A search of ‘buy-to-let UK’ on Google at present returns a myriad of stories foretelling the end of the sector as we know it. In addition, a slightly smaller offering of tip and hints aimed at those who still feel strongly that this is an area in which to invest money. You’d be forgiven, then, for having missed the crowdfunding uprising in the UK which offers investors the opportunity to invest in property for as little as £50.

The companies behind this alternative buy-to-let strategy are keen to highlight overall increases in the price of property in the UK market as well as returns from a modest 3% up to (on one Google ad) an astounding 18% per annum.

So how does it work? There are two main options for those keen to invest in their little slice of property.

The first is to invest in a landlord – peer-to-peer funding or loan-based crowdfunding. This means that while you will receive interest on your capital, you don’t own a share in the property so any financial gain made on selling will not be passed on. It does, however, also mean that you are not subject to costs such as periods of vacancy or repair bills.

The second option is investment-based crowdfunding and this means you – along with however many others – will invest money together to purchase a property. A company will be set up by the crowdfunding platform to manage this for you and you’ll take advantage of dividends paid on rental income and any eventual increase in property price.

In 2015, a Surrey property was crowdfunded by 126 eager investors within just 35 minutes through site Property Partners. Examples such as this have done little to slow the number of companies offering crowdfunding options from entering the market.

But there are risks. In July 2016, the Financial Conduct Authority (FCA) launched an investigation into the practice of crowdfunding. They believe that crowdfunding firms (not, it must be stressed, all in the buy-to-let property market) did not always meet their requirements to be ‘clear, fair and not misleading’ and that further regulation is required.

At a basic level, investors may find it difficult to remove their capital. While there are now options to sell on your stake in an investment this may mean a lower return and requires market demand. Your capital is also at risk with no guarantee of a return should property prices fall or – in the case of investment-based crowdfunding – the property be badly managed and lie vacant for long periods.

Any investment is also not protected by the Financial Services Compensation Scheme which can provide compensation in the event of a financial services’ company failing (or going bust).

Crowdfunding as grown massively in popularity in recent years – seen mainly as an alternative to low interest rates on savings. Certainly, it offers another way to invest in property; perhaps even to spread your portfolio risk in terms of geographic area or type of property. But the lack of control and oversight is definitely a high risk and one worth pondering.

 

Have you invested in crowdfunding for property? Do you think this offers buy-to-let investors another option for their portfolio or could it become the go-to option?

I would like a FREE consultation with a specialist