Is crowd funding a useful tool for property investors?

The last couple of years have seen a number of crowd funding websites appear targeting property investors. In simple terms crowd funding is an interesting way in which investors/developers can raise funds and small investors can take a relatively small stake in a number of different ventures. The press have been covering some of the more successful crowd funding property investors/developers and it has certainly caught the attention of many individuals.

Is crowd funding safe?

As with so many new ventures and new services the safety factor associated with crowd funding websites in general has increased dramatically over recent times. Investors are certainly becoming more savvy and demanding detailed information which is signed off by qualified professionals. In some ways property investment by the crowd funding route is relatively straightforward, you buy an asset with a rental income and the potential for capital growth. It is a little more complicated when you start buying a share of a property company itself, as opposed to individual properties, but in theory it is relatively straightforward.

What are the benefits of crowd funding?

This particular avenue offers property investors the full range of property opportunities taking in potentially high risk investments to those which are well backed by rental income but offer limited capital growth. It will obviously be up to the individual as to what type of risk factor they wish to go for and indeed how much of their funds they allocate to individual property crowd funding projects.

In simple terms crowd funding offers investors the chance to buy shares across a number of different investments thereby reducing their risk and hopefully maximising their long-term capital gains. It is also right to say that some of the projects which emerge via the crowd funding scene may not have been able to raise sufficient funding via traditional routes, because of a number of factors including limited exposure to investors.

Liquidity and exit routes

When looking at any crowd funding investment, indeed any investment in general, not only do you need to look at the value for money when you enter the investment but also potential exit routes and liquidity. It is one thing buying into an investment at an attractive valuation but what happens if you need your funds at relatively short notice? Is there a liquid after market? Is there a potential exit route?

This is a situation which some of the early crowd funding investors have found themselves in, locked into in theory lucrative investments but not able to crystallise their profits and withdraw their funds. These issues will be covered within the terms and conditions of the more trustworthy crowd funding property projects and it is vital that you do your research not only on the underlying investments but the terms and conditions of any involvement.

Conclusion

There is no doubt that crowd funding has changed the investment arena right across the board and is proving particularly popular for those looking to raise funds for property projects. However, while this particular type of funding offers the opportunity to create a spread of investments which would otherwise be unattainable for many people you need to have your eyes open and do your research before committing any funds. It is great having the best investment in the world on paper but this is no good to anybody if you are unable to crystallise your profit and cash in your chips.