Investing in real estate is worlds apart from other investment options, such as bonds or stocks. Raising capital is one of the most essential yet difficult aspects of running a real estate business. Investing in real estate requires prudence. Else you’ll quickly run out of your hard-earned money.
It has certainly happened to most real estate investors. Imagine being out in the market, looking for a gem, and fortunately finding one. But there’s a problem; you’re cash-strapped.
While investing in real estate has always been perceived as expensive, you don’t need to feel like you’ve hit a brick wall. However, are there ways to raise billions for your real estate investment while avoiding loans? In this article, we look at three major ways to do exactly that. Let’s dive right in
- Real Estate Syndications
Real estate syndication is one of the best resorts when your real estate investment savings have dipped. So how does it work?
Also known as property syndication, it allows several investors to come together, pool resources, and invest in property they otherwise wouldn’t have afforded. It not only allows people to raise enough funds but also adds an aspect of diversity. This is because it brings people with different experiences, skills, and backgrounds together.
If you want to invest in real estate but don’t want to participate in the day-to-day management activities, then real estate syndication is the way to go.
There are usually two roles in a real estate syndication; the sponsor, also known as the syndicator, and the investors. The sponsor’s work involves scouting for the property, raising funds, and overseeing its day-to-day operations and management activities. On the other hand, the work of the investors is to provide financial equity.
The sponsor’s responsibility is to provide 5-20% of the capital needed. The investors can then chip in and fund 80-95% of the rest. However, it’s better when the sponsor invests a higher amount. This gives them an upper hand in the investment.
This kind of setup requires straightforward management. This is why you need remarkable investor management software. With real estate software, you are transparent in your records and can generate reports more easily.
- Real Estate Wholesaling
Real estate wholesaling is a perfect legal strategy that doesn’t even require you to purchase or place a deposit on the property you’re interested in. It’s a short-term investment strategy where an individual, regarded as the wholesaler, acts as the middleman between a property seller and the buyer.
During the sale, the wholesaler acquires the contract from the seller and finds an end-buyer
before the contract expires. This means that no money is exchanged between the seller and the wholesaler until the wholesaler finds a buyer.
How does the wholesaler then make a profit? Simple. They find a seller who’s selling their property below market price and find a buyer who’s willing to pay more than the seller is asking for. The difference between the seller’s price and the buying price is then handed over to the wholesaler as profit for the deal.
This is certainly the best strategy to get your feet wet in the real estate investment world if you don’t have any finances. Also, you don’t have to go through a course or have a brokerage license to become a real estate wholesaler.
However, you do need to have some basic knowledge of how real estate transactions occur. Your networks and marketing skills will also play a crucial role in how fast you close the deal and how much money you take home.
- Real Estate Crowdfunding
Many people have used crowdfunding and syndication interchangeably in the recent past. While the concept might be quite related, they are different in their structures and how they operate. What is real estate crowdfunding?
The meaning of crowdfunding is right there in its name, acquiring funding from the crowd. It’s a method for raising funds for your business. It provides easier access to investors. This means advertising your idea to prospects who may not necessarily be within your social circle and try to sell them the idea of strength in solidarity. You may utilize tools such as social media and other platforms on the internet.
Syndications focus on building a relationship between the investors. As such, the legal foundation and structure are very important. On the other hand, crowdfunding is all about finding these investors. It is not regulated under any form of legislation.
Crowdfunding provides a win-win arrangement. You can source capital for your large real estate deals while the investors get a stake in your company or investment. There are various benefits of using crowdfunding to raise capital. They include:
- Access to a wide pool of investors, which gives you options.
- Crowdfunding also works as a tool for digital marketing. Fundraising campaigns are promoted on social media, and this presents a remarkable opportunity for growing your brand recognition.
- Helps you save time and money you could have otherwise spent on pursuing other unsuccessful means of raising capital. You can access the funding you need while saving your line of credit for other uses. Also, your credit score is not affected.
- You can use it to collect feedback from the platforms so that you can rectify any issues or flaws in your business. In crowdfunding, any business campaign is subject to responses.
- If your business is successful, your business will benefit from word of mouth.
Crowdfunding could be the most crucial means of raising capital, especially if you’re a beginner to real estate investing. It’s a great option for new business owners, especially when traditional funding forms are limited.
The real estate industry is one of the most lucrative businesses you can invest in. However, one of the biggest stumbling blocks for investors is raising capital, especially when starting. Sometimes your options are limited, and loans are completely off the table.
But you don’t need to despair. You can raise billions for your real estate business through methods such as real estate syndication, wholesaling, and crowdfunding.