decide which crowdfunding site is the best fit for you, each will have their own onboarding and application process. Some perform due diligence themselves and only work with projects that they believe show promise, while others will let you list almost anything and trust in "the wisdom of the crowd" to weed out anything that isn't a good opportunity. You should prepare a decent narrative on why your project will be a lucrative investment along with the associated due diligence documents such as appraisals, BPOs, cash flow statements, construction budget details, comps, and projections. Obviously this will change depending on what type of project you're looking at. Is it a fix and flip, a buy and hold, a value add lease-up? Each will need different supporting documents to show how you're going to turn that property into a successful project.

You should also be prepared to give some history on yourself and your past experience. Can investors be confident that you're the right person for the job, even if you run into setbacks or cost overruns?

Let us know more about what you're planning and we'll be able to help with more specific details. Good luck!



If you want to learn more, take a look at some of the most commonly asked questions we receive about real estate crowdfunding on a daily basis and find out why so many people are crowdfunding real estate projects across the country with Patch of Land.
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