Investing in property and real-estate has always been popular. However, it can be out of the reach of the investor with a limited amount of capital and it’s extremely difficult to diversify. Could Property Crowdfunding be a possible solution to these problems?
When a 700-page economics book ends up number one on Amazon’s best-seller list, you can be certain someone has perfectly captured the abiding spirit of our age. That someone being a previously obscure French economist, Thomas Piketty, with his book ‘Capital’, and that spirit being our growing obsession with inequality.
It seems every new day brings new statistics showing the stagnation of most people’s wealth while a tiny percentage continue to soar above us in super jets, chinking champagne glasses as we mutter and curse our way to work.
A Credit Suisse report on Global Wealth released last October informed us that only the UK out of the G7 countries had experienced rising inequality through the entire 21st century to date.
Why does this vex us so?
Possibly because it cuts across intrinsic beliefs we hold about progress. That things generally go forwards as opposed to back. That technological and scientific advances free us from former restrictions; and that well-being and wealth goes up generation to generation.
Sadly the facts no longer support such optimism when it comes to parity of wealth among people. So anything that democratises opportunity to own assets previously the preserve of the rich has to be applauded.
Property investing for the many
Such as Property investment. Long the cash-cow of the affluent, investing their capital, then cashing in as that asset appreciates, or when it fails to, cashing in with rental incomes until it does.
Meanwhile, at the opposite end, growing numbers struggle to get their foot on the property ladder. This is why the recent proliferation of crowdfunded property investment companies interests me. Like many good ideas, it’s eminently simple. OK, we can’t afford to buy a property outright, but if we pool together then we can.
And, we can enjoy the rental yields as a dividend. And being a solid alternative investment idea, it also caters for people who want to diversify their asset portfolio into other types of investments. But is the theory backed up by practice?
The House Crowd is the best place to check this. Being the UK’s first property crowdfunding investment company, founded in 2012, it has the most proof of concept on its side in terms of viability; logically – being the longest lasting. Its catchphrase is ‘the smarter way to grow your savings’ by hassle-free investment secured by bricks and mortar.
But how does it work, and what dividends can you realistically expect? To start you need to make a no-obligations registration with their site, to comply with FCA regulations, then you can see the SPV’s available. SPV being special purpose vehicle as essentially you’re investing in shares in one of these to buy each property outright.
Blissfully free from mortgage hassles or other property buying rigmarole, like maintenance and refurbishment, taken care of by the SPV; you choose how much you want to invest from as little as £1000.
A potential game changer?
Regardless of the returns, this represents a significant lowering of the threshold for property investing. They tell you that the cash you do invest is held with solicitor’s insurance until the SPV buys the property outright for your protection.
You can spread your investment by investing in multiple properties – SPVs – if you wish, indeed, 72% of their initial investors have gone on to do just that. You can opt for fixed dividends or variable depending on rental incomes with figures mentioned in the press of between 5 and 7.5% fixed dividends based on amount invested.
And, you can choose when your dividends are paid, so there’s some flexibility in tailoring it to your needs.
So far, so factual.
It’s really down to your own judgment after checking out the proposition whether it’s a worthwhile investment or not. After all, as the small print always tells us, nothing in the investing word comes without risk, and you wonder what would happen if there was a collapse in yields in the rental market.
Yet, as a nominated finalist in the UK business awards 2104, £7.2m invested already by individuals, plenty of coverage in the press and a site packed, currently, with happy testimonials, it seems to suggest that The House Crowd, and indeed property crowdfunding investment, may be around for a while.
Which is pleasing in way. To know that it’s possible to get a slice of the property pie which for many may have previously been out of reach whilst maintaining proper diversification in their investments.