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Generally considered a relatively safe bet as a long-term investment prospect, the UK real estate market has traditionally been out of reach for most. Enormous house price growth over recent years has priced the vast majority of would-be investors entirely out of the market.
This is something that could be set to change, with the advent of real estate crowdfunding. Formally introduced back in 2012, property crowdfunding has come into its own as of late on the back of several recently established online platforms.
Predicted for enormous growth over the course of the next five years, real estate crowdfunding could turn out to be the next big thing for the property investments sector in the UK.
What Is Real Estate Crowdfunding?
Real estate crowdfunding uses the ‘strength in numbers’ approach to property investments; rather than a single investor purchasing a property outright, an extensive group of investors effectively join forces to invest in property development projects.
Those taking part are able to choose how much they invest, with the option of spreading their investments across multiple projects if preferred. Unlike traditional real estate investments, property crowdfunding is open to just about anyone wishing to take part, with a low minimum buy-in of less than £1,000.
Potential returns vary significantly, in accordance with the nature of the project and the amount invested, however, data from 2020 suggests that even with the complications of the Coronavirus crisis, the average property crowdfunding return last year was a generous 8%. In addition, up to 95% of beneficiaries taking home this high ROI were passive investors.
The appeal of property crowdfunding is therefore understandable both for established investors and newcomers alike. Along with the prospect of high annual returns, little to no knowledge of the real estate sector is necessary to back a property development project this way.
The Benefits of Real Estate Crowdfunding
Aside from the potential to take home a generous ROI, the main point of appeal with crowdfunding is the comparatively low minimum buy-in. Depending on the platform chosen, it is often possible to back projects with as little as £500 or even £100. This provides even entry level investors with the opportunity to create a diverse investment portfolio.
Real estate crowdfunding can also be a comparatively low-risk investment opportunity, as it steps away from the ‘all eggs in one basket’ approach to real estate investments. There is also no shortage of property investment opportunities available, or dynamic online platforms as quick and convenient entry points.
Of course, there are also risks to factor in when considering any form of investment. Real estate crowdfunding is no different, where potential losses cannot be ruled out of the equation.
The simplicity, affordability and scope for diversification makes crowdfunding an appealing option for investors at all levels. Particularly when approached with the help and support of an experienced broker, it can be a great way of accessing one of the UK’s most desirable yet traditionally out-of-reach sectors.
