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How To Crowdfund Your Real Estate Purchase

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Can’t afford that down payment? Try crowdfunding for your new pad.

Although coined in the 21st century, “crowdfunding” — defined as the practice of letting anybody pitch to the public to raise money for something — is not a new thing. Even the Statue of Liberty’s completion was financed by a drive started by Joseph Pulitzer. Now in the age of the Internet, people crowdfund nearly everything (even a tooth filling).

So it’s no surprise that crowdfunding is being used to help with residential finances. Maybe you’re getting married and don’t really need a new blender or coffee grinder. But you could use a house and hope to use a crowdfunding platform to “register” for a down payment on that home for sale in Denver, CO. Or maybe this year you want to forgo receiving birthday presents in lieu of getting funds for that condo you have your eye on.

So how should you go about crowdfunding a real estate purchase? Here are some tips.

1. Find a niche site

Although you could use a mainstream crowdfunding site such as Kickstarter or GoFundMe, it wouldn’t be tailored to your particular mission. Specialty real estate crowdfunding sites are designed for various housing goals. A few examples:

  • Hatch My House lets you “build” a virtual home, and guests can “buy” parts of it to help you with a down payment, renovation, or home decor.
  • Feather The Nest offers a platform to convey your plans, whether they involve a down payment, home improvement, or furnishing your home.
  • Down Payment Dreams is pretty self-explanatory: It’s for funding a down payment. It also has a feature to help you find a real estate agent.
  • Honeyfund started as a honeymoon registry but now offers all sorts of registries, such as a “fun” registry, a down payment fund, home improvements, and an any-occasion registry.

“I recommend clients use BoostUp,” says Bruce Ailion, an Atlanta real estate agent and attorney. This site differs somewhat from the other registry sites because it’s also a savings platform. If you’re saving for a down payment, for example, brand partners, friends, and family can match your savings, dollar for dollar. “It is a great way to get the word out you need help reaching your financial goals,” says Ailion.

2. Set up a PayPal or bank account

Some crowdfunding sites require you to link a PayPal account to your registry to receive the cash gifts. Other sites ask for your bank account number so they can deposit money received directly into your bank account.

3. Tell and share your story

All these sites have one thing in common: They require more than just a pretty picture. You need to explain what your campaign is about and what you plan to use the funds for. A personal story about the neighborhood you want to buy in, what you’re looking for in a first home, and why you’re ready to make the homeownership plunge can go a long way in motivating friends and family to give to your cause.

After you’ve composed your personal message, you publish it to the site. You’ll then get a personal URL, which you can share with family and friends through social media (or on that wedding shower invitation).

4. Keep guests posted

It’s a thoughtful gesture to update guests on what you did with the money. If you were trying to fund a down payment or a kitchen renovation and succeeded, your friends and family will be excited to hear the news.

But trying to fund a down payment can be tricky. Of course, you should never intentionally lead people to believe you will buy a house when you don’t really think you will — but it’s possible that you won’t raise enough money to buy a house at this time.

If that’s the case, let your contributors know. You don’t want them to start gossiping about what you might have done with the money. After all, they’ll probably notice when you still aren’t a homeowner a year or two later. Explain what happened, and tell them what you plan to do with the money instead.

5. Understand the costs

Crowdfunding registry sites do have benefits, such as creating a fun portal for guests to go to learn about you and your dreams. And they make gift giving convenient.

But that comes with a price. These sites typically take around 5% or 6% of each gift you receive — whereas if your guests give you cash or a check, you don’t have to pay a fee to a middleman. Plus, when people give cash, they typically don’t ask (or care) what you use the money for. You also may want to check in with your accountant before launching a campaign because you’ll likely be responsible for taxes on any money raised.

Bottom line? Crowdfunding registry sites, although they’ll cost you a bit, can be a good option to help fund your new lifestyle.

Would you crowdfund your real estate purchase? Let us know in the comments!