Crowdfunding for landlords

With house prices and rents buoyant, investing in buy-to-let property may appear an attractive proposition.

Traditionally, though, would-be landlords have needed a considerable sum of money to put down as a deposit on any purchase. On top of that, there is the responsibility of dealing with tenants and maintenance issues once a property has been bought.

But a new kind of crowdfunding investment service is allowing individual investors to dabble in buy to let without any upfront expense or ongoing hassle.

Over the past few years, online crowdfunding platforms have offered a simple way for individuals to join together to put money into new or fast-growing companies.

Now, however, businesses such as Property Partner, Property Moose and the House Crowd are taking the crowdfunding philosophy to the housing market.

Rob Weaver, director of investment at Property Partner, says his service lists individual properties with details such as photos, floor plans, a report and valuation from chartered surveyors, title report from lawyers and financial information such as predicted rental income.

"Investors can then choose to invest in a property with as much or as little as they like, starting from £50," Weaver says."When the investment is fully funded, they jointly own the property with any other investors."

Rental yields are then shared among the owners, as is any capital appreciation. The site charges an initial 2% fee of the amount invested and 15% of the gross rental yield is deducted to cover letting and management expenses.

Weaver adds: "The platform also enables investors to offer their property holdings for resale via a designated secondary market. However, investors should be prepared for a five-year investment hold period."

Not without risks

Property crowdfunding is not without its risks, says Bernard Clarke, a spokesperson at the Council of Mortgage Lenders.

"It remains a niche venture compared to the well-established buy-to-let market but is has shown the potential to grow rapidly, and clearly may grow further," he says.

"However, property crowdfunding has yet to be tested in all market conditions. In many countries, the property market typically goes through cyclical variations. Given the size and relative lack of development of a market so far in property shares created by crowdfunding, it is not clear that it would always function effectively in a downturn."

Weaver adds: "Property Partner does not remove any of the risks that you would be exposed to if you acquired a buy-to-let property directly and outright.

"The value of your investment may decline for a number of reasons, such as a fall in the underlying value of the property or a problem with the property that will need to be funded from future rental income."

Clarke says investors should consider how they might be affected if the company running the platform gets into financial difficulty, or even fails altogether.

"Property ownership can be ringfenced, and it may be possible to set up a new body to administer the property on similar terms," he says. "Failing that, the property could be returned to those investors who own shares - but that could prove to be a difficult, time-consuming, complicated and risky exit strategy."