Whether you’re a seasoned investor, or are just getting started in the world of property investment, property crowdfunding should already be on your radar. Allowing yourself the opportunity to build a diverse portfolio of properties with a significantly lower outlay (not to mention a lot less work!) is shaping up to be the investor’s model of choice.
The buy-to-let market seems to be on the rise, particularly in cities like Manchester where rental yields are the highest in the country. However, becoming the landlord of a buy-to-let property comes with a range of challenges that you might not fancy. From dealing with tenants, who can sometimes be problematic, to maintaining the property and dealing with management company fees.
That’s probably the main reason that aspiring investors are turning to crowdfunding and P2P lending as a way to get on the property ladder. You can create a diversified portfolio and cash in on potentially lucrative returns for less than the cost of investing in whole properties, and without the additional costs associated with it.
If you’re new to crowdfunding, then you might have some questions. No problem! At The House Crowd, we’re always here to keep you in the loop. So, with that in mind, we’ve put together ten key facts about the world of property crowdfunding and P2P lending in Real Estate! You can thank us later.
- In 2015, Real Estate and Housing was the leading sector in the alternative finance market.
- Equity and debt-based funding for Real Estate Alternative Finance amounted to nearly £700 million in 2015. That far surpassed any other industry.
- Equity crowdfunding in property investment means that pooled investment from a number of individuals comes together to fund the purchase of a property development.
A management company then purchases the property, once the full amount has been raised, and each of those who have invested receives a proportion of rental income corresponding to the value of their investment.
- Over 600 developments in both commercial and residential property were financed through P2P real estate lending last year.
- At present, it’s not possible to use P2P real estate lending to finance your own personal residential mortgage.
- The House Crowd was formed in 2012, and was the first property crowdfunding investment company in the UK.
- By using the new Innovative Finance ISA (IFISA), any returns you receive from your crowdfunding or P2P lending will be tax-free, up to the amount of £15,240 (at time of writing).
- The Government are totally behind the Real Estate Alternative Finance sector. Tax incentives, such as the EIS (Enterprise Investment Scheme) and SEIS (Seed Enterprise Investment Scheme), are all part of Government backing that’s helping the industry to grow.
- The IFISA is a real winner for the Real Estate Alternative Finance industry. P2P Real Estate lending platforms expect over 50% in transactional growth this year, as a result of the IFISA’s launch in April 2016, and over 30% for the property crowdfunding sector.
- Whilst there is often a lack of support for investors in the case of a property crowdfunding platform going bust (this form of investment is not covered by the FSCS), at The House Crowd you’d still continue to own your proportion of the property, and would get together with the other investors to decide what to do. You’d collectively decide to either sell the property, or get someone else to manage it.
Also, if you want to exit from your investment term early, The House Crowd will help you find a buyer for your shares (in which case, you’ll get back what you invested, plus your dividend payment), or you are free to find your own buyer (and make a private arrangement regarding the financials).
These are some of the key aspects of the property crowdfunding and P2P alternative finance market for Real Estate. These should give you some idea of what the sector looks like, and help you decide whether this form of investment is right for you. Of course, as with any investment, you’ll have to take a good look at your risk tolerance, as there are risks involved.
If you want to learn more about the sector within which The House Crowd works, take a look at our in-depth report into the industry here.