Tips for investing in crowdfunded property

9th September 2015


While it is growing in popularity year after year, equity crowdfunding is still a new concept and property crowdfunding is even newer. For this reason, some people may be deterred from taking part simply because they don’t know enough about it, and as a result could be missing out on an opportunity that, if done in the right way, will grow their money. The sum invested doesn’t have to be huge to be able to benefit, but you do need to know what you’re doing, so here are some simple tips from Richard Bush, co-founder of crowdfunding property platform CrowdLords for those still unsure about getting involved.

1) Be clear on your objectives: Everyone’s financial situation is different, and people invest for different reasons. Whether you’re investing in property, small businesses, or stocks and shares, it’s easy to be tempted by the ‘bright shiny thing’ – something that grabs your attention or tempts you. In the end, it’s a financial transaction made to achieve a financial goal.

2) Think of the projected returns: Consider what you want to get out of the investment, and does the offer meet these expectations? Before you make the leap, consider your own financial circumstances, and whether this particular investment is right for you. Beyond this, consider the balance of income and growth.

3) Who is the landlord: If you’re investing in a buy-to-let, you want to be able to trust the people behind the deal. Who is the landlord, what’s his or her experience and motives and what share of the income or capital growth are they offering in return for your investment? At the end of the day, it’s them you are investing in, so you must be in a position where you’re comfortable with their experience, their ability and their commitment.

4) Spread your risk: Any investment can carry an element of risk with it, even for the most experienced investor, so think of how you can manage this. With Peer to Peer lending it has been found that, on average, lenders who spread their risk over more than 100 businesses make significantly greater returns than those that don’t. Even though the default rate is low, the more loans they participate in, the less the impact of those losses.

And several other things to think about

Investment type: If people are investing in property directly themselves, it’s quite unusual for them to specialize in one type or another – in HMOs or Family Buy-to-Lets, for example. That way, they learn what works best for them. However, if you’re investing via crowdfunding, it makes more sense to be open to where the opportunities are, and to invest across markets. As a result, you’re less directly impacted by political, economic or social changes.

Property type: rather than committing all your investments into studio flats because they are currently in demand, it makes more sense to spread your portfolio across a range of property types as long as they offer the right returns

Investment term: People say property investing is a long-term game, and it is. However, there are short-term opportunities that can be woven into a long-term strategy. The specific risks may be higher, but then you may choose to allocate a proportion of your investments in that area to boost your overall return.

Think of the geography: Building on the need to spread your risk, consider where you are making your investment – particularly if it’s a long-term one. Is this an area you want to be involved in? Why have you chosen this region? One region may give you more of a steady income, but that’s not to say it will perform well over the years. Choosing several different regions will provide a cushion should one area start to suffer.

Whatever your objectives, whether you are looking to build capital for the future or generate an income today, property crowdfunding could have a role to play and my final advice is to look at a number of platforms, talk to the people behind them and start small until you feel comfortable with how it works.

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