What is Property Crowdfunding?
Buy-to-let has been one of the most popular forms of investing for going on two decades now as investors large and small have sought to benefit from the UK’s continued house price boom.
Yet, the introduction of onerous new rules on the part of the government has combined with the perennial issues around rental voids, broken boilers and demanding tenants to make buy-to-let a less attractive proposition for some.
Enter property crowdfunding. Investors seeking to benefit from Britain’s seemingly insatiable appetite for property can now opt into a different type of investment – one which takes the idea from technology and platform-based peer-to-peer lending.
This format brings the simplicity of the crowdfunding model to the property market. “Crowdfunding platforms allow us to pool our money so that together we can buy a house, and everyone gets a share based on how much money they contribute. The property is then rented out and everyone gets their share of the rent, and as the house price changes the value of your shares changes as well. So you make money from rent and, if the value of the property rises, you share in the capital growth. You can get involved with very small amounts of capital and not have to handle all the day-to-day management and hassle.
There are in fact various routes into property crowdfunding, you can also opt for just residential or just commercial property, or a mix of both – these can have quite different risk profiles. And you can fund projects through construction to sale, or get into bridging loans over short terms in the interests of accessing higher potential returns.
So the good news is that investors have a decent amount of choice. The challenge is that all property crowdfunding is not the same, far from it, so you need to do your research before you pick the platform or platforms you use to invest. According to a 2015 report from the innovation think tank Nesta, the majority of property crowdfunding, around £609 million, came via P2P loans, while a further £87 million came through the equity crowdfunding platforms.
Even though the figures are a few years old now, it does demonstrate the popularity of this form of investment.
All investment products carry risks as well as costs, and investors should make sure they do their research. Most platforms charge an initial finder’s fee of around 5 per cent, while there will also be a management fee on the yield (of 10-25 per cent) and a fee for any capital gains of another 15 per cent with some platforms.
I reality The mechanics of a crowdfunded investment are then relatively simple and more people from all walks of life are making the move to, what has always been, on elf the safest types of investment available, one could say, as safe as houses.
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