Crowd funding buy to let houses

mayonnaise

That's amazing.
On the property ladder for as little as £10!
There now can be no excuse for anyone not to be on the property ladder and partake in a good dose of HPI.

From earlier posted link:

Many young people complain that owning property has become the preserve of those from affluent families, because no matter how hard they save towards a deposit rising prices undermine their efforts. But if what money they already have is invested in property, it can grow in line with the market. The extra investments that they can make should eventually produce a deposit large enough for them to buy a home.

michaels

mayonnaise wrote: »

That's amazing.
On the property ladder for as little as £10!
There now can be no excuse for anyone not to be on the property ladder and partake in a good dose of HPI.

From earlier posted link:

The advantage being that such an investment atually provides a hedge - property prices rise making a house more expensive the investment increases in value, the investment falls in value, so have property prices so again the ftb has not lost out.

padington

Its possible it could become an new turbine for generating funds to build houses which could be an interesting development.

No doubt lots of people will be conned and lose money before this new market place establishes itself though.

chewmylegoff

cells wrote: »

What is needed is a residential ETF

An ETF being a fund that buys or sells the underlying asset. An example might be a gold ETF where one share equals one ounce.

of course normally ETFs can only be done with fungible assets like copper grain gold shares etc but with a big enough pool of homes you could get close with residential property.

The huge advantage of a property ETF would be a decrease in transaction costs which are now very high. For example if I wanted to buy a million pound home and you wanted to sell that to me we together would have a transaction cost in excess of £50,000

If however I and you did that via an ETF we would only have to pay the 0.5% shares fee or just £5,000 transaction.


A geared ETF of 4x would be ideal. It would be like buying a BTL with a 25% mortgage. The gearing further reduces the transaction fees and in this example we woupd only pay £1.25k transaction fee rather than £50k

Of course this assumes that there is somewhat of a balance between sellers and buyers. If the ETF has many more buyers than sellers the ETF would see the same transaction costs as it grows. Likewise if it shrinks. But overall it will be a decrease in transaction costs as there will be some biuers and some sellers all the time.


Other advantages include economics of scale and a much more hands off investment.

You would of course make 1 share not equal to 1 house but maybe 1% of one house. So a london ETF might have a share value of £5k and 100 shares equals one average London house.


I think such an ETF would very rapidly grow to maybe as much as 100,000 properties.


Edit. Almost forgot you can also put them into an ISA and get capital gains and divi tax perks too

This wouldn't work for a number of reasons. The main attractions of ETFs as a way of getting exposure to something is that they are low cost and can be readily bought and sold.

A residential property ETF would be high cost and would likely be extremely illiquid. Residential property would appear not to lend itself to the sort of investment you envisage because:

1) corporates have to pay 15% stamp duty to acquire a property worth more than £500k. The investors will have to pay this cost one way or another - the leverage providers aren't going to swallow it and therefore there is immediately an enormous up front disadvantage

2) ongoing costs are high as whilst you might be hands off the ETF will have an actively managed portfolio. Normally ETFs are passive and just track an index of some kind. Your residential ETF would need an active management team. That team would need to be incentivised to maximise returns for investors so you're going to have to pay them 20% of the returns in line with the industry standard for active management (on top of their management fee...). Furthermore whilst an ETF tracking the price of gold can arrange itself in a tax efficient manner - I assume they are incorporated somewhere in the Caribbean and then listed on the irish stock exchange or something, it doesn't matter where the residential property fund is located it will be exposed to UK taxes on its rental incomes because it is carrying on a business in the UK. Furthermore I think CGT now applies to foreign landlords.

3) the real problem though is that there is no readily obtainable reference price to value the underlying assets in order to facilitate the trading of the ETF units. Investors would in practice have little idea what the current value of what they were actually buying or selling was and therefore it seems likely that no-one would want to buy it or sell it.

residential property would appear far more suited to a private equity / venture capital type investment model to me with collective investment capital being raised and then committed and locked in for a significant period of time.

chewmylegoff

padington wrote: »

Anyone else think this might have serious implications for more up side in the market ?

I'm tempted to say it could be quite a game changer, culturally crowd funding In the UK is very popular and lots of people all over the world with saving might see this as a clever bet.

I predict the boom of booms (2012- 2024) coming our way, followed by the crash of crashes (post 2024).

You seem to think that everything is a game changer for the UK property market. Perhaps you should just enjoy living in the house you bought rather than trying to think up tenuous reasons why it might go up in value even faster.

My 2p on crowd funding websites is that they are likely to make the people who run crowd funding websites and the people raising money through them richer and the people who invest in the things they promote poorer.

Generali

cells wrote: »

What is needed is a residential ETF

REITs are a structure that come with substantial tax perks in most 'rich' countries regardless of the wrapper they are held in.

The 'catch' is that they need to distribute (normally) 90% of their net income to REIT holders. That can simply be reinvested of course if you are holding for capital gains rather than income.

I don't really see how you could have a sensibly structured residential housing ETF as the underlying asset is too illiquid for T+2/T+3 settlement as demanded in most markets. You could of course create a synthetic ETF but then you have the problem of a mismatch of assets. What happens when the value of the underlying asset used as security falls but the value of houses goes up?

ging84

how does this differ from putting money in a property fund?
are they crowd funding the deposit and convincing a bank to give them a mortgage? If not seems pretty pointless

cells

chewmylegoff wrote: »

This wouldn't work for a number of reasons. The main attractions of ETFs as a way of getting exposure to something is that they are low cost and can be readily bought and sold.

A residential property ETF would be high cost and would likely be extremely illiquid. Residential property would appear not to lend itself to the sort of investment you envisage because:

1) corporates have to pay 15% stamp duty to acquire a property worth more than £500k. The investors will have to pay this cost one way or another - the leverage providers aren't going to swallow it and therefore there is immediately an enormous up front disadvantage

2) ongoing costs are high as whilst you might be hands off the ETF will have an actively managed portfolio. Normally ETFs are passive and just track an index of some kind. Your residential ETF would need an active management team. That team would need to be incentivised to maximise returns for investors so you're going to have to pay them 20% of the returns in line with the industry standard for active management (on top of their management fee...). Furthermore whilst an ETF tracking the price of gold can arrange itself in a tax efficient manner - I assume they are incorporated somewhere in the Caribbean and then listed on the irish stock exchange or something, it doesn't matter where the residential property fund is located it will be exposed to UK taxes on its rental incomes because it is carrying on a business in the UK. Furthermore I think CGT now applies to foreign landlords.

3) the real problem though is that there is no readily obtainable reference price to value the underlying assets in order to facilitate the trading of the ETF units. Investors would in practice have little idea what the current value of what they were actually buying or selling was and therefore it seems likely that no-one would want to buy it or sell it.

residential property would appear far more suited to a private equity / venture capital type investment model to me with collective investment capital being raised and then committed and locked in for a significant period of time.

some points

it would clearly be more difficult than gold or shares etc

the 15% stamp duty for homes in corporations does not apply for homes that are rented out which these would be. The standard stamp duty would be paid invested directly or through this structure

Just using an example and round figures just to keep it simple.
Imagine a fund with 20,000 homes worth £0.5m each to make it a £10B fund.

Lets say its £3B equity £7B debt financed at 3.5%
Rental income is £500M a year, debt interest is £245M. Maintenance probably £100M. Leaves some £150M a year for management fees and other overheads and probably some left over too. Probably need in the region of 50 staff but most of them would be simple office staff not £10m a year fund manager closer to an estate agent type outfit



anyway thinking about it a bit more, a pure residential geared REIT would be close enough.

cells

Generali wrote: »

REITs are a structure that come with substantial tax perks in most 'rich' countries regardless of the wrapper they are held in.

The 'catch' is that they need to distribute (normally) 90% of their net income to REIT holders. That can simply be reinvested of course if you are holding for capital gains rather than income.

I don't really see how you could have a sensibly structured residential housing ETF as the underlying asset is too illiquid for T+2/T+3 settlement as demanded in most markets. You could of course create a synthetic ETF but then you have the problem of a mismatch of assets. What happens when the value of the underlying asset used as security falls but the value of houses goes up?

I don't know how it can be done but I know it can be done and done better than what we now have

Currently to invest in residential property you do...

Have money to invest
Find property
Buy property
Let property
Manage problems
Maintenance and upkeep
Hold property-Re-let-property multiple times
Sell property some years later

The downside to that process is many....
Lots of time invested, high transaction costs, and a very inefficient business if you are a small landlord with a handful of properties and often simply not a real professional as its a part time job if that...


The process should be far simpler and far more liquid if you want to invest in residential property

Have money to invest
Buy financial product
Sell financial product


As far as I know that does not exist today. But it can because about two million tom !!!!!! and harry do it part time.


so what is the solution?

cells

Maybe a normal REIT but one which buys and sells its own shares?

It places a sell order for £100 million 5% above the market value of its properties (and therefore its share price) and a buy order for £100 million 5% below the market value.

Investors can buy or sell its shares as they like. If there is a big buy order and it triggers the sale of £100 million worth of stock the company goes out and buys 2000 London homes that month (before placing another £100 million sell order 5% above its value). The reverse can also happen and homes sold to cover the purchase of shares

So a REIT that expands and contracts by upto £100m a month.
Gear it up with 75% debt 25% equity and it would be like buying a BTL with a 25% down mortgage.