What happens if you don’t have sufficient funds to invest in property and are unable to afford a mortgage? Property Crowdfunding is an alternative avenue through which you may be able to buy shares in a property.
Crowdfunding refers to fundraising from many individuals through an online platform. It links individuals or businesses seeking capital to individuals who are ready to invest. As housing prices continue to increase, property crowdfunding enables individuals to step onto the property ladder with minimum investment. A new report from the independent Social Market Foundation suggests that property crowdfunding offers young buyers (ages of 25-35) with an opportunity to buy property.
The Model
Property crowdfunding involves a ‘crowd’ of investors coming together to buy a property which is then let to tenants. Investors are able to buy shares in a Special Purpose Vehicle (SPV) designed to purchase a property. An SPV is a limited company, established specifically for purchasing that individual property. Investors are able to acquire a stake in a number of properties simultaneously. The risks involved in investing through an SPV relate to the value and income derived from that specific property.
There are currently three main companies offering products. These are House Crowd, Property Moose and Property Partner. It is believed that the total amount of investments across these three main providers is £40 million. Investors are able to buy equity stakes ranging from £10 to £500. Property Partner also plans to create a property stock market, where people can buy and sell shares in their flats.
How do Property Crowdfunding platforms such as Property Partner work?
The platform places a deposit on a number of developments and then posts the properties on their website once it has exchanged on a deal, but the idea is that investors eventually pay the full purchase price. Investors receive a rental income proportionate to their shareholding (net of any property management or maintenance fees) and also benefit from any increase in property value. Independent assessors revalue the properties regularly in order to adjust share prices. The platform is responsible for maintaining the rental property, hiring a firm to act as landlord.
The property crowdfunding market offers a number of different products to consumers. The growth in this area suggests the market will continue to expand significantly.
If you are interested in buying a property, please contact our property team who will be happy to assist. Please note that this blog has been written to inform you with regard to new legal structures available to allow individuals to buy interests in property and does not constitute financial advice. If you wish to obtain financial advice relating to investing in any such property you should obtain independent financial advice from a regulated financial adviser.