I’ve written about the potential of Fintech as a social movement before, and I believe property crowdfunding can genuinely provide a space for social change. Acting as a potential alternative to antiquated financial systems, Property Moose, for example, allows individuals to start climbing the property ladder with just £10.
The alt-finance scene, although very new, was estimated to be worth £3.2 billion in 2015. It’s true that equity crowdfunding in particular hasn’t been around that long, though it has developed a variety of reputations. “To its advocates, it’s exciting, democratic and socially valuable… But to observers of a nervous disposition, it’s a formula that can too easily tempt novice investors to back ventures of which they know little, at valuations that make no sense.” (1) However, “One thing is certain, investor confidence in real estate is back and investors are looking for new and creative ways to participate.” (2)
Our first successful exit
The majority of property crowdfunding companies are still relatively young. (3) We believe that Property Moose was the first property crowdfunding company to launch in Europe, making us one of the oldest platforms in the industry. Many of our investments are nearing the end of their terms, and we’re delighted to announce that we have just completed our first exit. On the 17th of January, SPV 1, which held a 2-bedroom terrace house in Greater Manchester, was officially sold. We believe this marks a milestone for our business, and indeed the industry.
We had made a start on the exit in November 2016, however, we experienced a variety of delays caused by the buyer’s mortgage company. Thankfully, we can now confirm that the cycle has been completed, and the only remaining step is to finalise the accounts and prepare the capital for distribution as soon as possible.
About the investment
This was an off-market purchase of a 2-bedroom property in a popular family area in Manchester. The property needed modernization, and a renovation fund, which was included in the purchase price, involved a kitchen refurbishment, a new bathroom and new double glazing on all windows.
The term length was two years, and the financial details can be found below:
Initial fund amount: £63,000
Sale price agreed: £67,000
Total rent received: £4,828.87
Capital return: £4,000
Total return on investment: £8,828.87 (14.01% net)
This means that over the two-year investment term, you would have earned a total net return of 14.01%. When we listed the property, the valuations we instructed estimated the property had a projected yield of 6.70% and a projected growth of 19.20%.
Projected returns vs. actual returns
Unfortunately, we experienced tenancy issues during a four-month period between December 2015 and March 2016. Of course, this is a concern for anyone investing in property, and it’s no different if you invest through us. However, we are constantly trying to minimise this risk by forming partnerships with local management companies in all of the locations that we list properties. By using agencies that have expert local knowledge, we hope to keep any void periods to a minimum and to secure the best rental yield possible. In addition, as a rule, we only invest in areas that we know have high rental demand so we are confident no property will be vacant for long, if at all.
It’s also important to remember that projected values are not guarantees, and what you actually achieve in the open market may differ from even the most informed estimation. We try to provide the most accurate projections possible, though it’s still crucial that you conduct your own due diligence before investing.
We also did not have a provision fund in place for a few of our earlier listings, including this one, which may also explain the actual returns being slightly lower than the projected returns. As a result, any necessary repairs were deducted from rental income. We learned a lot during our first few months as we navigated our way through mistakes, like any start-up in a new industry. However, from SPV 25 onwards, every single one of our properties have included provision funds.
We’ve come a long way since we opened our doors in 2013, but we will continue to maintain open and honest communication with our investors. Our fast-paced growth is truly down to your support.
Many more to come
It’s an incredibly exciting time, and many of our other properties are nearing the end of their investment terms too. As our investors hold full voting rights, we are processing responses regarding exit plans for the properties nearing the end of their cycles, and as always, we will keep everyone updated.
We are hopeful that confidence will grow now that we have overseen our first successful exit, and we are soon scheduled to be exiting several properties each month. Combined with our Secondary Market, which launched late last year, we are confident that we are giving our members the tools they need to build diverse investment portfolios, tailored to their individual needs.
The sector has certainly come of age and our first successful exit will hopefully be the first of many.
Written by Jenna Kamal
Sources
- http://www.spectator.co.uk/2015/10/crowdfunding-gimmick-or-revolution/
- http://www.forbes.com/sites/groupthink/2014/08/19/the-investors-guide-to-real-estate-crowdfunding/#1cf917d54dd7
- https://www.quora.com/What-are-the-most-successful-exits-so-far-for-CrowdCube-Seedrs-AngelList-or-similar-equity-crowd-funding-sites
Disclaimer and Legals
Property Moose does 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. This post has been approved as a financial promotion by Resolution Compliance Limited.
Property Moose is a trading name of Crowd Fin Limited which is an Appointed Representative of Resolution Compliance Limited which is authorised and regulated by the Financial Conduct Authority (no: 574048).
