Investing in Property with Crowdfunding

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I was reading a press release yesterday from a property crowdfunding company and it mentioned that they had recently hit the £2 million investment mark.

With that in mind, I thought it might be worth taking a few moments here to explain just what crowdfunding is and also what the potential benefits of crowdfunding are for the small investor, specifically in the property sector when investing through sites like Property Partner*. To keep things balanced we’ll also mention the potential downsides too so that you can make an informed decision.

What Is Crowdfunding?

Crowdfunding quite simply allows smaller investors to ‘crowd’ or ‘pool’ their money together enabling them to invest in larger assets. There are a couple of reasons why investors might want to do this. The first and most obvious reason would be that they simply don’t have the funds available to invest in larger asset classes on their own, leaving these investments out of reach. Crowding together with other smaller investors can therefore open the door to investing in more expensive assets, like property for example. Even if an investor did have the money to fund a property purchase outright, there are still many reasons why they may choose to go down the crowdfunding route.

Pros of Crowdfunding a Property Investment

Spreading Risk – An investor might well want to get involved in the property sector but may not want to place all of his eggs in one basket so to speak. Crowdfunding would allow the investor to decide exactly how much cash he or she is willing to invest and still reap the rewards of any growth in property prices or rental income.

Less Hassle – Let’s be honest here, being a landlord isn’t for everyone. The constant worry of costly repairs, whether the tenant will pay the rent, or if the property will be left unoccupied is just too much to take for some. Crowdfunding allows investors to get involved in property investment without all of the hassle that goes along with it.

Less Commitment – Another benefit of using crowdfunding to invest in property is the short length of time you are required to invest your money for, should you decide that the investment isn’t right for you after all or isn’t providing the expected return. Property Partner*, for example, allow you to sell your shares in a property to another investor via the resale section of their site. This takes away some of the huge commitment that direct property investment can bring.

Annual Returns – One of the primary reasons that crowdfunding for property investment is proving so popular at the minute is the potential for a good annual return compared to the low rates currently available on savings accounts and ISA’s. Again the return being offered will depend on which company you choose to invest with and how well your investments perform. However you look at it, though, the potential returns are likely to be quite attractive in the current climate where many savings accounts and fixed rate bonds are paying less than 2%.

Potential Cons

As we’ve mentioned some pros of crowdfunding a property, we really should consider some potential cons too.

Fees – As with any kind of managed investment, there will be fees to pay when you invest in property via a crowdfunding site. Be it through a profit split, ongoing management fees or perhaps a one-off investment fee, there will usually be some kind of fee to pay to the company responsible for managing the crowdfunding site. These fees will differ depending on who you invest with, so it’s important to read the fine print and ensure that you are happy with the details. I suppose the question for every investor would be whether the advantages of hassle-free property investment and the annual returns on offer make up for the fees charged by your chosen crowdfunding company?

The Unknown – When you place your money into a savings account, you have a level of confidence in what to expect. As crowdfunding is still a relatively young phenomenon, for many it is also a venture into the unknown. As mentioned in the earlier referenced press release, however, there doesn’t seem to be any shortage of takers for crowdfunded investments right now.

As long as savings rates remain so low, we can expect savers and smaller investors to continue to look to companies like Property Partner* as alternative investment options, even if it means venturing into something new.

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4 Responses to Investing in Property with Crowdfunding

  1. It’s the first time I’m hearing about a company like that. I’m just wondering how the 7.5% will be taxed.
    Their concept is good, renting to “unattractive” customers and getting a higher return on investment (like the low grade note in P2P lending)
    You can request your capital back after 15 months, what if it’s a ponzi scheme ? 🙂

  2. I would totally invest in a company like this, Adam, for all of the positive reasons you mentioned above. It’s perfect for the investor who wants to be involved in real estate investing but doesn’t have the funds or the desire to do it all on their own. Great post!

  3. There are some good companies issuing bonds at the moment – in the UK Premier Oil are issuing a retail 5% offering, and Smartwater a 7.5% 3 year deal.
    I think I would prefer the tried and tested publicly accountable rather than a step into the unknown.
    If you’ve already got a diverse portfolio then why not go for it?

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