Traditional Property Investment versus Property Crowdfunding

Traditional Property Investment versus Property Crowdfunding

Property crowdfunding and traditional property investment have some significant differences. The main difference is to be found in the ease of management.

Whilst those who favour traditional property investment value the sense of control associated with full ownership of a property, along with the costs and time involved in maintaining their investment, others simply do not have the time, nor the resources, to keep up with the demands of a property.

There are also additional financial implications to consider, and we will go into these in this article.

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Responsibility

Property crowdfunding eliminates many of the responsibilities involved with traditional property investment. An investor wishing to create a properly diversified portfolio of properties will invest large sums on a smaller range of properties, and will be responsible for everything from biological disruptions (by infestation of plant or animal life), to managing tenants and weathering void periods on a rental property. With a crowdfunded property investment, none of these aspects apply, as they are taken care of by a third party.

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Furthermore, the due diligence, prequalification and vetting of an investment property are all handled by the SPV (Special Purpose Vehicle), the company behind the purchase property.

If, on the other hand, you have the skills and experience necessary to avoid mistakes and handle the investment on your own, then traditional property investment is a lucrative and engaging way to grow your money. That being said, you will need substantially more money in the first place in order to make your first investment purchase, which is not something that all those wishing to invest in property have to hand.

Fees and Costs

There’s also the matter of fees. A traditional property investor will have to contend with solicitors’ fees, mortgage broker fees, loan arrangement fees, and surveyor charges, for example. With property crowdfunding, these fees are included within the overall cost required to sell the property, as listed on the crowdfunding platform’s website.

It’s also worth learning from the mistakes many property investors made ahead of the 2008 property crash. Many found that their mortgage lenders had allowed them to leverage at a rate that exceeded their affordability. The banks then revalued people’s assets, leading to a swathe of repossessions, subsequent catastrophic loss, and bankruptcies.

Checking the small print and getting legal advice when investing with the traditional property investment model is wise. Then again, none of this applies to property crowdfunding.

This is, of course, a worst-case scenario for traditional property investors. It is, nonetheless, one that still bears some weight. If mortgage rates rise, those who have invested with a mortgage may find themselves out of pocket. Buy-to-let investors should take the obvious step of making sure that their monthly rental income covers, at the very least, their mortgage repayments. However, they may also benefit from factoring in potential mortgage rate rises.

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Buy-to-let landlords have also been hit by changes in Government legislation that have removed the ability for these landlords to deduct interest from profits from their tax liability, which can prove a further obstacle to ensuring the profitability of their investment. Again, there are no such risks with property crowdfunding.

Challenges and Rewards

Whilst there are challenges involved with investing in property in the traditional manner, there are also a great many rewards. First of all, rather than earning a percentage of returns based on your initial investment sum (as with crowdfunding), once all outgoings (such as loans and legal fees, for example) have been taken into account, an outright property investor will earn a potentially much higher return.

There is, however, a downside to this. Where a traditional investor leverages a lot of cash, the risks to the investment are increased dramatically. Should the investment value fall, they could stand to lose a very significant amount. Whilst risk is, of course, not negated with property crowdfunding, no mortgage is necessary.

Selling Your Investment

Another benefit of traditional property investment is the control over when to sell the investment. If you are able to sell at a profit, and as quickly as you require, then the power resides within your hands. Property crowdfunding, on the other hand, requires a majority vote from all shareholders if you wish to sell before the end of the investment term.

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To Conclude

Property investment, whether traditional or crowdfunded, has long been a profitable investment choice. Whilst both forms of investment carry risk, there are significant pros and cons on both sides, which potential investors need to factor into their investment decision.

Weighing up which type of property investment is right for your particular needs is key to ensuring that you are confident in where you have placed your money. At the end of the day, however, whichever path to property investment you choose, there is potential for great returns.

Property Crowdfunding: Is It The Right Investment For Me?

Property Crowdfunding: Is It The Right Investment For Me?

Property crowdfunding is becoming an ever-more popular way for people to invest in property, often with significantly less money than investing the traditional way. However, before you jump in, it’s a good idea to assess whether this is the right investment choice for you and your circumstances.

You can view our current property investment options here.

What Do You Want To Achieve?

The first question to ask yourself when considering property crowdfunding is what you wish to achieve from your investment.

If you are looking for an investment that requires less ongoing attention than owning a property for either development or rental, or you personally have more faith in the property market than the stock market, then it could be right for you. Nonetheless, plenty of investors in property welcome the sense of control that owning a property outright brings.

Though there is more additional financial outlay involved in the purchase and maintenance of a property owned this way, some people would rather be involved in all aspects of their investment than leave it to another party.

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What Experience in Property Investment Do You Have?

This follows on to the second question you need to ask. How experienced are you as a property investor?

If you’ve been a full-time, outright property investor for some time, and have access to the bank funding required to own and develop a property yourself, then property crowdfunding may be less appealing.

For those who know how the market works, and perhaps already have all the necessary contacts they need for the properties they invest in, benefitting from more of the profits (after paying off loans), as opposed to their share percentage, may be a more attractive investment option.

If none of this applies to you, then take a look at your circumstances.

What Are Your Circumstances?

For novice or less experienced investors, or those who have less access to bank funding, then property crowdfunding can offer an opportunity to invest in property that is unavailable through other means. For those who are interested in the prospect of weathering the risks of property investment, rather than earning scarcely any interest on their savings accounts, again, property crowdfunding may offer an alternative path.

Whenever you consider an investment, whichever form this may take, you need to ensure that you are covered in the event that the investment takes a turn for the worst. You should only ever invest what you can afford, so make sure your calculations are correct, and you won’t cause yourself financial harm if, for any reason, the value of your investment falls.

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To Conclude

As a final note, if you decide to invest in property crowdfunding, there is further investigation to be undertaken. You will need to choose the right crowdfunding platform. It is very important to do your research, and to only settle on the platform that meets all your needs and requirements. Make sure they are regulated by the FCA, that they have a good reputation, and that their customer service and complaints procedures meet your standards.

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Entrusting your money with any investment vehicle is a decision that should never be made lightly. Ensuring that you are confident with all aspects of the investment is crucial, including the issue of risk. Property crowdfunding is no different to most other investment types, in that there is always a risk of loss. Knowing everything you can, and choosing the right investment for you, is the key to investing happily, smartly, and – hopefully – profitably.

 

Prospects for Property Investors After Bank of England Clampdown on Buy to Lets

Some recent changes are already hitting landlords hard, others will soon. Here we look at the available options in what for many buy to let investors are troubling times.

Continue reading “Prospects for Property Investors After Bank of England Clampdown on Buy to Lets”

Crowd Funded Property Investment: 10 Reasons Why It Is Right For You

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

Continue reading “Crowd Funded Property Investment: 10 Reasons Why It Is Right For You”

What Tax Benefits Are Available From Investing In Property?

Recent announcements relating to changes in Stamp Duty and how tax is calculated on rental properties have been anything but encouraging for landlords and anyone thinking of investing in property.

However, what tax breaks exist for property owners. Continue reading “What Tax Benefits Are Available From Investing In Property?”

The House Crowd shortlisted at National Business Awards 2014

National Business Awards logo

We are proud to announce The House Crowd is one of just 10 companies across the UK that has caught the attention of judges and has been shortlisted in the New Business of the Year Award category for the highly prestigious National Business Awards 2014!

It is recognition of us democratising the property market through crowdfunding – revolutionising how would-be investors, particularly those with smaller budgets can invest.

Judges were impressed with our disruptive and pioneering spirit, opening up a much-loved but notoriously difficult-to-enter market. The House Crowd’s strong customer service and general impact on the North West property market was also noted.

Our MD, Frazer Fearnhead said: As a start-up with big ambitions, it’s fantastic to be recognised on a national level. The House Crowd is part of a whole internet revolution that is giving power back to the people and creating a global community that can interact with each other, cut out big institutions and join forces for the common good. 67 % of our investors felt cut of from property investment before they found The House Crowd.

On a regional level, we are helping some of Greater Manchester’s “forgotten” communities to re-establish themselves. Breathing new life into old properties can have a dramatic effect on local communities as a whole, bringing in new people and ideas, and helping to create a new sense of pride in an area.

On a global level, we are trailblazers – creating a unique, innovative and ground-breaking concept, now emulated in several different countries.

The House Crowd has succeeded in injecting people power in to the once elitist UK property market and in turn, has brought property to the general population.

The winner will be revealed at the National Business Awards gala dinner held on 11 November in London.  Fingers crossed.

Affordable UK property investment despite rising house prices?

House prices are racing ahead once more, and not just in London as recent – figures show increases are now spreading across the country.

The latest reports from Halifax and Nationwide put annual house price inflation at 8.7% and 9.5%, RICS has said as shortage in supply of quality homes for sale is pushing prices up making it even harder to access UK property investment.

RICs forecasts the average UK house price will rise by 6% a year for the next 5 years, increasing by a total of 35% by 2020.

If you are looking for to get your foot on the housing ladder and take advantage of the market, prior to the further rise in houses prices but haven’t got the money for a large deposit then don’t miss out.

With the power of crowd funding, you can invest through The House Crowd with just £1000, click here to find out how.

UK property crowd funding future looks bright

As the UK economy recovers, interest in property development is also recuperating. Thankfully however, the opportunities are now open to all with the concept of property crowd funding becoming increasingly popular in the UK, started by The House Crowd in 2012.

It is flattering for us that there are now around 5 property crowd funding websites dealing with buy-to-let residential property, each offering a slightly different business model but based around the same concept that the crowd funding company acts as the central point between the owner, developer, landlord, letting agent and a number of individual investors wanting to buy property as part of the crowd.

The House Crowd, and some of the other UK online platforms are looking at commercial property for crowd funded investment, already being done in the US. Traditionally seen as more risky, obviously more expensive and therefore unattainable, crowd funding is making this accessible and offering higher returns.

A major reason for the rise in people following The House Crowd suit, is the Financial Conduct Authority’s (FCA) new regulatory rules on internet crowd funding which came into effect on 1 April 2014, in summary, ensuring that platforms must be fair and not misleading; risks should be highlighted; systems must be in place to separate the crowd’s money from the platform’s – all of which we do here at The House Crowd.

So, to be part of the bright future, why not invest with the first property crowd funding company – to find out how, click here.

Slimmer yields for landlords in 2014? Not for our investors…

According to ARLA, the average yield across the country has fallen to around 5.5%. A journalist recently put this point to me and asked (somewhat sceptically) how we could offer much higher yields.

I responded that average returns are just that.  They represent what an average investor buying an average property in an average area could expect to achieve.

That statistic encompasses properties where yields are 1% and properties where they are 14% or more.  We research areas where the average yield is higher and then cherry-pick the best deals in that area to maximise yields.

The criticism is akin to saying “Usain Bolt claims to be able to run 100m is 9.69 seconds but how can that be when our research shows the average time to complete 100m is 14.8 seconds.”

In short, we are not your average investment company.

Having said that, we are susceptible to market conditions as is everyone and as house prices increase at a higher rate than rents, it is inevitable that yields will decrease.

So, does that mean we will not be able to offer our clients such attractive returns?

No.

It simply means we have to adapt. We are experienced in many areas of property investment, are extremely flexible and already have plans in place to ensure that we can still offer you very attractive returns whatever the market conditions.

The new areas we are moving into and the new business model we are launching next month will enable us to continue to deliver well above average returns.