It seems like everyone I meet these days is looking for a means and a guide to financial freedom, and I don’t blame them. When the housing market crashed in ’08, Christina and I were looking for a way to stay in a business that no one had any confidence in anymore. In the years since, with the economy coming back slowly and lots of people looking to buy affordable homes, more and more people are asking the question, “Can I start a real estate business?”
Of course, that’s not all they’re asking. If you’re like a lot of hopeful real estate entrepreneurs, you’re probably more concerned with how you can start your real estate business. And, if you’re like a lot of our Success Path Education Students, you’ve probably been paying close attention to your options for funding this type of venture.
While we’ll tell you about how to approach investors, private lenders, and hard money lenders, a lot of you have been looking into other options, as well, like Kickstarter or GoFundMe. These crowdfunding sites make it look really easy to get funding for everything from writing books to creating card games to launching startups. The thing is, though, the Kickstarter model might not be the best idea for a house flipping business, and here’s why…
The Success Rate Is Really Low
First of all, according to Entrepreneur, fundraising campaigns with goals of less than $10,000 only have about a 29% success rate. And, if you want to raise more money than that, your odds get a lot worse. For campaigns with goals between $20,000 and $100,000, Entrepreneur reports a success rate of only four percent. Those aren’t odds that I’d want to bet on.
Not a Good Model for Time-Sensitive Deals
Here’s another reason that a Kickstarter campaign could backfire on you. When you find a deal on a flip property, you’re going to need to get funding fast before someone else buys it or outbids you at auction. With a Kickstarter campaign, you’ll need weeks (if not months) to prepare for and advertise your campaign before you launch. Then you’ll have to wait until the campaign finishes, and even if you meet your goal, you’ll probably have missed your deal.
What Kind of Deliverables Will You Give?
Now, let’s say that you’re just going to run a campaign to gather funding before you start flipping. With $10,000-25,000, you might be able to find a small flip property to rehab and sell, so this may not sound like a terrible idea to get started. But what will you promise your backers if the campaign is successful? If you were starting a company to develop a cool new app, you could offer free downloads, stickers, or merchandise, but you’re starting a real estate investing business, so there’s not a whole lot that you could offer, other than some cool t-shirts or stickers. You’ll have to pay for your deliverables out of your campaign, too, so that cuts into your funds for your first flip.
Basically, if you’re going to make the effort necessary to create a successful Kickstarter or GoFundMe campaign, you could really just as easily put together a proposal for an investor or private lender to get more money in less time. So, as you look for a guide to financial freedom, and you ask, “Can I start a real estate business?” the answer is absolutely yes, but you probably shouldn’t start one with a Kickstarter campaign. Getting a hard money loan or partnering with an investor will get you a lot further a lot faster.