Crowd funding is safer than Buy-to-let, right! – Property Rant 052

Crowdfunding has become an established choice for co-investing. It represents a true hands off investment but does it really stack up to the claims being made. Do hands off mean better returns?

The key to success in crowd funding is knowing that crowdfunded property isn't any different to normal buy to let property. The fundamentals don't change… watch the video and be forewarned.

Video Transcription:

Hey guys, Property Search... Think Gladfish. So a great question today. Is crowdfunding safer than other forms of investment?

I'm Brett Alegre-Wood and this is Property Rant.

So it's a great question because crowdfunding is starting to come into its own. There's so many platforms out there, and the interesting thing is I actually looked at buying a couple of platforms early on in the very early days and getting involved with it. And I actually, in fact, registered company name and I started to go through it. And I've got a lot of experience in that field. I've actually written a book about it, you know, you can jump online and get. But the interesting thing is, and I think the fundamental thing here is crowdfunding is actually no different than what's been going on.

So what I mean by that is the principles that apply to good property investment and knowing which development will work and which one won't is exactly the same. The only question with crowdfunding is how it's funded.

So normally, if you think traditionally, what we do is I come along and I've got 100,000 bucks and I take that 100,000 bucks and I go to the bank and say, "I've got this level of deposit. Lend me 500,000 bucks." And they take a first charge on the property and I go and buy it and I build it and do whatever I do. And at the end, hopefully, I sell those flats off and I take a return back. They've taken interest, I get the rest in return. All we're doing here is we're going onto a crowdfunder for the money. Now, either for part, the initial deposit, or for the main chunk of the senior debt. So either or, there's lots of different varieties and I'm not going to get into all of them, but the fundamentals remain the same.

The risk that I see, and this is one of the scary things that I see right now, is the level of detail. People think that because it's on a crowdfunding site, they can just put their money in. It says 10% they're going to get, and they're just going to get it. Well, actually that's not starting to happen. So what we're having now is a few deals that don't quite come off how they should. Perhaps they didn't make their money back. Perhaps they don't pay the interest or the expectation of profit that they want to make.

So the stories are now starting to trickle through. Even with the regulation, and there's a lot of things you need to go to. And the reason I didn't jump into it, because actually I think there's other ways you can do it. I love crowdfunding, make no mistake. I love the concept of it. I think banks really aren't servicing how they should or how they're set up to. I think there's way too much emphasis on big business and not small business, and I love crowdfunding is really focusing on those smaller projects and that small business. But it also attracts the type of deals that can't get normal financing through a normal bank. It's attracting those type of deals. It's not...and this is a general thing.

And all I'm saying here is I don't think crowdfunding is better than any other form of investment. They are exactly the same. The same rules apply to the game. They still have to build them. They have the risks of the actual land if you like, or below the ground. They got the risk of the build. They got the exit program they got to do. So all same risks are still there, it's just that you...and what may suit you is you don't have to get involved in owning the property. You own a share or you loan money.

So it's different from that perspective, but the risks are exactly the same. If a developer's building there and didn't make a profit and they funded it through a bank and they did exactly the same project here but funded it through crowdfunding, they're not going to make a profit. The difference is is where is the first charge sitting? It's probably with the senior debt. It may not be with you, depending on the structure. So just be aware, it's not any different doing crowd funding as to other stuff.

The risks are relatively same. There's a couple more risks, obviously, there's a lot of people involved. You have no control over it, whereas with a normal property investment, you do. So just something to think of. Crowd funding, it's getting bigger and I hope it continues to get bigger. I hope the government doesn't clamp down and so it becomes unprofitable for these platforms. I hope that we really get a flourishing crowdfunding, crowd sourcing, crowd economy going in the UK and across the world, in fact. And it is, which is great.

Okay guys, have a great day. Live with passion.

Brett Alegre-Wood
April 26, 2017

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