Buy to let crowd funding how it works
It has become harder to get a mortgage on a house over the last couple of years as banks and building societies have been forced by the Bank of England to tighten up their lending policies. This has had a direct affect on first time buyers and investors that want to buy a second home as a buy to let. Whilst many believe that the Bank of England's policy is a good one it has meant that there are a lot of people that will not be able to share in the newly buoyant market and has pushed the dream of home ownership beyond the swathes of would be homeowners.
The increasing financialistion of the housing market and the internet has now made it possible for some of these buyers to share in the nations prosperity by investing in bricks and mortar indirectly through a crowd funding scheme. Unlike a bank buyers are able to bypass the usual intuitional controls that are presented by the UK's bans and building societies. You will not be able to live in a property that you invest in but you will be able to take a share of any profits that are made on rent and capital appreciation.
So What Is Crowd Funding?
There are various websites that offer a crowd funding service. These companies will pool together a number of investors to fund a company for the sole purpose of investing in a property. A property company will be set up and investors can invest in this scheme. The amount will depend on the way the scheme is structured and you shares in the company will be invested in the equity of the property the fund buys.
Whilst you will invest in the fund a fund manager will charge the fund a fee which you will need to consider carefully. The fund manager will can take a share of the rent collected and/or a share of any capital appreciation. As will all of these types of schemes care should be taken to read through the small print as there will no doubt be some funds that charge more in management fees than others.
Regulation Of This Market
It is very important to note that whilst the Financial Conduct Authority (FCA) regulates this market it is still a growing industry and many aspects of it are not regulated by the FCA. The FCA regulates the buying and selling of shares but doesn't regulated the buying and selling of property. As with many emerging industries the regulators are trying to catch up and ensure that good practices and due diligence are adhered to. With this in mind some may consider these funds could be open to some abuse and could therefore be a risky activity.
You should consider that fund managers will be responsible for the purchase of properties, the management of a property portfolio, the surveys of buildings and much much more. It is fair to say that a fund manager may understand the workings of fund management but is unlikely to be skilled with the maintenance of a property fund.
There is a push towards further regulations of these property funds particularly be in the European Union and this is likely to be forthcoming over the next few years particularly as scams are exposed as is often the case with under regulated markets.