Crowdfunding has been growing rapidly over the last few years and has opened up the the property investment marketplace to everyone. Historically, property investment was limited to typically affluent individuals who had significant funds available.
The rise of property crowdfunding has completely changed the landscape, making property investment available to everyone. Property crowdfunding allows individuals to invest in property from as little as £100. In this article we share our thoughts of the main benefits of Property Crowdfunding for investors. It may give you the inspiration to find out more.
1. Diversify risk through small investments
The beauty of Property Crowdfunding is that it offers a more affordable entry price to investing in property. Investments often start from £100, and in some instances even less. Platforms have a selection of investment opportunities available on their site. The types of property investment opportunities vary in size and type, from a straightforward small refurbishment, to a large new build opportunity comprising hundreds of homes. As an investor, you decide what projects are right for you. With a choice of projects, it will allow you to spread your risk, by investing smaller amounts into multiple projects rather than investing all of your investible funds into one. For example, if you have £10,000 to invest, you can select 10 projects and invest £1,000 in each, rather than putting all your eggs in one basket.
2. No fees for investors
With property crowdfunding, in the majority of cases, investors do not pay any fees or commissions. The costs of funding a project are paid by the fundraiser and are included in their finance costs. There are no management fees, and no exit costs to investors. As an investor, you have complete control of your own investments at no cost to you. You decide what projects you want to invest in taking into consideration the project timescale, opportunity type and risk.
3. You build and manage your own portfolio online
You select and make investment decisions online through the crowdfunding platform. Once you register and then log in to your account, you have the opportunity to review your portfolio online.
You can review all the background information to projects that are open for funding. For every opportunity, you will see a high level summary of the investment opportunity, be able to learn more about the team and their experience, read about their past projects, access detailed business plans and financials, download relevant planning approvals, architect drawings and more. You will find all the information you need to help you start your due diligence in order to make an informed decision about investing. You also often have the opportunity to ask questions of the developer.
With the crowdfunding platform being online, you can invest anytime, anyplace 24/7, 365 days in the year. You can invest from the comfort of your armchair, beach sunbed or yacht using your laptop, I-pad or mobile.
4. Multiple investment types
Depending upon your appetite for risk, you can decide to invest in debt or equity projects. Briefly, debt projects are loans, offering fixed returns over a fixed period of time, often taking a charge over an asset. Interest payments will be made periodically or, in the majority of cases, at the end of the loan term. So, in essence, very similar to a bank loan.
Equity projects offer a share in the company that owns an asset. Debt projects are perceived to be lower risk than equity projects. It is worth remembering that all investments carry risk and it is important that you understand what you are investing in. For more information on the difference between Equity and Debt, read our blog here.
5. Invest using your pension and / or ISA to receive tax-free returns
What many investors do not realize is that it is possible to invest in property using your SSAS pension and ISA.
A SSAS (Small Self-Administered Pension Scheme) is a small occupational pension scheme set up by the directors of a business who want control over the investment decisions in their pension. This type of pension is managed by Trustees, often the directors. Investments have to be on the approved list, which includes investing in commercial property. Your Trustee will be able to provide you with a full list of approved investment types and the restrictions (if any) placed upon them.
The ISA wrapper that is used for debt investments is known as an IFISA (Innovative Finance ISA). An ISA is a ‘wrapper’ that allows you to invest without paying income tax or capital gains tax on any interest or profits that you earn. If you already have an existing ISA, you can transfer this to the crowdfunding platform. If you don't, you can set up a new IFISA. Property Crowdfunding platforms offer a range of property investment opportunities that are suitable to SSAS and ISA investing.
6. Learn from the developer
From our experience, we know that many investors love property and are keen to learn about property development. Early on in our crowdfunding journey, we realised that this was the case and launched a program called “Learn whilst investing”. With projects that offer a learn whilst investing element, the developer will share his / her knowledge as the project progresses, taking into account of the current market climate. It is not theoretical as what they share is based upon the 'live' project. The developer will organize webinars to explain the progress made, talk about the recent challenges they have experienced and how these have been resolved and answer any investor questions. Sometimes the developer will organize site visits at key stages, allowing investors to experience and see the project first hand. The learning programs are popular with investors. It's a great way to meet the developer face to face and you might even go for a drink after.
What's more, imagine the learnings that you could gain if you invested in a planning gain opportunity alongside a residential to commercial conversion and a new build. The possibilities are endless!
7. Learn from the crowd.
When you join a crowdfunding platform, you become part of a like-minded community where you have the opportunity to learn from other investors. When a new project is launched, potential investors ask questions to the developer via the crowdfunding platform. You can see what questions are being asked by other investors and how the developer responds to these. You can also join the conversation through project forums. Some community members are very experienced and may even have been involved in property development projects themselves. This is a great way to gain more knowledge about investing and the property marketplace in general.
Risk assessment and due diligence
If the above has left you with a desire to learn more about property crowdfunding, investment, learning about the property market and finding a platform to invest through, ensure you do your due diligence. Remember investing involves risk, including loss of capital and illiquidity and it should be done only as part of a diversified portfolio. If you have questions about the suitability of any investment opportunities or do not understand what is being offered to you, seek advice from an appropriately qualified professional.
As part of your due diligence, also learn more about the investment platform you are using. Make sure they are authorised and regulated by the Financial Conduct Authority by checking out their FRN (Firm Reference Number) on the FCA website.
SIMPLE CROWDFUNDING is a property crowdfunding platform that offers both peer to peer lending and equity opportunities. We help property developers deliver more homes in the UK and strive to make property investments accessible to everyone, democratising the property market.
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