Crowd funding and why it can only be a source for positive impact for the UK property investment market, and why I believe we have only seen the tip of the iceberg.
If you asked the average UK home-owner if they considered themselves to be a property investor typically most would answer they are not.
What they fail to realize is that although they may only own the one property this still makes them a property investor.
They have taken on the liability of mortgage for typically upwards of twenty years or more and it that time they would hope for a decent amount of capital growth should they wish to sell the property in the future, this is the essence of investment.
This is due largely to how the average person perceives who and what a property investor is.
They imagine the buy-to-let landlord, the builder that renovates downtrodden houses then flips the property, the would be property developer who acquires some land to build a few new build residential homes, or the big institutional players funding huge property developments building whole housing estates, and they would be right these are all types of property investors but there is now a new type of property investor the “crowdfunding” investor.
Global crowd-funding investments totaled an estimated USD 34.4 billion in 2015.
Crowdfunding is the raising of capital through collective effort of individual investors typically through online crowdfunding platforms.
Crowdfunding has burst onto the scene making a huge impact on the way everything from start-ups, social sector, real estate, inventions and so on can raise capital.
Crowd-funding is expanding rapidly with different approaches being offered by different players in this sector from traditional venture capital investments, equity based crowd funding, donation based crowd funding and lending based crowd funding.
Crowdfunding and real estate
The most common approach for property investment crowdfunding is “equity crowdfunding” which helps individual investors become partial owners in the project they are funding, they passive investors entitled to a fixed share of the profits.
Also used in property investment is debt crowdfunding.
The crowdfunding platform buys an existing loan secured by a deed on the property and issue it to individual investors at a fixed rate of return.
We have “pre-filled” debt crowdfunding which is investing in a property-backed loan, but the platform acts as the lender issuing the loan to the borrower, removing the middleman.
Typically loans for small and compact homes that the borrower is planning to renovate and resell for a quick profit.
Real-estate crowdfunding gives the opportunity to share in the ownership of projects that were traditional only available to institutional investors.
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