What Is Property Crowdfunding?
For some, buy-to-let investment can be out of their price range, but they still want to get involved in UK real estate. As an alternative, some investors group to fund a purchase. This is called property crowdfunding.
Property Crowdfunding is when a group of people pool their capital to buy a single property asset. This means that each investor owns a small share of the investment.
While crowdfunding can refer to a group of friends grouping together to buy a property, the phrase typically refers to an online platform that brings together many investors.
The process in which crowdfunding platforms work is relatively straightforward.
Firstly, the crowdfunding platform identifies a suitable property. Investors then say how much they want to invest until the purchase is 100% funded. You can put anything from £100 to £1,000 into the pool, depending on how much you can afford.
The platform then forms a dedicated company to buy the property, and the investors are given shares in the newfound company proportional to the amount contributed.
The new company then finds tenants and manages the day-to-day costs of the property, with rental income minus the expenses being paid to shareholders in the form of a dividend.
Why Is This a Good Way to Invest in Real Estate?
Benefits of this method of real estate investing include:
- The ability to invest in real estate with whatever amount of money you have available. You can spend as little as £100 on your investment.
- It’s completely hands-off, allowing you to go about your day-to-day routine without having to worry about property maintenance and management.
Are There Any Downsides?
Similar to REITs, due to the number of shareholders, your returns will likely be far lower with property crowdfunding than with owning property directly.
Furthermore, you have no control over the property management, like rent, location, or even if the property is kept or sold.
If you have very little money, this may be a way to get into the real estate market, but it seems far more worthwhile to get involved with a more secure investment like buy-to-let.