Is Property Crowdfunding A Good Investment?

Lisa Smith, BA (Hons), CeFA

Not everyone has the cash to sink into buy to let property investment, buy many savers like to grab a piece of the action through property crowdfunding.

The principle sounds great – investors hand over a wedge of cash to an online platform operator to buy a share in a home to rent.

The platform looks after the property purchase and any refurb, finds a tenant and manages collecting the rent and any repairs that may arise.

Any  rental profits are shared out among the crowdfunders, and if the property is sold, any gain in value is split between the investors as well.

So far, so good.

Who controls the money?

But crowdfunding is not really a suitable route into buy to let for many investors.

The main issue is control of the money. The platform determines who carries out the refurb and presents the investor with a bill.

The investor has no control of the costs but must foot the bill.

And what if the tenant trashes the property and does a flit owing rent? Again the investors must pick up the tab.

Exiting a deal is also a problem. Property takes months to sell at best and there is no recognised market for cashing in crowdfunded homes.

Then there’s the charges skimmed by the property manager. Sharing the profits sounds good, but the net profit is after the deduction of fees and costs from rent received.

Another risk is the platform closing or going into bankruptcy.

Read the small print

The platform is in it to make money, not to offer a charitable service, so crowdfunders need to read the small print carefully to ensure they get a fair deal.

A crowdfunded deal is just like investing in a property fund.

Investors need to look at past performance, how the fund is run, the costs and likely returns before dipping into their savings – and there’s the rule about not investing money you cannot afford to lose.

Lastly, crowdfunding is unlikely to come under the watchful eye of financial regulators, ombudsmen if the deal goes wrong or any official compensation service.

The only recourse is going to court to sort out a problem, and that can be time-consuming and expensive.

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