Many people have the drive and desire to develop a property, but few have the necessary finance to fund the level of acquisition and improvements required to make a profit.
Furthermore, going it alone as a property developer can be risky. One way you can spread the risk involved and obtain the capital required is through property development crowdfunding.
In this article, we discuss how property development crowdfunding works and the types of risks investors face.
What is property crowdfunding?
Property development crowdfunding is where a pool (crowd) of people put their money together to purchase a property for development or provide a loan to finance a property development project. Once the development project is completed, the returns, for example, rent payments or capital appreciation, are distributed between the multiple investors.
Is real estate crowdfunding safe?
All investments carry a degree of risk. However, property investment generally returns more than ISAs or savings accounts. This is because over the long term property values and rents tend to rise.
The risks related to real estate crowdfunding include:
- A lack of control – you must rely on a management team to ensure the development project turns a profit.
- It can be difficult to conduct due diligence on the property and/or development project
- The crowdfunding business may fall into administration
- It may be difficult to liquidate your investment if you need cash in a hurry
How is crowdfunding allowing new investors to enter the real estate market?
Entering into a real estate crowdfunding arrangement is extremely accessible thanks to the internet which has provided non-professional investors with the ability to access residential and commercial development projects. Crowdfunding platforms give investors direct access to pre-verified investment opportunities with low minimum investment criteria.
Get legal assistance from LawBite
Property development crowdfunding provides a relatively safe, easy way for anyone to invest in property development. However, there are risks involved, therefore, it is essential to seek advice from an experienced property legal expert. To book a free 15 minute consultation with one of our team, just click ‘Get started’ below.