What is Property Crowdfunding:
There seems to be a new property crowdfunding company popping up every month, and it simply comes down to the fact that there is a high demand and a low supply of the service. Traditionally, property investment was exclusively limited to those who had enough cash to get started in the first place, but thanks to property crowdfunding, there’s been a social change, driven by opportunity, fairness and inclusivity.
The logistics are fairly simple. Essentially, the price of a property is distributed amongst a crowd of people, as is any rental income and any profits from the eventual sale of the property. The way it works varies from platform to platform. More often than not, investors place their money into Special Purpose Vehicles (SPV) which purchase the properties. Depending on the amount invested, investors will receive a relative number of shares in the SPV. Following the funding of the property, investors will receive any rental income and potentially cash in on the eventual sale of the property.
A potential benefit of property crowdfunding is getting access to a team of professionals who source, manage and evaluate investment opportunities for you, providing you with a more hassle free experience. Becoming part of the Property Moose crowd, which was the first property crowdfunding platform in Europe, for example, gives you access to a team of property managers who have a wealth of experience in the sector. In addition, they instruct a RICS approved partner surveyor to give a present day, open market evaluation, which is coupled with a market growth projection. This provides investors some of the crucial information needed to make an informed decision - and its handed over on a silver platter of clear, simplified figures. It’s important to know, however, that property prices can go up as well as down. Forecasts are not a reliable indicator of future results, and they are subject to change.
Considering the affordable entry point, property crowdfunding could provide individuals with a greater opportunity to diversify their investment portfolios. Not only do the majority of platforms allow you to invest in multiple properties under a “little and often” premise, they also allow you to invest in multiple types of properties – such as Buy-to-Let, Houses of Mixed Occupancies (HMOs) and Mixed Use. This could provide you with an incredible opportunity to spread your capital across a variety of opportunities, thus potentially decreasing your level of risk.
Another main downside of traditional property investment is the potential illiquidity, however, Property Moose’s very own in-house tech team have created proprietary block-chain technology to develop a secondary market from scratch. This allows their investors to trade shares should they wish to do so, and providing they find willing buyers.
Regardless, property crowdfunding opportunities do come with a set of downsides, most notably fees and illiquidity. Despite providing an affordable entry point, such platforms could arguably decrease the level of control you have over your investment. This model requires the “approval of other investors to buy or sell a property, so if you are in the minority, it could mean carrying on with an investment you don’t like or finding a buyer happy to take your share. This may not be as easy as just selling a whole property.” (1)
However, to put it simply, there’s a demand for this service: an easy way in to property investment. Whether you’re a millennial struggling to get on the property ladder or you’re looking to secure a comfortable retirement, property crowdfunding could provide you with a chance - and at a lower cost.
Written by Jenna Kamal
Disclaimer and Legal
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).
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