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Alternative Property Investment for Beginners UK

Written by Posted On Thursday, 14 March 2019 09:42

There are thousands of different companies out there all promoting different ways to invest in property. Buy-to-let has been one of the most popular investment schemes of the last 20 years thanks to its ability to regularly provide high profits to those willing to do the right research.

It is very easy now for individuals with the right amount of money to watch it grow through simple buy-to-let portfolios. If you do the leg work and investigate the UK’s top property management companies, you don’t even have to do the work yourself.

But what do you do if you don’t want to risk such a high amount of money? Or what if you don’t have enough money to invest in property directly?

There are still plenty of ways that you can invest in the property market with a smaller amount of finance. The problem is finding and then differentiating between the options available. Many alternative investment opportunities sound different but are essentially the same thing and others sound similar but are completely different.

To add to the issue further many companies offer projects under an investment category that is slightly different to the definition of the category itself. This can cause confusion and frustration if you are new to investing and doesn’t even start to look at the pros and cons of each category or project. That’s why this article will be dedicated to solely exploring the different investment opportunities relating to property.

Property Crowdfunding Pros and Cons

Property crowdfunding is a way in which property developers or investors can help to finance projects through short-term contributions from a large number of individuals, a crowd. This has the opportunity to financially benefit all the parties involved.

Property crowdfunding is typically done through a third-party platform or website acting as a middle man. This third-party will typically be the company that helps to source the investment opportunities.

These companies are difficult to start as investors won’t be interested in a crowdfunding platform that doesn’t offer them a range of strong investment opportunities. However, without a que of potential investors, good opportunities are difficult to find.

Once this problem is solved, they will then take a small fee out of the profits for connecting you and managing the investment opportunity. UK Crowdfunding loans are one of the best ways to grow your finances.

Pros of Property Crowdfunding:

  • Anyone can invest in Property Crowdfunding – The minimum investment can often be as low as £100. It has become one of the ways that many people have been able to increase their savings or diversify their investment portfolio.
  • They do not need to be checked every day – Unlike the majority of other investments, they are not particularly vulnerable to the volatile fluctuations of the stock market.
  • Property Crowdfunding doesn’t need experience – While having an eye for good assets and liabilities to either invest in or ignore is definitely going to be helpful, it is not essential. Unlike other investment opportunities, you don’t have to have an extended resume in either property or investing.
  • Property Crowdfunding is a great way to diversify your portfolio or spread risk – The low minimum amount number means that you can make lots of small investments in property projects with high returns.
  • Strong Return on Investment – It is much easier to increase your finances through property Crowdfunding than it is through leaving it in a bank account.
  • Property Crowdfunding Supports UK Businesses – Your investments can also help to boost not only the UK investing community but can help the UK economy as whole through supporting SME’s.

Cons of Property Crowdfunding:

  • Your Capital is at Risk – Just like with all other investments, there is a chance you will lose all your money. Fortunately, the impact of this can be minimised through risk spreading across multiple opportunities.
  • Unsellable Assets – If you were the sole investor in a property and you couldn’t sell it immediately it wouldn’t be an issue. However, with crowdfunding, if something goes wrong with the property your investment could take a significant hit.
  • Lack of Direct Access- You can’t just turn up and check on tenants or monitor its continuous state. You have to put complete trust in the company or individual you invested with.
  • Lack of Control – Depending on the investment model, the platform you are using may mean that decisions are made through a majority vote.

What is the Difference Between Crowdfunding and Peer to Peer Investing in Property?

Peer to peer lending has a number of features that make it almost identical to crowdfunding. If you ask the question ‘What is peer-to-peer lending?’ You will be provided with a description that is not dissimilar to the one above that talks about crowdfunding.

Peer to peer business lending platform, Huddle Capital, offer various property investments to their members. In their business model, peer to peer lending and crowdfunding take on the same definition as all the projects they offer consist of the raw essentials – both allow property projects to be invested in through their service. In this sense the P2P model Huddle Capital use allow it to fall under the category of crowdfunding.

This changes specifically with the type of project. This is because in property-based peer to peer lending the investors don’t typically own shares in the project, the money invested acts more like a loan.

However, in crowdfunding, there are two main types to consider – reward-based and equity-based investing. Reward based crowdfunding isn’t something worth looking at for people looking to grow their finances, as it acts more like a sponsorship deal. Companies provide investors with a reward that isn’t usually of direct monetary value.

The other main type of crowdfunding is equity-based and works similar to a share style system. This is where the similarities overlap with Peer to Peer Lending for property-based projects.

With this type of crowdfunding investors are provided with shares in a business in exchange for an investment. Similar to how investing is shown to be on the show Dragons Den. This is different with property crowdfunding as you are essentially buying shares in the property project, rather than the company itself.

As a result, some companies have resorted to offering another form of alternative property finance.

Property Share and Loan Investing

British Pearl is just one of the companies that allows its customers to both invest in property shares and offer loans to property owners.

British Pearl offer numerous ways for investors to grow their finances, specifically through property backed investments and are the first platform to allow users to choose the specific property they want to invest in.

What is Property Share Investing?

Property share investing is incredibly similar to peer to peer lending. As a property share investor you will typically be investing in an already constructed property and your money will go towards purchasing a property for buy-to-let. You will receive monthly rental income based on shareholding and a profit share of any sale income from the property.

There is also an option available to invest in development properties with there being a sale after 2 years. The breakdown and profit share mean that while there is a good potential to make a lot of money and some high returns, if the property decreases in value you will lose part of your investment.

What is Property Loan Investing?

Property loan investment is a safer investment than investing in shares. While it also provides monthly returns, it is a competitive fixed interest rate based on the original investment, as opposed to a share of the monthly rental income.

You won’t receive any profits if the property rises in price, so the overall returns are not as high as any of the other previous investments mentioned. However, the return on interest is fixed and are safer. It has a number of similar features to a property investment bond.

 

Property Investing – Overall:

Remember, no matter what property investment strategy you settle on, you are always at risk of losing part or all your investment. Nothing is certain. Therefore, make sure you calculate the best method for you and only put in money that you are prepared to lose. Be careful and thoughtful in all of your investments. Ensure you conduct research and regularly keep and eye on potential market fluctuations with good exit strategies in mind.

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Josiah Harris

A journalist who specialises in following and analysing real estate market trends. Josiah creates detailed reports on the industry which are used by highly respected news publications. 

 

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