With tougher tax treatment and tightening bank lending criteria, some landlords and even first time investors are utilising the property investment platform scene, in an attempt to power their property profits. But what exactly are property investment platforms and crucially; are they safe?
In recent years, crowdfunding has increased on a colossal scale in popularity, with platforms such as Kickstarter and Crowdfunder as leading names in the sector. With such a rise and growing popularity, development of niche versions of these platforms was inevitable – including a venture into the property industry.
There are a number of online platforms to choose from, but the ideology remains the same. It’s a relatively simple concept; a large number of investors come together to fund a property deal. Investment amounts vary from investor to investor.
Property Crowdfunding vs Buying & Selling Property
As a small or even start-up investor, these platforms can be intriguing and appealing in the sense that you can invest on some with as little as £10. It can also be difficult at times to tap into larger property deals, whereas property crowdfunding allows you to share the profit of much larger investments you may initially have been unable to access.
Disadvantages of Property Crowdfunding
As with any investments there’s always an element of risk involved that you need to be aware of, with these investment platforms providing many:
- The value of the investment can rise and fall, so you will need to keep an eye on your capital; a task which isn’t always easy given the platform’s promise of entirely looking after your investment. This means that you may not get the frequent insight that you require.
- There’s limited access to the property and limited input into the property deal – after all it’s owned by a whole group of investors, not just you.
- Exiting a deal can, on occasion, prove tricky. If the investment has not performed as well as expected it could be hard to exit when you want; you also need to check if there are penalties for an early exit.
- It can feel a little daunting handing your hard-earned cash over and effectively investing in a property with a bunch of complete strangers.
- These types of investments should only be carried out if your investment in return gets a first charge over the property. Otherwise if something goes wrong on the investment, it is highly likely you’ll lose your money.
- Your money is only as safe as the company operating the developments / choosing these deals . The property investment platforms are mostly in it to make money by getting investment for developers – they aren’t doing the developing themselves either. How do they really know how good the developers are? You want to make sure their due diligence is impeccable and their partners are vetted otherwise; it’s a lot of trust to place in someone else who you are unlikely to ever meet or fully communicate with.Perhaps the biggest disadvantage of all however is all these deals, regardless of platform, aren’t conducted directly in person and done specifically through digital platforms; thus losing the human nature of investment.
When investing without the use of these platforms, you have the chance to connect with like-minded individuals and learn their stories, being able to tap into that to your advantage. Be it to reduce the upfront cost on one property, or establishing a trusting partnership to sustain more investment deals down the line. Trust is a fundamental part of property investment and one that should never be overlooked.
Another consideration to take given the relative infancy these platforms are in is the risk of collapsing into administration. Earlier this year, peer-to-peer platform Lendy collapsed into administration, despite touting excellent returns to investors in late 2018.
Lendy is excited to announce that, as of this month, we have returned over £45 million in interest to investors to date!
— Lendy – The Property Platform (@LendyWealth) December 3, 2018
Investigations are still ongoing into the collapse of Lendy, particularly as it appeared to be one of the UK’s leading platforms at the time with cumulative lending volumes reaching £428 million. This is a rigid statement that regardless of how well these platforms appear to be doing, risks are always apparent and only unavoidable by sticking to the traditional methods of property investing complete with effective property management.
How Does Property Crowdfunding Compare To Other Investment Methods?
Property crowdfunding is a whole different ball game compared to more traditional, tried and tested methods of property investment. There are of course the advantages over these methods, such as a guarantee that you aren’t making these investments alone. However this is easy enough to rectify in person, ensuring you build a trusted team around you which has been done countless times.
There’s also the opportunity to diversify – invest in a number of deals rather than just one (reducing the element of risk involved). Yes, investments values can, and do, rise and fall – but diversifying and spreading your outlay can limit your exposure to loss. However, the information available on these deals can feel somewhat limiting compared to a traditional. You certainly can’t just pick up a phone, call an agent or sourcer and arrange a viewing. It all culminates down to trust as we’ve previously mentioned.
So does property crowdfunding pave the future of property investment?
Ultimately, nothing beats owning something yourself if you have an agent that can make that investment passive – due to capital appreciation; after all property is a long game. By investing in property offline with the use of tried and tested methods, you are supporting your own needs and requirements rather than that of a developer. A respected management agent is much easier to communicate with and is there to care about your time and your profits as opposed to propping up a developer, whilst also having a face that you can interact with on personal, human levels to gain and sustain the ever crucial factor of trust.
For more information on successfully investing in property with effective property management, call Abode on 0161 883 2535.