Before You Invest in Crowd Funded Property

Ever since crowd funding property became popular, skeptics have maintained a distance. Although it’s a great idea, in theory, skeptics have always opined that it only sounds very good in theory.

To be clear, crowd funding property is not risk-free. While it offers some unique set of advantages, it also comes with well-known risks associated with property investment. It doesn’t take away the risk, neither is it inherently better than normal property investment.

Below are a few risks you must bear in mind before deciding if crowdfunding is for you

You Don’t Have Control

One of the often talked about benefits of crowd funding property is that you don’t have to deal with the headaches of owning a property. However, it also means that you have no control and you are at the mercy of the management company.

You don’t get decide who rents the property, how much rent will be paid, who manages the property, and how much you will pay as the management fee.

While crowdfunding property development in the UK is highly regulated, the companies often retain the right to be able to borrow against the property without your consent if the revenue generated falls short of the running cost.

The consequence is that the value of your stake may fall rather than rise in the property based on the decision of the management and not just on market forces.

Risk with the Platform

The good news is that crowd funding property market is well regulated. However, If the platform folds, there is a risk involved. For sure, if the platform is honest, your investment is still protected in the property if the platform folds. But in the event of such, it won’t be that straightforward.

There will probably be thousands of people just like you trying to secure their investment or get back their money.

According to Council of Mortgage Lenders, it can be "risky, time-consuming, complicated and difficult."

Liquidity

So what happens if you have an emergency and need money tied up in the property urgently? Well, there is very little you can do.

Normally, you have access to a secondary market where you can find someone to buy your share. But short of that, there is very little you can do till a cycle is complete – usually 5 years.

Even if you find a buyer, determining the cost of your share is not straight forward. You can’t really know the value of a house until it is sold because 70% of houses sell below the listed price.

Even if the value is ascertained, there will still be a discount because the capital of the buyer is tied till the group decides to sell.

The question is, can you afford to take these risks?

There is no doubt that crowdfunding offers excellent advantages. But understanding these risks and planning accordingly will allow even a skeptic to get started on the right foot.

Investment in property comes with risks as well as the possibility of rewards. For more information visit here https://www.crowdlords.com/content/full-risk-disclosure