By Frazer Fearnhead, founder and CEO, The House Crowd.
You only need to open the newspaper to see headlines regarding changes in buy-to-let rules, many of which will make it much more difficult for aspiring landlords to enter the property market. Along with low interest rates, this means that property crowdfunding is quickly becoming a strong alternative to traditional property investment.
Investors now consider property crowdfunding a credible alternative to investing money in the bank. This is specifically beneficial to those who prefer a real, tangible investment which is cemented in bricks and mortar rather than being sent off into a catalogue of other investors. Many property investors in 2015 now have huge responsibilities in terms of their own business ventures, and don’t have the time to dedicate to managing property.
An advantage of The House Crowd as a platform for property crowdfunding is that it offers a hands-off approach, where your selected investment is managed for you by a team of industry experts. This allows you to relax in the knowledge that your money is in safe hands.
There are four primary reasons why property crowdfunding is a serious competitor to more traditional forms of property investment. Firstly, you are able to invest a relatively small amount of money compared to the large deposit required for buy-to-let. For example, the minimum amount you are able to invest with The House Crowd is £1,000. This makes property crowdfunding much more accessible to a wider demographic of people who may not have the financial ability to invest a larger sum.
Rather than investing by yourself and putting all of your capital into one property, you can spread your investment over several different properties thus mitigating some of the risks associated with property investment. This is particularly attractive to those who may normally be put off by the risks of financial loss.
Property investment can deliver much better returns than institutional investments such as ISAs, pensions or savings accounts and with current interest rates being as low as they are, this is now true more than ever.
The major benefit of investing with a property crowdfunding company is that you are working alongside industry experts who have extensive property investment portfolios themselves and are keen to share their expertise with investors.
Frazer’s 7 questions
As with any investment opportunity, there are steps that should be taken to avoid encountering problems. Frazer has 7 essential questions that you should ask before investing via property crowdfunding:
Will your investment generate good returns?
– This may seem obvious, but it’s important to have full transparency in terms of the returns on offer. You should also be wary of hidden costs and ask yourself whether the yields offered beat averages for that area.
What is the security and risk?
– It’s all very well being promised high returns on your investment, but if the developer goes bust, what security is there in place to recover your capital?
Do you know the background of the principals?
– Do your research on the people running the platform. Look for individuals who are experienced property investors themselves with a wealth of knowledge of the property industry.
Is the investment being offered by a company associated with the platform itself or an unrelated third party?
– Be wary of platforms who focus on raising funds for anyone who wants to list their investment on the site. Platforms with integrity will conduct serious due diligence on the investment and the people behind it before allowing them to promote on their platform.
Does the company have a track record of success and transparency?
– There are companies now who have been trading in property crowdfunding for more than a year so should have a track record to shout about – if they don’t, you have to wonder why.
Will you be able to get out of your investment when you want to?
– With most platforms you will be making an investment in shares which improves liquidity to some degree but it still may take a while to sell those shares and there is no guarantee you will do so. Check the small print to see if the companies will assist you in finding a buyer after the expiry of the minimum term.
Is their customer service up to scratch?
– There is nothing more frustrating than working with a company who do not look after you once they have taken your money. Are they helpful and informative in dealing with you and do they provide case studies and genuine testimonials?
With interest rates showing no sign of increasing any time soon and investor’s lives only getting busier, there is a real requirement for a simple, transparent method of property investment. The yields promised through this crowd funding platform can’t be ignored either, with a typical gross yield of over 9% on buy to let properties and potentially more on short term develop to sell projects. For those looking to make a break into the property market with little knowledge of the industry itself, crowdfunding is a natural step due to the expertise offered by a team of industry experts with a proven record in this arena.