Why Are More People Investing Through Property Crowdfunding Platforms?

More people are choosing to invest in property via property crowdfunding platforms.  Why?
This article outlines a number of reasons that make investing through a platform an attractive alternative to traditional property investments:

  • Investing in property via a platform offers ease, diversification and efficiency
  • Property crowdfunding platforms lower the minimum investment limits typically associated with vanilla residential properties and provides scope to invest in more exotic commercial properties
  • Investments through property platforms avoid recent tax changes that effect buy-to-let landlords
  • Investments may be able to be sold on the secondary market

Property investments made via crowdfunding platforms are simple
Investments made via a platform do not require an individual investor to raise debt to fund projects, this is because the platform operates as an aggregator for investors. Individual investors no longer have to raise funds from a bank and all administration is carried out by the platform and asset manager; this leaves the due diligence to the experts and the investment to you, the investor! Also, with the ability to manage online, research provides the information needed for a straight forward investment decision.

Diversification is effortless
Diversification across property investments can help to de-risk your portfolio, with the aim of producing a more reliable monthly income. Property markets span a wide array of sub-markets, each with their own driving factors. Diversifying investments across sub-markets for property is easy through a crowdfunding platform because investors can spread their investments– be that residential or commercial.

Investing in property is highly efficient
Aside from the ease and resultant time saved, platforms allow investors to purchase a share of a larger property investment. For example, commercial investments are out of the reach for many individual investors as they often have very large minimum investment requirements. Additionally, as residential property prices on continue to rise, many individual investors are being priced out of the market for residential buy to let properties. However, as with more exotic property investments, crowdfunding platforms offer an entry into the market by aggregating contributions from other investors.

Tax implications
Recent tax changes have affected the profitability to new and existing investors in the buy-to-let property market. Previously Landlords have been able to deduct mortgage interest and other financial related costs from their rental income before calculating their tax liability. This form of tax relief is gradually being phased away between now and April 2020. After this time, landlords will not be able to deduct mortgage interest payments from their rental income – hence, this will reduce the profitability of their property investment. Fortunately, crowdfunding platforms can provide an alternative that is unaffected by the new tax changes. Please note, platform investments are often subject to dividend and capital gains tax instead of the often more onerous requirements of income tax.

Another advantage offered through property crowdfunding investments is flexibility. Investments through property crowdfunding platforms are more flexible as investors may be able to exit through a secondary market. Once opened and assuming there is an adequate pool of buyers on the secondary market, investors can sell all or part of their stake in property investments and leave early. This not only reduces liquidity issues for property investors, but adds extra opportunities for other investors that wish to invest in properties that have already been fully funded.

In conclusion
More people are shunning traditional property investment strategies and turning towards property crowdfunding sites to invest in property. The attraction is clear, this new form of investing offers substantial benefits over traditional property investments. People like ease, diversification, efficiency, low minimum investment options, access to commercial investments, tax efficiency and the new flexibility offered by a secondary market of property investment buyers and sellers.