insideKENT Magazine Issue 42 - September 2015 | Page 160
PROPERTY
Property Crowdfunding:
What's It All About?
BUYING PROPERTY HAS ALWAYS BEEN A RISKY YET, WHEN IT GOES RIGHT, HIGHLY SUCCESSFUL WAY
TO MAKE SOME MONEY. BUYING A PROPERTY SPECIFICALLY TO LET WILL BRING A MONTHLY INCOME
WHICH, AS LONG AS YOU TAKE INTO ACCOUNT LETTING AGENTS’ FEES, INSURANCES, RISING INTEREST
RATES, AND INEVITABLE REPAIR BILLS, WILL GIVE YOU AN AVERAGE YIELD OF AROUND EIGHT PER CENT
(ALTHOUGH THIS DOES DEPEND ON THE COST OF THE HOUSE, THE AREA IT IS LOCATED IN, AND HOW
MUCH DEPOSIT YOU HAVE FOR YOUR BUY-TO-LET MORTGAGE). BY LISAMARIE LAMB
It’s a gamble though. Markets can crash seemingly
overnight, and suddenly your stable investment
can look more like a money pit, especially if you
find yourself in negative equity. Tenants can leave
and although it can take time to find replacements,
even when your rental house is empty you’ll have
a mortgage to pay. And sometimes tenants may
outstay their welcome, and refuse to pay their
rent at all. All of this must be taken into account
when putting your hard-earned money into such
a big investment totalling many hundreds of
thousands of pounds.
But what if there was a way in which you could
invest in a rental property without risking huge
sums of money? That’s where property
crowdfunding comes in. It’s a way to be part
owner of a property for as little as £10 in some
cases, without having to come up with a deposit
of between 25 and 40 per cent (buy-to-let
mortgages have much higher deposit
requirements than buying a property to live in
since they are seen as potentially more risky),
which is a minimum of £37,500 for a £150,000
house or flat.
There are a number of different crowdfunding
platforms (including Indiegogo, The House Crowd,
Property Moose, and Property Crowd) and each
one has different investment terms, so it’s worth
checking out their individual websites before
deciding which one to go for. Typically, however,
crowdfunding offers a yield of around 10 per cent,
and of course the more you choose to put in,
the more you can expect to receive in return.
Crowdfunding works by inviting a number of
different investors to put money into a central
‘pot’. Once the pot is full and enough money has
been raised, a management company will use
the investments to purchase a property, which
will then be rented out – and the rental income
split between all the investors (those who
contributed more will receive more in return) and
the management company itself. If and when the
property is sold, investors will receive a percentage
of the proceeds of the sale too.
It sounds wonderful, but there are risks and there
are some things to consider. Firstly, you will have
to pay tax on any income you receive from your
investment. There are plans to create specific
ISAs (Individual Savings Accounts) for the money
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to go into, and this would mean they were tax
free; but at the moment this isn’t something that
is up and running. Secondly, anyone investing in
such an opportunity must understand that no
investment – and perhaps property in particular
– is safe, and a return cannot be guaranteed.
There will also be fees to pay, and although this
is not usually an upfront charge, it will come out
of your return, so you will need to ensure what
you receive covers what you have paid in.
Speaking of your investment, you will be locked
in for a period of time (depending on how much
money you put in, and which company you use),
which is certainly something to bear in mind.
Something else to consider is that you may never
know where the property is, or who is living in it.
For many this isn’t an issue, but if you prefer to
be in control of things, property crowdfunding
may not be for you.
However, if owning a share in a rental property
and receiving (hopefully) better returns than you
might if you bought and rented one by yourself
sounds like an excellent way to invest you money,
then why not try it?