A new crowdfunding platform called Property Partner is offering investors the opportunity to buy shares in residential properties, in the same way as you can buy shares in companies.
Here's how it works.
Buying shares in property
Property crowdfunding involves multiple investors coming together to buy a property which is then let to tenants.
All the legwork is done by Property Partner, which identifies locations and individual properties that are likely to be attractive to investors. It then lists each property on its platform including photos, floor plans, a surveyor’s report and valuation, and financial information such as predicted income.
Investors can choose to invest in a property from as little as £50. Once enough money has been invested and the purchase is complete, the property is rented out with the tenancy managed by Property Partner.
So investors don't have to do anything.
Income and fees
Investors receive a monthly rental income in direct proportion to their ownership. When they sell their share, or the property is sold, they also benefit from any capital growth.
Property Partner makes its money by charging fees to investors. There's a one-off transaction fee of 2% charged on purchase of the investment, plus 12.5% (+VAT) of rental income for advertising, letting and managing the property.
Ownership and selling up
Because a maximum of four people can be registered as property owners on a UK land registry deed, crowdfunded property is owned via a 'special purpose vehicle' (SPV).
An SPV is a UK limited company, established specifically for purchasing that individual property. Property Partner offers a different SPV for each property listed on the site.
The platform also enables investors to offer their share of property for sale via a designated secondary market. Although Property Partner will estimate the value of your shareholding, how much shares are sold for depends on negotiation between the buyer and seller.
On each fifth anniversary of the property purchase, each investor in the property has an opportunity to sell their holdings at market value. If shares can’t be sold, the property itself will be put on the market for sale and the proceeds then distributed to investors.
No investment is without its risks and Property Partner is upfront about the dangers of crowdfunding.
Firstly, unlike normal buy-to-let landlords, crowdfunding investors lack control over day-to-day decisions about the tenancy and property. There are also the normal rental risks of rent arrears, eviction costs and void periods.
Unlike stocks and shares, property is not very liquid. This means selling your share could take some time – and there’s no guarantee that anyone will want to buy it if the housing market starts to fall.
This brings us to the next point. While house prices have risen in many areas over the past few years, there’s no guarantee this will continue. The value of your investment could go down as well as up.
To mitigate this it’s advisable to diversify your Property Partner investments across multiple properties. Crowdfunding should also only comprise a small part of your investment portfolio and investors should consider professional advice before investing at all.
Other ways to invest in property
If you want to invest in the property market but don’t want to be a landlord, there are several other options besides Property Partner.
For example there are other crowdfunding platforms such as The House Crowd, Property Moose, and Crowdahouse which all work in a similar way to Property Partner.
Alternatively you can invest in a residential property fund offered by the likes of Hearthstone Investments or Castel Fund.