The price to income ratio in the UK currently stands at a record high, and the property prices are ridiculously high.
Investing in the property market for most seems impossible with the average price over 16 times the average income. In some parts of the UK, the income ratio is ten times more than in other cities.
In a survey conducted by the English housing survey, results show that the number of homes with two or more spare rooms stands at 8.1 million. Most of these homes are occupied by either retired or the ageing population.
Across the UK the average income ratio averages well over five times, although houses in the UK are overvalued, we have short terms risks emerging in the housing market.
Like every continent with a growing population, it’s no longer a house supply problem but a floor usage problem. Even with soaring prices in the property market, this doesn’t mean that people are not investing in new homes.
The dream of anyone, if you ask is to either own a home or buy to let as an investment. This is where crowdfunding makes sense for anyone looking to invest without the hassle of collecting rental income.
Property Crowd funding
Collecting rental income, dealing with all the regulations and taxes can quickly eat into your profits. Buy-to-let is investing on your means you need to deposit at least 25% of the loan before you even own the property.
A crowdfunding investment allows you to have a diversified property portfolio without the hassles of tenants. Using peer-to-peer or through equity crowdfunding it will enable you access to buy-to-let investments and access to the housing market.
Platforms such as property moose, the house crowd and the property partner are online platforms you can quickly sign up and become an investor.
While the idea of crowdfunding sounds terrific, it comes with its fair share of risks. Yes owning residential properties across the UK without fussing over ownership is a fantastic way to increase your portfolio.
Risks of crowdfunding
For investors they have no control on the tenants or how the property is managed as well as the rent. If you are a control freak, this may be a problem since the crowdfunding company takes care of all and all administrative tasks including calculating the costs.
Crowdfunding companies can borrow against your property if the revenues from the house don’t cover the costs. Although this is standard practice, this means you will be watching from a distance as your capital fluctuates.
Online platforms can be risky, its easy to get scammed, for a moment you need to find out whether you still own property even if the platform folds. Imagine trying to get money from an admin you have never met with other hundreds of angry investors?
It’s risky as it may cause you losing your investment. Research reviews and compare with other online providers for a better understanding of how they work.
The cost of crowdfunding from a distance looks enticing and cheap but its quite high. Platforms charge a 5% upfront fees and the profit share they gain a whole 25%.
For others, the upfront fees are 5% then a 15% yield and 15% for any capital gain. Although in most cases the costs are diverted into their legal costs, advertising or even rent it still sounds like a typical hedge fund.
Liquidity is another issue with crowdfunding or any property investment; in the UK it takes three months on average to sell a house. If you own the property, you can easily control how fast the property is sold but not with crowd funding.
Investing in crowdfunds means the company has control over the property and you have to work within their parameters.
Alternatively, you can find people to buy your share if you are in a hurry. It hurts your liquidity more than it safeguards it, it’s better to hold and not sell.
Property crowdfunding is tempting but risky although there are regulated and credible players in the sector. It’s a great place to invest and a significant advantage to those looking to expand their property investment portfolio.
If you are new to property investment and are prepared to risk your investment, then this could be a win for you.
Although property crowdfunding doesn’t in any way cushion you against the risks of property investment, it’s a win for long term investing but not short term.
It’s also an excellent option for millennials looking to get into property investing without the administrative hassles brought about by buy-to-let.