Bringing home the bacon: Three ways you can use alternative finance to invest in property
Property crowdfunding and marketplace lending aren’t for everyone. The former can involve high fees, and you won’t know what your investment is worth without selling it – which can be hard if you’re buying a stake alongside numerous other people. There are risks even with the latter. The property market is very sensitive to the health of the wider economy and some are expecting Brexit to have a negative impact on returns.
But in an ultra low-rate environment and in a housing market increasing numbers of people are finding difficult to enter, it may be something you’d like to consider. Here are three routes in.
1. Lend to fund a mortgage or loan
Marketplace property lending and investing is growing in popularity. The two main players in the market are LendInvest and Landbay, both of which enable you to invest alongside institutional investors in a loan or product that’s secured by a mortgage against a property. Firms offer pre-funded loans to borrowers to fund mortgages, and bridging and development loans.
Landbay enables you to invest as little as £100 into fixed-rate and tracker products, which pay interest out monthly. LendInvest, meanwhile, allows you to build a portfolio of property loans, with current opportunities offering between 7 and 9 per cent annualised returns. Neither platform charges fees to investors.
Both LendInvest and Landbay are awaiting approval from the FCA to offer Innovative Finance Isas. The new wrapper enables you to invest your annual tax-free Isa allowance of up to £15,240 on marketplace lending platforms.
2. Own a little chunk of a property
Equity property crowdfunding enables you to contribute a small amount of money, buy a (usually development) property alongside lots of other investors, and then share the profits – or rent, if it’s buy-to-let. Most use special purpose vehicles (SPVs) to actually buy a property, with investors then owning shares in that SPV. Projected rents range approximately from 5 to 10 per cent, with expected returns from sales usually between 20 and 40 per cent.
Property Partner focuses on buy-to-let properties in and around London and the South East, with a £50 minimum investment. It charges 2 per cent per investment, pays rent out monthly, taking a 12.6 per cent per annum cut of gross rent, which goes towards management of properties. Shares are held for five years, after which you can exit at market value – but you can sell your investment at any time on the platform’s secondary market, at 2 per cent per transaction. Property Partner also has an autobid tool, which allows you to invest thematically.
Property Moose focuses on the north of England and you can invest from as little as £10, again, with interest paid monthly. It charges a 10 per cent management fee, a 5 per cent fundraising fee and a 15 per cent profit share once properties are sold. Properties are kept for a minimum of two or three years, after which time you can exit.
The House Crowd offers lending opportunities to investors, as well as equity. It requires a minimum £1,000 investment, with many of its opportunities in London and the North West. On the loan side of things, it charges the borrower, not the lender. On equity, fees are based on a percentage of the money raised and usually add up to around 5 per cent. The House Crowd also charges an asset management fee of 10 per cent on the net rental generated by the property, and a 10 per cent profit share on sale.
3. Invest in land
New firm Intro Crowd enables you to buy shares in a limited company that owns strategic land – i.e. plots that are without planning permission, but have the potential to meet local authority approval. Intro Crowd then secures planning permission, before selling the land on. The minimum investment is £1,500 and there’s an upfront investment fee of 2 per cent, in addition to a management fee.