Property Crowdfunding, Making your Slice of the Housing Market more Affordable

Always fancied yourself as a Landlord? Have you been desperate to get into the property market but just not quite been able to raise the funds? Well your time could be now with the use of the crowdfunding mortgage.

OK, so you will only have shares in a home, but it’s a start. Sounds great, but beware there are still risks involved in this type of investment.

What is crowdfunding?

In general projects or ventures are funded by asking a small amount of people to invest a large amount of money. Not with crowdfunding. The use of a reputable crowdfunding website allows you to ask thousands if not millions of people, with the use of the internet and social media, to invest a little.

How does this work for property?

There are a lot of us that, if we had any spare equity, would invest in property, right? But do we really want the constant financial drain and management responsibilities of being a Landlord? Most, I am sure, simply want to financially gain from the growth of the property market with as little fuss as possible.

This is what property crowdfunding claims to offer.

The property crowdfunding platforms that have sprung up over the internet, The House Crowd for example, offer the opportunity for you to become an instant buy-to-let landlord. The companies offer properties online which you buy with a group of people, set up as a company for the purchase, and hey presto.

All you need to do is decide which area of the country to invest in. Are lettings in Southampton more viable than those in Manchester, for example? Where will you find the the best quality of tenants?

Sounds simple.

What are the pitfalls?

In a word, liquidity. If you need to get your money back in a hurry there is a “crowd” of you that need to agree on selling the property, and with it taking on average three months for a traditional house sale to go through, it seems quite obvious that this is going to take considerably longer for a company to do. And, that is if they can come to the joint decision to sell which would have to be decided within the rules of the company.

The only way you could hope to recoup your money is to sell on your investment share. This sounds very much like the holiday timeshare agreements of the 1980’s. Were they a success?

There are also a lot of costs involved which are taken by the crowdfunding firm, for doing most of the work, who will take an upfront cost and then an ongoing chunk of the yield which can be as high as 25%.

Another thing to beware is that the crowdfunding firms often reserve the right to borrow against the property too.

In Conclusion

On the plus side – An instant way to get into the property market for a lesser investment.

On the downside – Liquidity, or rather the lack of it.

 

Is this something you would consider? Let us know what you think in the comments.