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 160 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?