Many people believe property to be a stable investment that is capable of producing produce both income and capital growth. However, it does have number of drawbacks.
Traditionally, it has only been those who have access to large amounts of capital that have been able to benefit from the financial gains property investment can deliver. Further, it is by no means a passive investment and can take considerable time and effort to manage – especially as your portfolio grows. And as an amateur property investor/ landlord you are also likely to make many mistakes … and mistakes in property can be very costly, especially if you have tied up all your available capital in just one or two properties.
Property crowdfunding has democratised property investment.
It enables virtually anyone to get involved; not just those with piles of cash to invest. It enables you to use small amounts of money to invest in property and benefit from both rental income and capital growth but without the hassles usually associated with investing by yourself.
Crowdfunding, and property crowdfunding in particular, has taken off in a big way over the last few years and is now a multi-billion-pound industry (and forecast to grow a hundred fold in the next few years). There are a wide variety of deals on offer from UK property crowdfunding sites including short term develop to sell projects, secured loans and long term buy to let, some with assured rental income.
Like many good ideas, it is inherently simple. Property investing has traditionally delivered good returns, so why not let people pool their cash to purchase property and share in the returns from rents or sales. Often people can invest with small amounts – from as little as £100 on some websites, although most require £500 or £1000 as a minimum investment. You simply register as an investor on the website and select those properties you want to invest in.
You will normally by investing in shares of a limited company (an SPV – special purchase vehicle) set up solely to purchase that property. In that way, your investment is ring-fenced and your money protected should the crowdfunding platform run into financial problems.
There are an ever growing number of property crowdfunding companies. The longest established platform is The House Crowd which started trading in early 2012 followed by others such as Property Moose and Crowd Property in 2013 and Property Partner and Crowdlords in 2014.
Is It Regulated?
Due to its growing popularity, not just in the UK but around the globe, regulators have become concerned about the risks involved and the potential mismanagement that might occur. So in 2014, the Financial Conduct Authority, aka the FCA, put some controls in place to try and make investments and the risks clearer to potential investors.
It’s worth noting that firms that are regulated by the FCA will have details of their authorisation number on their website. If you can’t find these details, then you may well be dealing with a company that isn’t regulated by the FCA which means they are operating illegally. So, when investigating potential companies to work with, this is one of the key issues to check.
Our next blog deals with the factors you must consider when deciding whether property crowdfunding is the right vehicle for you.
Written by Frazer Fearnhead, The House Crowd
Frazer started his career as a lawyer in the music industry. He has been investing in property since 1994 and working with other investors since 2003, helping them invest in over £60,000,000 worth of investment property along the way. He is the founding director of The House Crowd – www.thehousecrowd.com , the world’s first property crowdfunding platform.