For the part-time landlord, those who have a property or two to rent out but don’t see it as their full-time job, these are worrying times.
This group, accounting for roughly 70% of all landlords, faces a squeeze on profits and a ramping up of admin.
And with house prices rising and competition for quality properties high, just finding an investment opportunity within budget is a challenge in itself.
But out of difficult times spring new opportunities.
Crowd funded property investment is an increasingly popular choice. Here’s why it might be right for you
1) Invest with as little as £1000.
To become a landlord in the traditional way you’re going to need a five-figure deposit for starters. Then, you’re likely to need further funds to bring the property up to scratch.
You’re likely to need a deposit of around 25% of the property value to get a competitive mortgage, with the average house price approaching £200,000 this equates to £50,000.
But what if you don’t have those funds, or even anything close to that level of savings? With crowd funded property investment you instead buy shares in a property.
It allows the investor to dip their toes into property investment – rather than having to commit a huge amount of savings into becoming a landlord.
2) Cut the red tape.
Go it alone and there is a significant amount of red tape and admin to stay on top of.
For example, you have to ensure the tenants have been given their How to Rent guide. The smoke alarms have to be tested on the day they move in. Any maintenance requests the tenants put in writing have to be actioned within 14 days.
Get any of this wrong, and you are immediately in a weaker position if there are any future issues with tenants, in short it will be far harder to get them out the property should you wish to.
With crowd funded investment, none of this is a concern for the individual investor. All the admin is taken care of on behalf of the investors.
3) Local knowledge.
However, investing away from home requires considerable research – is the market saturated, what type of tenants would you get, what happens if the main employer pulls out?
What would be great would be the ability to invest in properties in areas which have the potential to offer attractive yields, yet without having to research every single UK postcode yourself. With crowd funded investment, you get just this. The properties are handpicked by experts, you simply buy shares.
4) Build a portfolio.
Around a quarter of buy to let landlords with a single property are either making a loss or not returning a profit.
The key is to spread risk, but when you need a five-figure deposit for each dwelling how on earth do you find the funds to diversify?
With crowd funded investment, it’s easy to build a portfolio. If you had £20,000 to invest, rather than that being the deposit on one cheap property, it could be £1,000 shares in 20.
Suddenly, if one property has problems – bad tenants, flood damage or something else – it is offset by many others.
5) Forget about the Government’s attack on landlords.
There is a twin attack on the landlord – with a 3% Stamp Duty levy and changes to the amount you can claim back on your mortgage payments.
But with crowd funded investment, these changes won’t affect the individual investor.
The Stamp Duty levy is not an issue for experienced buyers; the equation remains the same – finding properties where there promises to be a solid yield to be made once all the costs have been taken into account.
And as for the returns – it’s a far simpler model – the investor receives their fair share of the yields and, if the property is later sold, share of the revenue from that too. Meanwhile, the landlord who goes it alone is trying to work out their returns in an ever-changing system, in all likelihood seeing their profit diminish, and praying Mssrs Osborne and Cameron don’t make further adjustments.
6) Help improve the UK’s housing stock
Most buy to let investors are looking for properties which are ready to rent out – after all any time spent doing them up is lost revenue.
However, some crowd funded platforms such as The House Crowd are actively looking for properties which need work.
These are often the properties which can be bought at a competitive price; once brought up to standard there can be healthy yields to be enjoyed and the property value is likely to have risen too.
And by doing properties up there is also an increase in the number of properties available to rent. We believe this is an important role to fulfil in the housing sector – demand for rental property is huge, anything which makes more quality properties available at a fair price is to be welcomed.
7) Maintenance free
Every property has some maintenance issues, every maintenance issue takes times to remedy whether you do it yourself, call in experts or pay for property management. However, even with property management and the 10 to 15% cut of rent the management company is likely to seek, a lot still falls on the landlord. They have to make some of the bigger decisions, ultimately the property remains their responsibility. Potentially, there is a lot of stress and admin for any return.
Crowd funded property is a passive investment. The investor buys shares based on which properties they feel are right for their portfolio and then simply collects their share of rental income and money raised if the property is sold.
With platforms such as the House Crowd, it is possible to track the properties you have invested in via an online portal, or you can do nothing after that initial investment. There is nothing to forget, nothing which is waiting to trip you up or eat into your time.
8) Limited choice
This might not sound like a benefit, but we believe it is!
For the private investor the options are near endless, you have the entire UK housing stock to invest in. However, does so much choice help? How do you begin to choose which town, which postcode, which type of property? Too much choice can lead to inertia – you’re investing huge sums, maybe £50,000 in a deposit. What if there’s a better property out there? Should you have considered a few more towns…
But using a crowd funded platform, those options have already been whittled down. Experts who know what to look for in rental properties have already chosen projects which appear to offer the potential of healthy returns. The investor’s choice is now to choose between these, maybe a choice of a couple of dozen properties, rather than several million.
And the fact you buy shares means you could choose a few which appeal – so £40,000 could be five £8,000 investments in handpicked properties. Go it alone, and that sum will all go into one property you might still have doubts about.
9) Liquidity of assets
For many landlords, their savings are tied up in property. Getting access to the funds quickly can therefore be problematic; almost impossible even.
They could always sell the property, but that’s hardly a quick process, even if sold at a knockdown price for a quick sale.
But with crowd funded property investment, you can sell your share – and that can potentially be a far quicker transaction than selling a house!
Of course the nature of the investment also means it is far easier to keep something in reserve. If you have £30,000 to invest, that’s likely to leave the investor little in reserve if they go it alone and use it as a deposit on a property.
But with the crowd funded model, £20,000 could be invested across a range of properties leaving a healthy pot in reserve and immediately accessible.
10) Information on hand!
You can enjoy an investment which is both passive, but also comes with a wealth of information. Instead of going it alone and making all those big decisions, you can chat with the crowd funding platform to discuss each of the potential investments.
You’ll have gathered by now that we think crowd funded property investment is a model with advantages for a lot of investors.
Please have a look round the site for more information and get in touch with any queries you might have.