7 Top Tips for Investing in P2P Lending

Peer to peer lending is a fairly new kid on the block, but one that’s making its presence clearly known. The idea behind peer to peer lending is that individuals provide unsecured loans to those looking for finance, a move that has tempting advantages (ROI-wise) on traditional bank or building society savings accounts. The P2P industry is growing at a rapid rate, driven by the awkward difficulties of obtaining loans from banks these days, as well as the general loss of faith in the established banking industry since the 2008 crash.

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Whilst, of course, not without risk, peer to peer lending has some real advantages to offer. With peer to peer secured loans through The House Crowd, short term investments with a fixed return give investors the confidence of knowing what to expect. That’s not to say, however, that you can just rush into P2P lending willy-nilly. You do need to know what you’re doing in order to make the right kind of investments for your needs.

That’s why we’ve put together these handy tips, to help you on your way to getting started with peer to peer investments in a smart and informed way!

  1. Diversify

Any financial advisor you speak to will tell you how important it is to have a fully diverse portfolio of investments. The same goes for peer-to-peer lending.

We recommend spreading your risk by ensuring you don’t lend out any more than 1% of your portfolio to one single business. With peer-to-peer lending, you should further diversify by spreading investments across multiple platforms.

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This is good advice when it comes to maximising return, and giving you the perspective to ascertain which loans are generating the best yields. Furthermore, if one platform you’re using suddenly experiences issues, or – worse still – vanishes altogether, then by having spread your risk across multiple peer to peer lending platforms, you’ll be in a far less vulnerable position.

The more you diversify, the less likely you’ll be to lose money on your investment.

  1. Research

Knowledge is power, and when it concerns your financial investments, it’s no less than crucial. There’s also no excuse for not being well-informed, especially when there is so much information out there on the web.

Read the reviews on each platform you consider before getting involved. Examine the track records of various platforms, get advice from other investors, keep notes, and compare and contrast before you dive in. It’s important to remember that not all lending platforms are the same, and each have their own practices, and procedures for screening borrowers, as well as handling late payments and defaults.

Here are some handy questions you might like to ask yourself:

  • What percentage of loans on this platform fall into default?
  • How are borrowers screened and evaluated?
  • What average returns have investors produced in the past?
  • What is the process for handling late payments?

The better informed you are, the more confident you’ll feel, and the more equipped you’ll be to make the right decisions for your money.

  1. Re-Invest

Don’t simply allow your returns to sit idle within the platform. This is a good way to lose out on potential income and lower your return on investment: uninvested cash earns no interest. Take advantage of the compounding yields to be gained by continual reinvestment of returns into new loans.

  1. Keep Involved

The peer-to-peer lending market is growing and evolving all the time. As such, it’s key to stay up to date with developments within the industry. Acquaint yourself with new platforms as they emerge, changes to legislation and about the loans themselves.

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Remember that peer to peer lending is not a passive exercise. You need to put the time in, in order to get anything out.

Some of the loans you’ve already made could be downgraded or even default, and you need to be fully aware whenever something like this happens. Keep abreast of new loan offers as they come up. Again, knowledge is power… a fact we cannot emphasise enough.

  1. Take it Slow

If you’re just starting out with P2P lending, don’t rush in. Do all that reading and research, but remember that the best way to learn is to actually begin. Start with smaller amounts, tentatively monitoring how these small investments perform. This will act as a kind of practice run, and give you the chance to understand the lending platform you’re using.

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As with anything in life, taking on too much too soon is likely to leave you feeling overwhelmed, and leave you prone to making mistakes, which could be costly.

  1. Know Your Risk Tolerance

We all have one. So, what’s yours?

Higher risk tends to equate to higher reward, but if you’re not comfortable with that level of risk, take a step back to a risk profile that fits your tolerance better. It’s important to carefully consider how much risk you’re prepared to take, and only invest accordingly.

  1. Be Prepared

A strong emergency fund is absolutely vital in order to cover your own personal expenses. Your investment funds should be comprised only of any money you have that is surplus to your daily needs and your emergency fund. Remember that you will not be able to withdraw money from your P2P platform on a whim.

These are just some of the most important factors to consider before you get cracking with P2P investment. You should, as we’ve said above, keep up to date and well-informed on the industry, and monitor your investments closely. It may feel a bit ‘hands-off’, but investments of this kind are certainly not a passive income source. The more you put in, attention-wise, the more you stand to get out.

You can always find out more about investing with The House Crowd by checking out all our guides and articles right here on our website. And if you’ve still got questions, our team is on hand to help!

Happy investing!

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Millennials and The FinTech Revolution

Millennials are ten times more likely to use peer to peer lending sites than their parents’ generation.

It’s no surprise, really, considering that this is a generation reared on technology from day one. The Millennial is also big on the convenience involved in transacting online, and as a result of witnessing the financial crash of 2008 first hand, are significantly more sceptical of traditional banking and investment.

The Financial Life of the Millennial Investor

This is also a generation that thrives on independence, or a sense of it anyway. Perhaps that’s partly a result of the lack of control the Millennial feels over their financial status.

Whilst the typical Millennial is confident about their prospects for professional and financial success in the future, when it comes to working out how to bridge the gap between their current financial situation and the one they’re aiming for, they get stuck.

They are acutely aware of their need to buckle down and make positive decisions for their financial future, and their mistrust of existing financial institutions leads them in the direction of new innovations.

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Casting aside the old financial institutions that they see as outmoded at best, and corrupt at worst, the Millennial generation is crafting a new financial landscape, taking its lessons from the failures of the old models, reinjecting democracy, and merging it with technology.

The result is a great new hybrid, fresh in its infancy, with a big future ahead of it. FinTech is born.

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Millennial P2P investors are starting out on sites like Funding Circle, Indiegogo and KickStarter, investing small amounts in new innovations and businesses. Similarly, we at The House Crowd have noticed a considerable rise in interest in the sector.

For example, according to innovation charity, Nesta, in 2015 the alternative finance market grew to £3.2 billion, whilst equity crowdfunding now makes up around 16% of all seed and venture-stage equity investment in the UK. Millennials extending their newfound thirst for investment to the property sector just seems like a logical progression.

Millennials and The Property Ladder

Our survey, back in October 2015, reported that nearly a quarter of Millennials think they will have to wait for a member of their family to die before they can afford to buy property. Many more may not even have that to (cynically-speaking) look forward to.

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36% of respondents said that they felt they’d be renting forever, with no sign of a property purchase looking likely anywhere on the horizon. It’s a sad state of affairs, that’s for sure. But is it a certainty?

Given that Millennials have already caught the scent of the benefits of investment through their interest in other P2P lending opportunities, moving beyond conventional routes to getting on the property ladder, such as via property crowdfunding, could be a popular move.

However, there are some differences between the P2P lending sites they’re used to, and the higher stakes of property crowdfunding.

Whilst an investor on Kickstarter can back a project for a handful of coins, it’s going to be at least £1,000 to put money into a property crowdfunding campaign. Mind you, when you put that against the £33,000 average for a deposit on a first home (£91,409 in Greater London), it’s a no-brainer.

In other words, you may not be able to raise that whopping deposit, but property crowdfunding offers the chance to enter the property ladder, albeit at an oblique angle.

Is Crowdfunded Property Investment The Answer?

For the Millennial with a bit of liquid floating around, but not enough to buy the house of their dreams just yet, the chance to invest in property (without all the awkwardness of mortgage lenders and banks) certainly beats sticking your spare cash in a boring old ISA and only earning 1.5% on it.

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A £1,000 investment may seem like small fry to the more sophisticated investor, for the younger Millennials just coming of age in the era of FinTech, it’s a step in a braver direction.

Research from the US indicates that Millennials are demonstrating much higher levels of caution when it comes to risk, so property crowdfunding actually offers a safe haven for them, allowing them to spread their investments, and thus, their risk.

The majority still equate risk with the idea of permanent loss, and considering what the Millennial generation has seen go down in the recent financial meltdown, you can hardly blame them. But for those prepared to weather that risk, potential returns through property crowdfunding are certainly turning heads amongst the younger generation.

 

Are you a Millennial just starting out with p2p and property crowdfunding? If you are, and even if you’re not, we’d love to hear from you! Feel free to leave us a comment on our Facebook and Google Plus pages. If you prefer to tweet us, tweet @TheHouseCrowd.

 

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House Prices Set To Rise by 350%!

House Prices Set To Rise by 350% – So Say The Lib Dems! 

Lewis, our Head Of Finance, has been busy this week comparing property prices with the FTSE 100.House Prices Set To Rise by 350%!

His research clearly shows that property has made for a far more lucrative investment in recent years.  Over the last 16 years (since 2000) the stock market has actually fallen by 5% (Source: Yahoo Finance – FTSE end of day) and average property prices have increased by 45%  (Source: Nationwide House Price Index)

But as we know, past performance does not predict future growth, so what can we expect property values to be like in another 16 years’ time?

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Well, new research by the Liberal Democrats published this week predicts that the cost of the average family home will rise to over £1M by 2032 – that’s an increase of 350%:

http://www.telegraph.co.uk/finance/property/12147282/Average-home-in-Britain-to-cost-over-1million-by-2032.html

To be fair we think that the research is politically motivated and that is a somewhat sensationalist figure but, having said that, there are to our mind still many economic factors at work that will result in pushing property prices much higher over the next 16 years. If we are correct then  it would seem to us that investing your money in buy to let still makes excellent sense – especially when you are able to remove many of the hassles involved in it by investing via crowdfunding.

And what if you could also potentially reduce some of the risks by letting to a blue chip tenant on a long lease with an assured rental being paid every month so that, unless they renege on the contract, the property will be let for 5 years with no void periods.  If you can do so, you can simply collect a decent return with no hassle whilst your property rises in value.

 

 

 

Peer to Peer Vs Crowdfunding-Who Wins?

Peer to Peer Vs Crowdfunding

Both Peer2Peer lending and crowdfunding have received masses of press attention over the last few years and both sides of this new industry have grown exponentially since they started just a few years ago. You can also read a copy of our Guide to Making Peer to Peer Loans here.

Although often lumped together under the general banner of ‘crowdfunding’ and although both share the same concept of raising finance from a crowd of people who pool their resources, most people don’t appreciate that crowdfunding and peer-2-peer lending are in some ways very different animals.

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This article deals with matters from an investor’s perspective and clarifies what each of them are, how do they differ and which may be right for you.Who Wins_ Peer to Peer Vs Crowdfunding 2(1)Crowdfunding is what is known as an equity investment. You acquire shares in a company in exchange for your investment. You will be entitled to a share in monies paid out as dividend and may providing you can find a buyer sell your shares. Any profit you make upon sale will normally be deemed as a capital gain and subject to CGT (after the annual allowance has been taken into account).

If there is no profit to be shared out, you will not receive a dividend.  And if the shares fall in value you may lose money. In respect of property crowdfunding with The House Crowd if shareholders voted to sell the property at a loss (though we are not sure why they would do that) then you would lose part of your capital investment.

When an asset such as a house is sold shareholders are paid out in order of priority only after debts have been paid, so if there is a mortgage or other secured loan against the property, the creditor will be paid out in full before shareholders.

Many people like equity crowdfunding as it gives them a share in a property (via their company shareholding) and they get the benefit of a share of profits from rental income and in the capital growth of the property. Property throughout the last 50 years has proven to be one of, the best ways for most people to provide for a good retirement income and investing in property through crowdfunding gives almost everyone the opportunity to do so in a hassle-free way. We believe investing in buy to let property should be viewed as a medium to long term investment.

Equity investments such as The House Crowd offers are normally regarded Sharia compliant and suitable for Muslim investors – though that is a personal decision for each investor.

As far as tax treatment go – as from April 2016 we do not have to deduct tax at source and the first £5000 worth of dividend income you receive will be tax free.

Peer 2 Peer secured lending on the other hand tends to involve a very short term investment period of 6-18 months and involves more active management of your money.

Investor’s money is secured against a property via way of a legal charge registered at the land registry and will be up to a maximum loan to value. E.G., if there is £100,000 equity in the property and the maximum loan to value (LTV) is 75% we would not lend more than £75,000. This provides a cushion to try and ensure that capital is safe, should the borrower default and the property has to be sold quickly.

You do not receive any equity in the property but on the plus side you will receive a fixed rate of interest and will have a fairly good idea of how long your money will be tied up (though this can vary if loans are not repaid on time). It is an illiquid investment with little opportunity to sell your loan to a third party so it is likely that you will be tied in until the loan is repaid.

It is expected that P2P lending will be available under an ISA wrapper from April 2016 making the returns tax free. Bearing in mind the returns on offer on our website range from 7-10% p.a., this new development is likely to prove very popular.

Peer 2 Peer lending is not Sharia compliant as interest is paid to investors.

Diversification

One of the golden rules of investing is diversification, so it may be worthwhile looking at spreading your investments over both P2P lending and Crowdfunding to take advantage of both.

At The House Crowd we are unique in that we offer both equity crowdfunding and peer 2 peer lending secured against property.

To read more simply register on our website below.

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Peer to Peer Vs Crowdfunding Comparison:P2P VS CROWFUNDING INFOGRAPHIC

You can also read a copy of our Guide to Making Peer to Peer Loans here.