Why Property Crowdfunding Represents the Next Step in the Evolution of Real Estate Investment
For those of us who are homeowners and investors, our experience with real estate will broadly fall into two categories: a) buying a property directly, or b) investing in professionally managed real estate funds.
Both approaches have their pros and cons. For example, with the direct route, investors have greater control over their portfolios, but the large quantums involved mean that diversification is hard to achieve and self-management involves an onerous amount of work. With the indirect route, the opposite is true; day-to-day management is professionally outsourced and diversification is feasibly achieved thanks to economies of scale, but discretion is lost and property investing is reduced to a faceless number on an account statement at the end of each reporting period.
This is where the re-invention and popularisation of crowdfunding, in its current technology-enabled iteration, could represent the next logical step in the evolution of real estate investing. By taking advantage of recent regulatory and market developments, and combining it with the immense power of technology to advertise, organise and mobilise, property crowdfunding platforms have made it possible for investors to benefit from professional management and diversification, whilst retaining the ability to pick and choose exactly which properties go into their portfolio.
The relatively low quantums involved in property crowdfunding, be it debt or equity deals, are the result of a fractional participation structure – comparable to that offered by other collective investment vehicles (e.g. OEICs or Investment Trusts) – which makes it far more accessible than investing directly.
Even the cheapest buy-to-let in the Greater London area will cost at least £200k, which if mortgaged up to a maximum of 75% LTV, will still require a £50,000 cash outlay. To many aspiring landlords, this might be nearly their entire investment budget. Instead, with property crowdfunding, one could split that amount into ten investments of £5,000 each, with exposure across ten different properties, across different postcodes (in gentrifying neighbourhoods with capital appreciation potential, for example, where a budget of £200k would almost certainly not suffice), and split between debt and equity investments.
But the appeal of real estate crowdfunding goes beyond mere diversification and discretionary investment. Its value also lies in the ability to unlock and offer exposure to multi-million pound syndicated or club deals that would otherwise be inaccessible to the average investor. For example, high-yielding, short maturity, asset-backed loans that are secured against investment grade properties.
At Property Crowd, we strive to bring the highest quality deals to our crowdfunding investors. The future of real estate investment is here – Property Crowdfunding 2.0. Please contact us us if you would like to find out more.