An Introduction to Investing Through Property Crowdfunding

An Introduction to Investing Through Property Crowdfunding

Traditionally, only those with access to large amounts of capital have been able to invest in the lucrative world of property. Managing a portfolio is normally time-consuming, business, which becomes increasingly more burdensome as the investor’s portfolio becomes larger.

However, in the last few years, a new method of property investment has emerged which has effectively democratised the entire investment process, allowing more people than ever to benefit from the financial gains that property investment can offer.

Property crowdfunding started to take off in 2012, and is now worth billions of dollars a year worldwide. The value of the industry currently doubles every two months, and is set to be worth $250bn by 2020.

The growth of the property crowdfunding industry has been catalysed, in part, by the relaxation of regulations over the last few years. The Government has identified the industry as being hugely beneficial to the economy, and has also begun investing in crowdfunding itself. Institutional investment is also coming into play at an increasing rate, and high net worth investors, attracted by the simplicity of the process, and the returns available, are also investing through property crowdfunding.

But why is investing in property crowdfunding proving so popular?

Offering the chance to build a diverse portfolio without all the legwork involved in traditional property investment models, and with the opportunity for significant gains, it’s no surprise that investing in property crowdfunding has grown exponentially in the last few years.

What’s more, as interest rates on savings continue to crawl along the seabed, and returns from both rental and sales continue to rise, more and more people are waking up to crowdfunding as a simple way to grow their money.

How Does It Work?

Property crowdfunding encompasses both equity investments and debt based investment (also known as peer to peer secured lending).

The concept itself is relatively simple.

Equity investments involve a group of people pooling their cash to buy a property as shareholders through a ‘Special Purpose Vehicle’ (SPV). The SPV is a limited company, set up solely for the purchase of that property. The SPV handles all the work, fees and maintenance of the property, whilst the shareholders receive their proportion of the rental yields, and/or share of capital gains when the property is sold.

People can invest even very small sums in buying shares in the property. On some platforms, this is as low as £50, but the typical minimum is between £500 and £1000. One of the advantages of property crowdfunding is that you can spread your available capital over a number of different properties across the crowdfunding platform, to mitigate risk.

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Getting started is a very quick and easy process. You simply register on your chosen website – it is an FCA requirement that only registered and accredited investors may participate, and, once registered, you simply select the properties you wish to invest in.

Debt based investments again involve pooling resources, in this instance, to make micro loans through the platform to a third party borrower. The loan as a whole is secured against the borrower’s property and the platform appoints an agent to act on behalf of lenders and take any necessary enforcement action. These types of investment are usually short term (up to 12 months, and pay a fixed rate of interest with no capital growth).

Where Did It Start?

The House Crowd is the longest-established property crowdfunding platform. It began trading in 2012 and offers both debt and equity investments. Since then, other companies have followed in their footsteps, such as Property Moose in 2013, and Property Partner and Crowdlords in 2014. The industry continues to expand, with several new platforms emerging each year.

Is It Regulated?

Property crowdfunding firms are all regulated by the Financial Conduct Authority (FCA), which ensures that platforms are managed properly, and that risks are made completely clear to investors. As with any investment, there is risk to capital – but it’s worth comparing this risk against other investment classes, and seeing how property crowdfunding stacks up.

Before investing through property crowdfunding platforms, it is very important to do your research. Every regulated platform should have the FCA authorisation number clearly visible on their website. If you can’t find these details, you should steer clear as they are not operating legally.

Is It The Right Choice For Me?

As with any investment, you need to take into account your personal circumstances to establish whether it is the right one for you.

You can find out more about establishing whether property crowdfunding is the right investment for you here.

Ask yourself what you wish to achieve. Investors with a lot of professional experience and access to bank funding, may find the model less appealing than novices.

If, on the other hand, you don’t have a deposit available, or aren’t able to get a mortgage, then investing through property crowdfunding could be an ideal way for you to access this asset class. And, given the government’s recent attacks on landlords, which has severely undermined the profitability and viability of buy-to-let investing for individual investors, it may well be that crowdfunding remains the only sensible option available for most.

Risk

The same principles that apply to other forms of property investment also apply to crowdfunding. You should be aware that capital growth profits are speculative, and investing in properties that produce a healthy cash flow is the more sensible approach.

One of the major risks associated with cash flow positive properties is that of damage or non-payment of rent. As such, you should always factor this in as an eventuality that may affect your yields. As mentioned above, however, if you have a well-diversified portfolio, with your capital spread over several properties, any losses due to one bad tenant will be more bearable than if you had all your eggs in one basket.

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At the end of the day, it all comes down to your risk tolerance. You do lose a large amount of leverage by investing through property crowdfunding, and you will only benefit proportionately from the property’s capital growth but, at the same time, having no borrowing means significantly less risk as there are no mortgage payments and no danger of the property being repossessed (as shareholders own it outright).

If making crowdfunded debt-based investment, (aka peer to peer lending) you need to know what would happen if the borrower defaults and does not repay the loan. You should ask questions about how your investment would be protected, what happens in the event of a default – how easy is it to take control of the secured property? – and how much equity is available to enable you to recover your money should the worst happen. Unless there is sufficient equity in the property, you could risk losing some or all of your money.

If you opt for debt-based investments, your investment will be secured by a legal charge. A critical matter to consider is at what LTV the loan is made. If, for example, a loan is made at ‘75% LTV’, it means that you will be at risk of losing some of your capital if the borrower defaults, the property has to be seized, and is sold for less than 75% of its current valuation.

Debt investments are generally considered to be lower risk than equity investments, as lenders are always paid out before shareholders, however, you do not get the potential upside of capital growth.

What About If I Want Out of My Investment?

If you need a liquid asset, then property is not the best choice.

Investing through property crowdfunding facilitates liquidity to some degree as it may be easier to sell shares in a property than the whole property. However, there is never any guarantee that you will be able to find a buyer, and, if you cannot do so, you will have to wait until the property is sold.

Some platforms will help you to find a buyer after the expiry of a minimum term, but you should check the small print before you invest. If you’re looking for a short term investment, P2P secured lending may be the better option.

To Conclude

We hope that this has offered you some valuable insight into getting started investing through property crowdfunding. Of course, you should know everything about the ins and outs of any investment before you part with your money, and we are fully committed to helping you know all you need to.

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If you have any questions, you can always get in touch with us and we will be very happy to fill you in.

Newton Heath and Marple Development Updates

Newton Heath and Marple Development Updates

Newton Heath Manchester
It has been a few weeks since our last update for the new build development of townhouses in Newton Heath Manchester.
In fact in the last blog it really did look like a building site.
A few months later and the interior designers have worked their magic and the contemporary living spaces are starting to look like homes.

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As you can see from the photographs, the light open kitchen dining areas should prove very popular for those modern families who enjoying entertaining.

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The spacious lounge area and bedrooms certainly make these properties stand out from other townhouses in the area.
The bedrooms have been decorated and dressed in soft neutrals to ensure the light airy feel continues throughout.

10-10-newton-bedroom

The team have worked hard to ensure that the finish and specification in the bathrooms have certainly kept our promise of contemporary high specification housing.

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Station Road Marple.

Just a few miles away in the leafy village of Marple our project at Station Road is now looking absolutely stunning.

10-10-marple-front
This extensive renovation has ensured that we have kept the character of the property along with the stylish contemporary extension to the rear (photographs to follow of the internal living space).
The property looks incredible and the external landscaping to the rear certainly looks a bit different in these two before and after snaps!

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The photograph above shows the new decked area and extensive living room extension. The removal of the tarmac driveway and old fencing has enabled us to extend the lawn and garden.

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‘Before’ photograph of the garden requiring a bit of TLC and some turf.

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Bank Chambers, Stockport, Sales Update

Bank Chambers Stockport.

We have just sold another apartment off-plan (the third of nine) at our Bank Chambers, Stockport development. Work starts on the conversion next week (3rd October 2016) so please keep an eye on these blog pages and our social media for project updates.

The CGI images below show the kitchen, living space and contemporary bathrooms.

thc002-_bank_chambers_kitchen_lo-res       thc002_bankchambersint_bathroom_hr    thc002_bankchambersint_apt7_hr

 

Stockport Market has become the latest place to be with its historic market hall and popular teenage market and is also becoming a foodie hotspot with new eateries popping up along the cobbled streets.

We are looking for a good quality restaurant operator to take the ground floor. It’s in a great location directly opposite the market hall, so if you know of a restaurant owner looking to expand ask them to get in contact.

 

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July Update-a Month in Numbers

 

As many of you know we started offering peer to peer secured loans in 2015 in addition to our equity investments.

Here’s a few stats to show how we are doing (correct as of 31st July 2016)

 

  • Total sum loaned                             £8,339,734
  • No. of loans made                           22
  • No of loan repaid                             5
  • Returns Paid to date                       £ 95,028
  • Av. loan period                                  10 months
  • Av. loan size                                       £379,079
  • Default rate                                        0%
  • Av. Loan To Value                            68%
  • Av. interest rate                               8.95%

To learn more about our secured peer to peer loans download our free guide here

You can always read more about our new peer to peer loans, equity investments and Property Crowdfunding by simply registering on our website

 

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What is FCA Regulation and Why is it Important in Alternative Finance?

A question put to us most days is whether The House Crowd is regulated by the Financial Conduct Authority?

The short answer is yes…

…but it is important to understand why this matters so much.

If you want to learn more you can refer to the exact wording dealing with our permissions in the footer of our website or the emails you receive from us. Or, you know, just read them below:

In respect of Equity Investments, The House Crowd Limited (FRN 711355) is an appointed representative of Prosper Capital LLP (FRN 453007) (“Prosper”). Prosper is authorised and regulated by the Financial Conduct Authority.  Neither the House Crowd Limited, Prosper nor any of their affiliates or group companies provides any advice or recommendations in relation to this document.  If you have any doubt about the suitability of any investment marketed by The House Crowd Limited, or you require financial advice, you should seek a personal recommendation from an appropriately qualified financial advisor that does give advice.

In respect of Peer to Peer investments, The House Crowd is authorised and regulated by the Financial Conduct Authority under interim permission number 665205 to conduct peer to peer lending activity in the UK.

Investments are only available to certain specified persons who are sufficiently sophisticated to understand the risks. Investments in property and unlisted shares carry risk and you may not receive the anticipated returns and your capital may be at risk.

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So Who Is the FCA?

The FCA has an important role to play in helping to safeguard people when dealing with financial matters, and how the FCA treats crowdfunding plays a crucial role in our business and the way we can operate.

Crowdfunding, as an industry, is still in its infancy. Since The House Crowd first began, the FCA regulation surrounding crowdfunding has evolved to create a regulatory framework in which the industry can flourish whilst protecting investors from being misled.

FCA Regulation

 

The FCA operates with three statutory objectives:

 

  • To protect customers
  • To enhance the integrity of the UK financial system
  • To help maintain competitive markets and promote effective competition in the interests of consumers

The FCA provides firms with a number of key principles that they must adhere to and we at The House Crowd always conduct business with these at the forefront of our minds.

The Financial Conduct Authority is responsible for regulating:

 

  • Loan-based peer-to-peer platforms on which people lend money to individuals or businesses in the hope of financial return in the form of interest payments and a repayment of capital over time
  • Investment-based crowdfunding platforms

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How Does FCA Regulation Impact The House Crowd?

In line with FCA regulation, we always ensure that all of our investments are presented in a way which is fair, clear and not misleading. We always endeavour to provide you with any relevant risks that may impact on the estimated returns.

FCA Regulation

Here at the House Crowd, we are building a team with a varied set of skills and qualifications, which ensures we can competently provide a full investment and financial pack for each of our listed investments. However, it’s really important to acknowledge that we are not investment advisors, and so it is essential that if you do not fully understand any information we present that you seek your own independent financial advice.

Why Must I Register With You In Order to Invest?

Anyone who wishes to access specific investment information on our website must first register with us and certify themselves as one of three acceptable types of investor. These are:

 

  • “Crowdfunding” (Elective Professional Investor)
  • “Sophisticated” Investor
  • “High Net Worth” Investor

There are more details about these given during your registration process.

The reason for this is that the FCA restrict the promotion of certain investment products to people who fall within those categories, to ensure that anyone investing with us fully understands the investment and associated risks, and therefore have full knowledge of what they are getting into.

That’s why, when you register on our website, we ask that you select the category of investor you fall within, and we ask you to confirm your understanding of the risks involved in crowdfunding.

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Once you have fully registered on our website, we can send you more information about the investments we list on our platform, and you are then free to invest, if you choose to do so.

I Want To Invest From Overseas. Can I?

If you are an overseas investor, you must check the regulations in your own jurisdiction to establish whether your government allows you to invest in UK based crowdfunded opportunities.  This is your responsibility.

Once you’ve established that you can invest with us from your country, you’ll need to provide two separate proofs of address, which can be a utility bill (not a mobile phone bill), or bank account statement, before you can invest for the first time. This is in order to comply with anti-money laundering (AML) legislation.

Conclusion

It’s important to note that this does not mean that there are no risks involved with crowdfunded property investment. As we reiterate wherever we can, there are risks involved with any kind of investment, and The House Crowd is no different. Whilst you can make a good return on your investment, there is always the possibility of loss. It is this that you must fully understand and be mindful of whenever you’re choosing how to invest your money.

We hope that this handy guide has helped to clear a few things up for you, but if you have any further questions, we are always happy to help. For any questions specifically related to compliance, you can get in touch directly with Charlotte, our Legal expert, by emailing her at: [email protected].

Where Can I Find Out More About FCA Regulations?

Well, funny you should say that! We have some useful links for you right here:

FCA Crowdfunding Review

FCA Policy Statement

FCA Discussion Papers

Alternative Lending: A Regulatory Approach to P2P Lending

Happy reading!

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April Update-a Month in Numbers

 

Last month we paid out a whopping £114,632 in returns to 492 investors.

We also raised an additional £1,660,000 over 3 projects and 133 more people are now earning a very healthy 9% a year on their investment.

If you have money festering in a bank account, perhaps it’s time to get your slice of the pie and put it to work with one of our fixed rate short term secured loans.

Alternatively, if you prefer a longer term deal that produces both income and capital growth you may want to look at one of our fully tenanted properties which have blue chip clients and should produce up to 9.5% in rental yield. The last one of these, HCP165 filled up in just one afternoon and the latest, HCP166, was 50% funded before we even launched it.

We are hoping for another record breaking (and sunny) month in May with more assured rental deals and have the exciting new development project at the landmark Bank Chamber (below) in Stockport launching this week.

HCDC005 ext

 

You can always read more about of new projects by registering on our website Register Now For More Information

Development updates

Regent Street Town Houses Newton Heath and Station Road Marple,Development Updates.

Both of our development projects are racing on and both have had the tilers in.

Granted they are at different build stages with the Regent Street Town Houses having the roof tiled and Station Road Marple nearing completion of the bathrooms but I am sure that you will agree from both sets of photographs they are certainly flying up compared to our last update.

The project at Regent Street will soon have the roof finished and judging by the speed the contractors are working it won’t be long before these super modern homes will have families moving in.

The photographs of the Station Road Marple project show that the rear extension is starting to really take shape with Velux windows ready to be fitted in what will be a huge open plan family space.
The bathroom tiling is looking great and as mentioned in the last blog the new attic suite certainly does make the most of the once hidden archway and lovely large space to get away from it all.

We are certainly looking forward to seeing photographs of the new development in Alderley Edge which is just starting-watch this space!

 

You can always read more about of new projects by registering on our website

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Marple Photographs (bathroom, attic suite, family room and feature arch)

marple pics 13.5.16

Newton Heath Photographs 

newton pics 13.5.16

You can always read more about of new projects by registering on our website Register Now For More Information

Why We Believe Investing For Income Is The Best Choice

Why We Believe Investing For Income Is The Best Choice

Capture

With UK interest rates stuck at historic lows and showing no signs of increasing any time soon, many investors have come to realise that there’s little difference between a savings account and leaving their money underneath the mattress.

Leaving money in the bank might be the safest option, but it is also one which will see the value of those savings gradually whittled away.

Income investing is becoming increasingly popular – here are seven reasons why we believe it is the best way to secure your financial future.

1. A little risk goes a long way

To enjoy any sort of income from investing it is necessary to accept some risk, however the key is to find that sweet spot where the risk is acceptable given the potential and predicted returns.

Income investing can allow that balance to be found. Whether it is in property or established companies with a history of solid dividends, money can be put into areas which show historic stability.

Areas, sectors and businesses which survive recessions, fashion and the volatility of other markets.

2. There are safe options – major companies with a track record

Income investing does not have to be in risky start-ups or areas tipped for massive growth but with high risk.

In fact, while such options might work out in the short term, in the longer run the established areas tend to be the ones which not only offer stability, but also provide the better returns. You can have your cake and eat it (speaking of which, huge bakers aren’t a bad investment – people always want cake…)

Larger established companies have exited periods of rapid growth and expansion, so rather than reinvesting any capital tend to offer attractive dividends.

3. Potentially have two means of making money, yields and capital growth

When income investing it’s possible for two ways to enjoy a return.

Take property for example – admittedly our area of expertise. Invest in a rental property and there are the yields from rent, but also potential capital growth too.

Two ways to enjoy a healthy return – that beats savings and its big fat zero ways to make a decent return.

4. Helping to grow the economy 

This might not be your key concern, but income investment does help perform an important job. It helps keep the economy moving, it provides funds where they are needed, importantly to well-run businesses.

If investing in the UK, it helps keep our economy healthy and competitive, if investing in property it helps improve the housing stock and provide affordable housing.

Invest wisely and you can go to sleep with a healthy self-satisfied glow to accompany that healthy bank balance.

5. You can have range of different investments, some low risk, others with the potential to offer great returns

When investing, it is paramount to build a portfolio to help spread risk and with it maximise returns.

You can invest for income and do this by investing in a range of businesses, in a range of property or even a mix of the two.

Some industries offer healthy dividends no matter the economic circumstances of the day – pharmaceuticals for example and others providing products and services which are always in demand. Others such as car manufacturers and those producing luxury products are more likely to be affected by the prevailing economic mood.

Property, being in obvious demand, is firmly in the safer camp. That said, a little risk as part of a portfolio can go a long way – would Apple or Microsoft have seemed safe investments a few decades ago?

6. Healthy growth of dividends

The days of living three score year and 10 are long past – with a fair wind there’s a fair chance any of us could now live to our late 80s and beyond.

Great news on one hand, but it does mean those investments made in advance need to keep paying out for longer than you might imagine – especially as who knows what pensions will look like by then…

The percentage  increase in dividend pay-outs could be absolutely crucial – a difference of a few percent could more than double the annual dividend a few years later.

To reiterate a point made higher up, income investment in solid options enables you to tap into dividends which pay out, and pay out, and keep paying out – hopefully for many, many years to come.

7. Bricks and mortar

We’ve hinted at it above, but property can be an ideal investment for those seeking an income.

Traditionally, buy to let investing has been appealing but only available to those with sizeable savings pots – especially given the need to invest in multiple properties to spread risk.

However, the emergence of crowdfunded property investment means that smaller sums can go a long way – for example a £20,000 savings pot could be used for 10 stakes of £2,000 each in different properties.

With crowdfunded property investment also a passive investment, there is none of the red tape of going it alone as a landlord, or the worry around ever changing legislation on Stamp Duty and mortgage relief…or the coming difficulties of getting a buy-to-let mortgage.

With property investing, there is always a tangible asset behind the investment.

As you might have guessed, the House Crowd is a property crowdfunding investment platform.

If you do want any more information on property crowdfunding, please have a look round the site and register for more information.

And however you choose to invest, we wish you the best of luck.

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5 Reasons Why Manchester Is The Top Place To Invest In Property

mcr salfordIt was great to read this week on the BBC website that the Chinese are investing heavily in the Manchester property market – many of them now preferring it to London. It is bound to help boost the economy and inevitably push house prices higher – which may be good or bad depending on your viewpoint. You can read the article here: http://www.bbc.co.uk/news/business-36086012

I also read this week the Jones Lang La Salle’s report on The Northern Renaissance and their belief that Manchester is the best place in the UK to invest in property as it provides both healthy yields and excellent prospects for capital growth.

You can access the full report below, but here are just a few key points from their research:

  • Manchester sits at the heart of the Northern Powerhouse, a brand that is gathering real momentum.
  • The residential market is the strongest outside of London and has more growth opportunities over the coming years than any other city in the UK.
  • The ongoing infrastructure investment via the Metrolink extension, the airport and HS2 give the city added momentum going forward.
  • 2016-2020: predicted house price growth of 24.6%
  • 2016-2020: predicted rise in rental income of 22.8%

What this could mean for an investor who currently generates a gross yield of 9% on a property worth £100,000, is that over the next 5 years his/ her rental income will increase from £9000 a year to £11,052 per year and his/ her property will increase in value to £124,600. That makes a forecast gross annualised return of 15.9% (before deduction of the usual costs).

 

Access the full report here

 
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Unfamiliar With Bridging Loans?

Here are our two most frequently asked questions about these types of loans:

Why do borrowers choose bridging finance?

Borrowers choose bridging finance for a variety of reasons. We have listed some below:

  1. Speed of funds – bridging loans can be up to 12 weeks quicker to complete than a conventional mortgage. This can assist the borrower in a number of ways such as:
    a) 28 day exchange/completion for an auction purchase.
    b) Maximising a business opportunity
    c) Repayment of a tax bill
    d) The renovation and sale of an investment property
  1. Mortgage criteria – most mortgages are based on income multiples, however as all of the costs of a standard bridging loan are deducted from the gross advance there is much less emphasis on how much the borrower earns.
  1. Credit profile – if a borrower has a poor credit history they are unlikely to obtain a standard mortgage. Where a borrower is looking to repay a bridging loan via the sale of the security the credit profile of a client has less impact.
  1. Where funds are only required for a short period of time, typically 6 to 12 months.

What happens if the borrower defaults?

If the borrower fails to repay we would enforce the legal charge and take possession of the security. We would look to sell the property to recover any monies owed plus interest and default sums. To ensure the security is adequate the Loan to Value is always 75% or below calculated on the loan plus interest to reduce the risk of capital losses.

You can download our comprehensive full “Guide To Peer to Peer Loans” by clicking here.