Investment Due Diligence
Due Diligence Considerations When Investing in UK Property
Property is a very desirable asset class for investors. In the past, this asset class was only accessible by some due to the entry price but over the last few years, crowdfunding and peer to peer lending platforms such as Simple Crowdfunding have made property investment accessible to the masses. It is now possible to invest in the UK property market from £100, which is a game changer in this industry.
- We have a comprehensive due diligence process where we evaluate opportunities before they are made available on the platform and
- We provide a forum for each investment opportunity where investors can ask the developer / company owner questions before investing (where everyone can see the conversation). This forum available to all registered community members (whilst the investment opportunity is open for funding) and then becomes private to those invested in the opportunity when closed.
- Basic company registration checks on Companies House. Who is the company, how long have they been trading, what is their track record and what is their financial status?
- Who are the Directors of the company, what is their track record? Research other companies that they may also be associated with. Google their names and see what comes up.
- Check out their company website. Does it look professional or is it a landing page? Does it include their registered address (and are these details the same on Companies House)? Has the company done this type of project before and how successful were they?
- Check out their social media profiles, both for the company and the individuals. What content are they posting and are you comfortable with it?
- Who are the people behind the project? Analyse their experience and capabilities. What are they bringing to this project?
- If there are multiple companies that make up the team, what is their relationship to the fundraising company? Have they worked together before?
The Project (Including Financials)
- Is this the first time that the developer is undertaking a project like this or is it something they have a lot of experience of? If they have done projects before, how did these go? Please note, for some companies this may be their first crowdfunding project, but they may already have a long track record and experience in this field.
- What are the timelines? Do these make sense or are they too ambitious?
- What, if any, contingency is provided?
- Where is the project? Are the projected values in line with comparable properties in that area? Look at Streetcheck.co.uk, Rightmove, Zoopla and online estate agents etc.
- What does the finance stack look like and how is the deal structured? How much of the project is being funded by the fundraising company itself?
- Is this an Equity or debt raise?
- Is there a charge over an asset and if so, what is it?
- What is the exit strategy? What alternative exit plans are in place?
- What does the communication plan look like going forwards? Consider the frequency and content.
- How will updates be delivered? By email, webinar, video, etc.? Are there any planned open days and site visits for investors?
- Does the project offer learn whilst investing and if so, what does the learning program entail?
RiskAll investments carry risk, including loss of capital and illiquidity. When evaluating an investment opportunity, consider whether you are comfortable with the risk profile. For example, it is often said that equity investments are perceived to be higher risk, higher return whilst peer to peer lending is perceived to be lower risk, lower return. Reasons include:
Equity: Returns are received in the form of dividends and capital growth. Dividends can be paid throughout the project (based upon rental income for example) and capital growth usually at the end when the project is sold or re-financed.
If the company becomes successful and increases its value, so will the investor’s share in that company. If the company does not perform as well as expected, the value of the share will go down.
Peer to Peer Lending: If you invest in a peer to peer loan, you lend money to the property developer. You are like the bank, loaning money for a fixed term, for a fixed return. Interest payments will be made periodically or, in some cases, at the end of the loan term. The loan is usually secured against the property, and usually on a first charge basis (first in the queue for repayment).
You can read more about equity vs peer to peer lending here: https://www.simplecrowdfunding.co.uk/news/equity-vs-debt
The Investment Platform
You can check if a platform is regulated by the Financial Conduct Authority by looking them up on the FCA website, https://register.fca.org.uk/s/search. Platforms that are authorised have a Firm Reference Number (FRN) shown on their website.
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