For anyone following the world news, you would know how a historically high inflation rate has been affecting the global economy. At a time when the prices, across commodities, are constantly increasing, there is one respite for investors – real estate investment. Historically, it has been seen that investing in real estate is the best way to hedge against inflation. A performance that has not been hidden from real estate crowdfunding platform users.
A validation of the crowd funding investment platform can be seen in the real estate crowdfunding market which will grow to over $239.78 billion in the 2021-2026 time period.
In the forecast period, the biggest contributors of the real estate crowdfunding industry are expected to come from countries like – the US, China, Australia, the UK, and Germany. These stats translate into the fact that entrepreneurs belonging to these regions or aiming to target these locations have a scope of making massive profits.
In this article, we are going to look into the different facets to building a real estate crowdfunding investment platform.
The working of a real estate crowdfunding platform
A real estate investment platform has multiple stakeholders involved in the process. The idea of the platform is to create a space where builders can get financing and investors can find avenues to put their money in.
When we talk about real estate crowdfunding platforms, the one name that comes on the surface are companies like Fundrise. In a matter of two years, the company has raised $15 million from more than thousand contributors. The real estate investment platform is now worth $800 million and is managing the assets of more than 140,000 investors – with numbers like these, it has come under the entrepreneurs’ radar and has resulted in them seeking development support similar to Fundrise.
Keeping Fundrise as the base, let us look into the various features to consider when you build a real estate crowdfunding investment platform.
The must-have features of real estate crowdfunding platforms
The list of Fundrise app features is fairly straightforward. However, as an entrepreneur looking to compete with apps like Fundrise, it is critical to take its features at an MVP level and then build upon it to start a real estate crowdfunding platform of your own.
Want to know more about how a minimum viable product can be beneficial for your real estate crowdfunding business? Head on to this entrepreneur’s guide to MVP for complete insights.
1. AML or KYC checks
Running due diligence on the users is a critical part of any real estate crowdfunding or REIT platform. It is crucial for the space to verify the stakeholders’ identity and identify the source of income – something that can be achieved by asking users to link their bank account. A way to do that is by using APIs which enables conducting users’ identification in line with the global regulations.
2. Sign-in
With the KYC and AML process done, the next step comes in – sign up/sign in. Typically, the investors are given two options – login through social media or through email and password. Following this, you have a two-factor authentication method to sign in such as entering OTP sent on mobile number and/or email id and fingerprint authentication.
3. Project details
When you build a real estate crowdfunding investment platform it is crucial to have a section – likely in the first screen – where all the projects are listed along with details like description, investment size, expected annual returns, target term. You should aim for making an intuitive search engine for this page which categorizes projects according to location, returns, estimated holding period, and size of the unit, risk rating, reviews, etc.
A way to make this section of the app more conversion friendly will be to have a button through which the investors will be able to invest in a property they like through one click.
4. Investors page
There should be a separate section for investors in your real estate crowdfunding platform, one where they can add in the financial goals, add a bank account, and get a dashboard view of their portfolio with separate sections for individual properties and their performance.
What is unique in apps like Fundrise is that they offer you the option to make one time investment or have recurring monthly contribution systems like SIPs.
5. Returns calculator
Another critical factor of REIT platform companies like Fundrise is an intuitive returns calculator. Every user-friendly investment platform has an in-built earning prediction and mortgage calculator tool which enables investors to foresee their earnings varied by investment period and amount.
6. Fund allocation
The core of a real estate investment platform similar to Fundrise lies in having an automated fund allocation mechanism which is intelligently coded to allocate funds in REITs according to the budget, risk factor, and returns. It would help to create an algorithm that asks investors of their financial goals and give them probable listings accordingly.
7. Earnings withdrawal mechanism
When it comes to withdrawing the earning made in the crowdfunding investment platform there are two options that you can plan around – an in-app wallet where the investors can put in their money to invest and get the earnings in, and second is to directly connect the platform with investors’ banks through which the investment and withdrawal can happen via the bank account.
Another factor to consider in terms of earnings is the kind of returns you would allow. Fundrise follows two return models –
- Dividend – These are the revenues generated on an ongoing basis like tenants paying rent. Fundrise tends to pay dividends to the investors on a quarterly time frame.
- Appreciation – It is the increase in property’s value over time. Fundrise realizes the appreciation on a long time frame like in case of when the property is sold.
8. Portfolio updates
The next crucial feature when you create a real estate crowdfunding platform lies in giving the investors regular updates about their portfolio – REITs which are performing, the amount of growth, information around the property – rent, acquisitions, and occupancies, strategy information, etc. This gives them the investors a reason to return to the application.
9. Customer support
REIT investments are a fairly less heard of investment model, thus it will be helpful to have a customer support option where the investors are able to contact you when they get stuck or need to know about your platform’s working. On an MVP level, it would make less sense to have an AI-based chatbot that segregates queries and give automated replies so what we advise is giving the investors an email id to send in their query and taking at least 24 hours to answer their question or concern. For more urgent needs, you can have a chat system which works in official working hours.
Now that we have looked at the features side to consider when you create a real estate crowdfunding platform, let us get down to the steps followed when building a real estate crowdfunding platform.
Steps to build real estate crowdfunding investment platform
Crowdfunding in the real estate industry has grown to become a competitive space. For an entrepreneur to ace the domain, it is equally crucial to have a sound development process along with robust, innovative features. Here are some steps we recommend following when building a Fundrise-like app.
Business analysis
The first step of building a real estate crowdfunding platform is creating a scope of the project. At Appinventiv, when we take on a crowdfunding app project we start with creating a user demographic and information architecture highlighting the user flow. This gives a fair idea of the feature-sets and the screens.
UI/UX
Typically, real estate crowdfunding platforms like Fundrise come loaded with information – multiple projects’ details, investment dashboard, and calculators. Putting in this information in one place can make the applications look crowded and data-heavy. The solution to this lies in building a minimal design with clear, organic user flow.
Development
This is where all the engineering part of the apps like Fundrise happen. Entrepreneurs generally tend to partner with a real estate software development company for making this part of the process hassle-free. At this point, several considerations like choice of API, features, and tech stack are made to make the platform robust.
Launch
Once the real estate investment platform is built, the next process starts – one where the application is made live on the Play Store and App Store. At Appinventiv, we typically add this offering as a part of the service set along with the post-launch maintenance.
In addition to these steps, it is crucial for real estate crowdfunding investors and platform owners to know the legislative frameworks being followed across geographies.
Real estate crowdfunding legislative frameworks
On a global scale, real estate crowdfunding is still considered an emerging field without a standard legislative framework. However, different regions have defined the operations of crowdfunding on their level. Here are some of the geographical regions and the frameworks they have made.
- The US has drafted definitions around status and rights of the unaccredited investors. According to the SEC, the framework consists of people having an annual income less than $200,000 and the net worth of less than $1 million (excluding their primary residence).The regulator permits the investors having annual income less than 100 thousand USD to provide 2 thousand USD – 5% of annual income/net worth or the investors can also contribute 10% of their yearly income.
- In the UK, FCA crowdfunding regulators define the unaccredited backers as ones whose real estate investment is less than 10% of their assets. This means that crowdfunding investors can make deals only upto 10% of their previously invested funds. This, in turn, averages out to £5 thousand per investor.
- In Australia, all the investment backers should go through a registration process and can only own $2.5 million worth of real estate assets.
- In Canada, the unaccredited investors can own only less than $1 million of the financial assets or carry a net worth amounting to $5 million.
- Multiple countries around Europe have also introduced frameworks which protect the crowdsourcing investors. In October 2020, the EU Parliament gave formal consent to the final edition of Regulation on European Crowdfunding Service Providers for Business. It highlights the following:
- Any crowdfunding business owner can request a license from the “European Enterprise Crowdfunding Service Provider” (ECSP)
- Max amount for a crowdfunding deal should be limited to €5 million over a period of 12 months
- A platform founder should apply for authorization to a national competent authority in their country of registration.
- Every crowdsourcing offer must include a ‘knowledge test’ for ‘non-sophisticated investors’ and a document that lists down the necessary investment information.
- Real estate analysts should expect the legislation to simplify the international crowdfunding sector and push the growth of the REC industry.
With this, we have covered the basics of building a real estate crowdfunding platform like Fundrise. Let us now look into the next critical element that entrepreneurs would be interested in – real estate crowdfunding platform development cost before diving into some additional elements that can help you get a competitive edge.
How much does it cost to build a real estate investment platform like Fundrise?
The cost of building a real estate crowdfunding platform is dependent on a range of factors – the selected feature sets, technologies used, team size, and above all the location of the app development agency. Now while it is impossible to give a number without knowing the total scope of the project, going by the features we mentioned in the article, it can be up to $120,000 to $200,000.
However, this number is subject to change if you hire a team from the US or UK, where the average cost of development per hour ranges from $120-$150 as opposed to India where the range is $80-$100. Usually, the team working behind a real estate investment platform like Fundrise will be made up of –
- 1 project manager
- 1-2 UI/UX designers
- 1-2 Android app expert
- 1-2 iOS app expert
- 1-2 QA expert
While the range we mentioned is more in terms of MVP level features of Fundrise, it is important to note that in order to gain a competitive edge, you will have to go beyond the obvious. Here are some things that you can tweak in your offering –
Minimum amount of initial investment
In case of Fundrise the minimum amount that an investor can put in is $500. To get an edge, you can keep the amount as $100-$200.
Use smart contract
The biggest concern investors have with a new platform is in terms of authenticity. You can address this with blockchain by using smart contracts to manage transactions and earnings.
[Also know other ways in which blockchain is transforming the real estate sector.]
VR view of the property listing
Giving investors a way to view the properties along with the street view through a VR functionality can peak investors’ interest around the offering.
Educational resources
It will be helpful for the investors to have educational resources around how the real estate market is moving, strategies to get higher returns, etc. It will also be beneficial to know the top technology trends that are driving the real estate sector.
While these are surface level tweaks that you can add in your real estate investment platform, there are a number of new elements that can be introduced to get steps ahead from the other platforms in the market.
With you putting all these efforts behind the development of a Fundrise-like platform, it is imperative to know the ways to make money from it. Let us look into it next as we conclude the article.
How to make money from your real estate investment platform?
The amount you put in the development of the real estate crowdfunding application, when done right, has the potential to give manifold returns. Here are some tried and tested ways to earn money at the back of your project.
1. Advisory fees
You can charge a small fee for annual advisory services. This payment can be taken for updating investors on how the project is moving, distributing the dividends, and keeping them aware of the tax benefits.
2. Management fees
You can charge a percent of money to manage the ongoing operating expenditures of multiple real estate projects added in the platform’s investors portfolios.
3. Early redemption fees
When the investors cash out in under 5 years of investment, you can charge somewhere around 1-3% of their investment.
Parting notes
Crowdfunding and REIT investments, while a lesser known mode of making passive money, are gaining traction from the investors and real estate enthusiasts alike. Amidst this high demand, a range of real estate investment platforms have emerged.
However, the space is still ripe for innovation thus becoming a profitable business model. We hope the information you gathered here will help you build a profitable crowdfunding platform. We are here to help if you face any challenge in the process or find its development complicated.
FAQs around real estate investment platform
Q. How to start a real estate crowdfunding investment platform?
A. The process of starting an REIT crowdfunding platform starts from identifying the user demographics, finalizing the feature-set and technology stack, designing a minimal UI-UX, and coding the platform.
Q. What are real estate crowdfunding platforms?
A. The real estate crowdfunding platforms are software that act as a connecting link between investors and builders. The builders promote their projects in the platform which the investors then put money in.
There are a number of popular real estate crowdfunding platforms. The top ones are: Fundrise, Prodigy Network, Realty Mogul, and CrowdStreet.
THE AUTHOR
Prateek Saxena
DIRECTOR & CO-FOUNDER