What to look for when investing in a property crowdfunding company

19/08/18  by GARETH BAIN

Over the last few years, Property Crowdfunding has grown in popularity as it finally allows individuals to invest in property with relatively small amounts of money. It is also an innovative way for a wide range of investors, with different risk appetites, to start investing their funds into a variety of projects. Most of these opportunities were previously only accessible through fund managers and venture capital firms.

Here are some tips on what to look for when choosing a Property Crowdfunding company:

What type of an investor are you and what platform is right for you?

Selecting the right platform is very important because there are many platforms out there offering different opportunities. It is essential not to be distracted by the high returns promised but rather to align your property investment strategy with the Property Investment Crowdfunding company. In addition, rather than being fixated on the returns, it is crucial to understand how the crowdfunding company protects your investment.

Whilst choosing a platform you should look for the different types of investment opportunities they offer investors. Does the crowdfunding company offer short or long-term returns? Are they low or high risk? How much do you need to invest to get started and what is their track record?

It is important to know what type of an investor you are. Ask yourself, ‘why am I investing’?

Once you know your preferred investment type it is time to choose a platform. There are well-known property crowdfunding companies that cover a whole variety of categories, but there are also crowdfunding companies that are available for niche industries. It is worth comparing and contrasting what different platforms can do for you, as well as figuring out which complements your ideas and investment the most.

Type of investment company

To find the best crowdfunding investment you need to make a choice between Debt Crowdfunding (also known as Peer to Peer) and Equity Crowdfunding. Debt Crowdfunding operates as a loan in which your funds are loaned out to a property developer for a fixed term and fixed interest rate. Equity Crowdfunding is an investment in exchange for shares or a stake of equity with investors receiving returns in the form of profit share.

Once you have decided what type of crowdfunding option is best for you, it is time to select the investment opportunity. Are you looking for vanilla buy to let or are you looking for something more exciting like property development? Each investment opportunity has its own risk and reward, so it is important to decide what is the best property investment for you to invest in. There are a variety of investment opportunities available in the market at the moment, some of which you may never have heard of or been given the opportunity to invest into. Property Investment Crowdfunding these days allows you to invest across the entire property risk spectrum from Buy To Let, Mezzanine Loans, Bridge Loans, Property Development and Planning.

What are the fees charged by the platform?

Fees vary, and all come down to the crowdfunding property company you choose. It is important that you research the fees of the different platforms to avoid surprises upon making an investment.

Pay special attention to how much it will cost for you to set up an account, invest your money, as well as the charges applied when your investment is returned. It also helps to know that a few platforms charge management fees, fixed fees, exit fees and small administration costs so it is recommended that you make a note of this before investing.

Fees can have an impact on your profits and in some cases, fees still apply event if your investment makes a loss. Ideally you want to invest with a company that doesn’t charge a management fee but rather co-invests and takes their share of the profit once a project has been successfully delivered. Find out in our FAQs, how Shojin charge no fees on their investments.
How are different crowdfunding platforms structured?

It is important to note that not all property crowdfunding companies are structured the same, with some acting like brokers, just connecting the investor with the whilst taking a fee. They act as a platform where property developers can post their properties and they present those properties to investors.

However, there are other crowdfunding property investment companies who conduct thorough due diligence on behalf of the investor to make sure that their investments are suitable before putting them on the platform. This extra step goes a long way in protecting the investor.

Is the crowdfunding platform regulated and secure?

Before choosing a property investment crowdfunding company, you need to ensure that they are regulated by the FCA (Financial Conduct Authority). The FCA is a financial regulatory body in the UK and operates independently from Government. Only ever invest with companies who are FCA regulated as they need to comply with stringent rules and regulations.

All reputable crowdfunding platforms should be secure, but it is advisable to check before making a transaction to ensure your investment is safe.

What happens in the result of a loss?

No one likes to lose money, so this is more of an exception However, in the event that this happens, how does the crowdfunding company react? Do they still charge fees? Do they make a loss themselves? Or do they say, ‘You should have done your due diligence’?

At Shojin, we put our money at a first loss position, so in the unlikely event that investors don’t receive their capital back, our investment will be affected before investors’. Investor protection is paramount to Shojin Property Partners, so we do everything possible to protect investors.

What is their track record?

With any property investment company, you want to make sure that they have a successful track record and they can do what they say they can do. Although a successful track record does not prove future success, it does show you that they are capable and have the necessary expertise. It is important that investors do not get carried away by the attractive returns presented to help sell each project.

Using a property investment crowdfunding company instead of investing yourself will provide you with many more opportunities, diversify the risk of your investment and deal with regulations and tax. Shojin Property Partners, makes it possible for you to earn returns comparable to that of a property developer whilst co-investing our own funds alongside yours in every project. We charge no management fees and since our interests are aligned, we present you with only the most attractive projects. To find out more about property investment crowdfunding, view our open opportunities today by registering here.