Is Property Crowdfunding The Right Vehicle For You?
Following on from our introduction to property crowdfunding, this week we will look at whether property crowdfunding is something you should consider.
To a large extent, this question can be answered by reference to your circumstances, your experience and what you want to achieve.
If you are a full time professional property investor with access to bank funding, then you probably won’t need crowdfunding. You know you can invest yourself successfully and keep more of the profits (after paying off loans).
If, however, you are a part-time/ novice investor who does not have a deposit available or the ability to get a mortgage, then it may be worth considering, especially if you are fed up with your savings sitting in a bank account earning very little interest every day.
Crowdfunding has opened up property investing to everyone and made investing in property as easy, simple and safe as possible, but, as with any investment, there are pros and cons.
Some may argue that investing with a company who sources, purchases and manages the property is a way of mitigating your risk as an investor. In essence, when you invest in a crowdfunding platform you are leveraging the skills of others in order to generate a financial return. This option is often attractive to those individuals who don’t have the time or experience to invest in property themselves, however, they want to invest in the property sector and see property crowdfunding as a way of achieving that objective.
Crowdfunding is also an option for individuals who have a pot to invest but perhaps it isn’t a large enough pot to invest in property themselves and, in essence, that is one of the attractions of any crowdfunding platform. It allows individuals to invest in property by teaming up with others. Rightly or wrongly some people feel they are less exposed when investing in crowdfunding platforms as they are investing along with other people. However, others may argue that just because several people are investing in something it doesn’t necessarily make it safe or mitigate all the risks – many of which are exactly the same as investing in a property yourself.
Some people do not like the fact that investing in a crowdfunding platform means you lose an element of control over the assets you have invested in as you will be reliant on decisions made by others or on other shareholders voting the way you would like. You can select the properties you wish to invest in but have to accept that you will have little or no control over the management of the property. For many investors that hands off service is appealing and for others that lack of control will put them off. A lot depends on the individual, what they want to achieve and why, and what level of risk they are comfortable with.
Whichever crowdfunding platform you use you need to trust the people behind it – I will be dealing with the essentials of choosing the right company in a later blog post.
Next time: Traditional Property Investment v Property Crowdfunding – a direct comparison of the pros and cons.
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.