Crowdfunding is a term which many investors may be aware of as it has quite literally taken the investment markets by storm over the last few years. It covers an ever-growing range of investment markets, but for many it is property crowdfunding which can open up an array of opportunities for large and small investors alike.
What is property crowdfunding?
In simple terms property crowdfunding uses the cumulative power of small and large investors to fund property transactions. Once funding is completed the property in question is transferred into a limited company and each of the crowdfunding investors will receive a percentage share of that company relative to their own investment. Each property crowdfunding opportunity will have its own specific structure, whether this is a guaranteed income or a share of rental income and capital growth.
What are the potential benefits of property crowdfunding?
There are many potential benefits of the property crowdfunding platform that include the ability to gain access to real estate assets for as little as £10. This may seem like a minimal investment, but for those new to property investment (and the property crowdfunding scene itself) it offers the opportunity to put their “toe in the water” and see how the system works. As the projects are “crowdfunded” there is no need for mortgage applications and adverse credit ratings have no impact because you will be investing directly in cash.
Property crowdfunding has become very popular with those who have little or no real experience of the property investment market. There is no need to source traditional property deals or compete with other investors to buy the best investment properties from the open market, when there are already fully researched investments available to buy into on a property crowdfunding platform. The very fact that the crowdfunding platform itself depends upon the accuracy of details associated with each investment opportunity can immediately create a trust factor amongst potential investors. It’s essential to carry out your own due diligence (as you would with any other investment), but with the reputation of crowdfunding companies being built on the quality of the investments they present, it’s in their interests to find you the best possible opportunities.
How do the risks compare to traditional property investments?
As with all investments, there are risks involved. Your capital may be at risk if you invest. You ought to rely on your own due diligence before investing, and be aware that property prices can go down as well as up. All figures, rates and yields are only projections and should not be relied on.
In order for investors, and those looking for investment, to get the best out of property crowdfunding there needs to be an extremely high level of trust. We believe the best property crowdfunding operations source their investments from hand-picked partners covering markets right across the UK. This helps to ensure that all property investment opportunities can be assessed in great detail and only what is believed to be high-quality transactions make it onto the property crowdfunding platform.
We believe companies such as Property Moose add to this high level of trust by using only professional third-party RICS valuations, utilizing market leading property insurance which covers extensive risks, as well as the creation of a provision fund to help provide interest-free loans for any unforeseen works required to a property before the end of the term. So on one hand you may have the opportunity to invest in handpicked crowdfunding investments and professional high quality backup covering valuations, insurance and additional funding. Each of the property investment opportunities which make it to the crowdfunding platform are listed in great detail with the aim of making sure everything is crystal clear for potential investors.
So in essence, property crowdfunding participants can piggyback on the expertise of the underlying crowdfunding platform and make full use of professional network relationships, detailed valuations and opportunities. The simple fact is that the reputation of any individual crowdfunding platform, and the sector as a whole, depends upon the quality of the transactions and the quality of information and services. The opportunity to “dip your toe in the water” for as little as £10 may be for many future property crowdfunding investors their first step into the property investment market.
The popularity of Property Crowdfunding now: why are these companies springing up now?
There is no escaping the fact that property crowdfunding is now an established element of the property investment market, although many ‘newbies’ to property investment may be unaware of it or have little understanding as to how it works. This comes at a time when property investment itself is recognised by many people as potentially one of the more stable long-term investment opportunities. Indeed, property investment may now be seen by many people as “their pension fund of the future” in light of turbulent stock markets and the volatile nature of many other investment sectors.
For many would-be property investors it is the opportunity to invest a relatively small amount of capital in individual investments which gives them a stepping stone towards building a long-term property portfolio. For as little as £10 investors can have an insight into how the world of property investment works which can give them the confidence to diversify and increase their exposure in the future.
While there are attractive investment opportunities and very useful platforms for those looking to raise capital, the whole system depends on the reputation of individual property crowdfunding companies. Reputations are built on the quality and accuracy of investment information published about each funding opportunity. This can ensure that only the best investment opportunities make it onto the crowdfunding platform and as much protection as possible is afforded to investors and those looking to raise funds.
Getting started: To learn more about property crowdfunding including how it works, FAQs, and to view live investment deals with potential returns you could expect for your cash investment, read more about one of the pioneers of property crowdfunding in Europe, our resident experts Property Moose.
We do not provide any advice in relation to investments and you must rely on your own due diligence before investing. Please remember that property prices can go down as well as up and that all figures, rates and yields are projections only and should not be relied on. If in doubt, please seek the advice of a financial adviser. Your capital is at risk if you invest.