CrowdLords: invest in buy-to-let without a mortgage
Crowdfunding site offers new way to invest in property.
CrowdLords is a crowdfunding site which offers people the chance to invest in property, whether as a landlord or simply as a hands-off investor.
Let’s take a closer look at how it works.
How it works for landlords
CrowdLords offers landlords the chance to raise funds for a property investment without having to go to a bank and take out a buy-to-let mortgage. Instead you rely on crowdfunding to get you the cash you need.
You identify the property that you want to invest in. This may be a standard purchase, but CrowdLords will also look at things like developments and refurbishments.
You’ll need at least £5,000 of your own money to invest. You then meet up with the team at CrowdLords to discuss the property and the terms of the investment. It’s up to the landlord to work out what percentage of the rental income and capital growth of the property to offer the investors.
CrowdLords will then visit the property and value it. If it is happy with the project, the investment will then be listed on the site for investors to put their money into it. Properties can be listed as ‘open’ or ‘trial’. An open property means the investment is live, so investors can commit their funds immediately. Trial means that investors can express an interest, but do not commit their funds yet.
Once the target is reached, the money will be pooled together and put into a Special Purpose Vehicle (SPV) which purchases the property. An independent director will be appointed to oversee the SPV. Both the landlord and the investors then have shares in the SPV.
The landlord is responsible for sourcing tenants, covering maintenance and running costs and whether or not to appoint a letting agent.
How it works for investors
Before you can invest, or even set up a full profile with Crowdlords, you need to complete a one-off assessment to ensure you actually understand the risks involved.
These are multiple choice and include questions like “Which of these is the best method to use when investing?” with the possible answers of invest all of your money into a single investment or spread your risk by investing in multiple investments.
Once you are approved, you can browse the investments to see if any take your fancy. You’ll need to invest a minimum of £1,000.
How do the investments work?
Each investment covers a set term, say three years. The investor will benefit from a slice of the rental income over this time (so long as the property is occupied) which will be paid as a quarterly dividend.
At the end of those three years, the landlord can continue by relisting the property on CrowdLords or sell the property on the open market. The investor will then get a slice of that cash, so long as it has increased in value. These exact percentages are all laid out for each investment at the beginning.
If it is decided that it’s not a good time to sell the property, shareholders in the SPV can vote to extend the term.
If the landlord is not performing, the independent director appointed to the SPV can intervene to try to resolve any issues. There is even the option for the shareholders to vote for the landlord to be replaced.
The fees
There are a few fees to be aware of.
Landlords will be charged a £500 listing fee, while a ‘success fee’ of 5% of the total amount of investment capital raised is also charged.
There is a ‘handling fee’ of 1% of all income paid out to shareholders, as well as a 10% ‘investment fee’ on the capital gain of the property being sold. This is only taken if the property investment is actually profitable.
How safe is my money?
As with any investment, your money is at risk, whether you’re a landlord or just an investor. It may be that the landlord struggles to fill the property or that the value of the property doesn’t grow as expected.
All of the figures on projected returns are just that – projections. Absolutely nothing is guaranteed. These projects should definitely not make up the bulk of your investing strategy.
CrowdLords says that it only allows investments to appear on the site if the project has been fully assessed and considered to be a suitable investment. It meets with each landlord to understand their background, experience and motives.
There is a section on each investment with details about the landlord. Each investment offers the chance to ask detailed questions of the landlord. I'd definitely make full use of that facility. After all, you are investing in the landlord themselves as much as the property.
It should also be pointed out that CrowdLords is not currently authorised by the Financial Conduct Authority, though it says it is currently seeking that authorisation. In the meantime it is working as an appointed representative of Oxygen Ventures, a firm which works as a ‘regulatory umbrella’ for start-up companies within the financial services sector.
This loveMONEY article has been updated
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