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Tuesday, May 27, 2014

Crowd investing for landlords

We recently highlighted crowd funding for landlords.  How about crowd investing?

It appears on the face of it that this is the easy solution to riding the buy-to-let boom without the hassle of owning property or looking after tenants. What is buy-to-let crowd investing all about?

Think a unit trust or investment trust for buy to let investing.  In just the same way as an investor would buy into a pooled fund of financial investments crowd investing involves a property investor buying a share of a residential property that is either refurbished for sale or let out.  The potential gains are from both rental income and capital appreciation following the refurbishment.

Is this new?  Well actually no.  I remember about 10 years ago a very similar scheme was tried and it all ended in tears.  The scheme disappeared.  Obviously this was in the internet early days and before the likes of Zopa and various crowd funding techniques has proved themselves to work but it is something to bear in mind.  I've listed some of the crowd investing sites below but feel free to post anymore that you can find:
Property Hawk's view

Here at Property Hawk we instinctively an old bunch of crusties. We distrust anything that is new/revolutionary or promises something for nothing. They frequently disappoint and more often lead investors with nothing as the instigators take their money and profits and run. I was listening to a piece on Radio 4 Moneybox which gave a fair view on the crowd investing schemes for landlords.  Our take is:
  • Take the returns quoted with a pinch of salt (they very rarely materialise)
  • Remember that the instigators of the schemes have a vested interest in charging and taking large fees that are legal but not necessarily justifiable (this will reduce massively your returns)
  • It's all well investing your money but how do you take it out.  The suggestion is that you can sell your stake to another investor ( difficult and will you get the full value of your investment back?)
  • The areas that you end up owning property will rarely be a high values areas and you could question the likely long-term returns from capital appreciation even if the headline rental yields might appear enticing.
The short answer is that most investors could be better of saving their money for a deposit and buying a property outright or with a friend or family member.  If you only have a few thousand to spare you are probably better of sticking your money in one of the many quoted property funds or companies that are at least tightly regulated and immediately trade able allowing you to take your money out when you need it.

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