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Property crowdfunding: should you become a virtual landlord?

Property crowdfunding is becoming an ever more popular way to buy into bricks and mortar. But think carefully before putting your money in.

Many people put their money into residential property, particularly buy-to-let. But with increased stamp duty on second homes and fewer tax breaks for buy-to-let landlords, that has become less attractive. Another way of putting money into property is through real-estate investment trusts (Reits), which own commercial property assets. But the rise of peer-to-peer (P2P) lending has opened the sector to a new audience, offering potential returns in excess of the typical 5%-6% of a traditional Reit.

The biggest platforms are LendInvest, which makes bridging and development loans and has lent out some £1.4bn, according to AltFi Data, which collates information on the P2P finance sector. Landbay offers buy-to-let mortgages and has lent out £166m, while Lendy, which finances development loans and property purchases, has made more than £400m of loans.

Virtual buy-to-let

Equity-based crowdfunding is perhaps the closest thing to traditional buy-to-let investments – you buy a share in a property (usually via a “special purpose vehicle” – a company set up for that purpose) and the property is let out. You receive a share of the rental income in return, plus any profit if the property is sold. Examples include Yielders, Uown and Property Partner. A benefit of equity crowdfunding is its wide reach – it can be used to invest in line with Islamic finance principles; because income comes from rent rather than interest payments, the products are sharia-compliant.

Debt crowdfunding

Debt crowdfunding is probably the most common form of property crowdfunding today. Investors lend money, often in the form of a secured bridging or development loan, to a property developer, which builds or renovates the property and repays the investment. Many platforms secure loans on the assets, which in theory should provide some protection if the developer goes bust, although it might not be easy to sell a half-finished development in Wolverhampton, for example – and certainly not for the full price.

With property price appreciation dwindling in the capital, many platforms concentrate on the provinces, where the potential for capital growth is higher. For example, the House Crowd funds developments mainly in the north of England, and indeed builds properties itself via its House Crowd Developments arm. Another platform, the Blend Network, finances developments mainly in Northern Ireland, taking a first charge on a borrower’s assets. But when the slowdown does reach the rest of the country, you could end up out of pocket.

P2P pitfalls

One feature of P2P is that you can pick a specific property to invest in. The flip side to this is that you are making a decision on very specific local markets where you may have little or no knowledge. How familiar are you with the residential market in Chorley, for instance?

Also, consider the illiquidity of P2P compared to Reits. Platforms may have a secondary market, but it could take a very long time to sell your investment, assuming you can find a buyer. Reits have the advantage of being traded on the stock exchange, and can be disposed of quickly if necessary.

Finally, if you really want to spice things up, it will soon be possible to take fractional ownership of property using blockchain. Several start-ups are now working on platforms that will allow property owners to “tokenise” their property, and sell those tokens to investors. But if you’re not ready for the risks of P2P crowdfunding, you’re certainly not ready for that.

Source: Residential Landlord

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Investing in property the crowdfunding way: Is it really worth it?

If you were to ask people in the UK whether they would like to invest in property, most would say a resounding yes.

However, investing in property today is an expensive business – tens of thousands of pounds are needed for a deposit, and that’s before figuring out whether the rental income could cover the interest for a buy-to-let mortgage.

And let’s not mention the effort required to let, manage and stay the right side of all the regulation that has cropped up recently targeting landlords.

This is where property crowdfunding sites profess to be the future: invest in property from as little as £50 and they do all the work for a fee, including sourcing the properties, finding the tenants and providing management services.

The most popular sites are Property Partner and The House Crowd – with Property Moose (the first to be fully regulated) and Bricklane (the first to offer a property ISA account) providing a supporting cast.

But how successful is property crowdfunding as an investment, compared, say, with premium bonds and cash ISAS, which remain the most popular places for Brits to store their money – if you don’t count our own homes as an investment?

The numbers are staggering – 25m people have savings with premium bond provider NS&I and there is a combined £585bn held in ISA accounts.

So naturally we should judge the success of property crowdfunding websites – and their promise to democratise property investing – by the amount invested.

Here are all the websites we could find data on:

Property Partner – £107.8m of property invested in (£2.7m income earned)

The House Crowd – £74.5m (£16.7m income earned)

Property Moose – £13m

Bricklane – £8m

There were several other websites that are open to investors but were seemingly too small to divulge how much they have invested in and therefore were difficult to rank: Brickvest, Yielders, Crowdwithus, Crowdlords, Uown, Crowd2let, Capitalrise and Propertycrowd.

The combined c. £200m accumulated by property crowdfunding websites over the past few years is at best disappointing.

This isn’t the panacea of investing we were promised by endless articles on the topic of property crowdfunding.

Looking at posts on forums like Moneysavingexpert, many of the comments focus on the small amount of income after fees.

And in this climate of lower property price growth, income is all you can truly rely on when it comes to property investment.

Articles in the FT also point to the risks of investing for property price appreciation rather than for secure income.

Maybe that’s the problem: most people associate buy-to-let with runaway house prices – but that is something that few people believe in today.

Source: Property Industry Eye