Crowd funding buy to let houses

cells

crowd funding of marginal deposits would be a more useful use of money, I think the banks and regulator would say no but they can change their mind.

For instance say someone only has a 10% deposit and they are going to borrow £100,000 at 5%. If a crowd funding lends them 10% (or £10k) so that this person can buy with 20% down. They could then borrow £90k at say 3%

The benifit of this crowd funding is taking the interest from £5k pa down to £2.7k pa.

Such a borrower could afford to pay the crowd funders upto £2.3k pa for their £10k loan or 23% return a year. Of course in reality both parties would want to keep some of that saving else why do it.

So instead maybe they could offer the crowd funders 10% return on their £10k loan which would reduce their interest bill by £1.3k


I think this sort of arangement takes place in private equity. Where they fund various rungs of an investment and charge various amounts for each portion

cells

chucknorris wrote: »

I think Padington is onto something here, as soon as I get through the pile of marking that I have to do (which I hate, which is why I am at my keyboard rather than in the study), I'm going to look into it.

crowd funding should move into providing the finance for mortgage deposits. of course with the safety and risk management being that its only for people with good jobs/incomes

They put 5% down, the crowd puts 15% down and the borrower goes to a normal bank and gets a 20% down mortgage at a good rate rather than a 5% down at a poor rate.

the problem with mortgages are that they are so cheap 2-3% that its almost not worth chasing that market. But the crowd could demand more than that as they are taking on more risk than the bank and the arbitrage between the high rate on 95% of the mortgage vs a much cheaper rate on 80% of the mortgage.

chucknorris

cells wrote: »

crowd funding should move into providing the finance for mortgage deposits. of course with the safety and risk management being that its only for people with good jobs/incomes

They put 5% down, the crowd puts 15% down and the borrower goes to a normal bank and gets a 20% down mortgage at a good rate rather than a 5% down at a poor rate.

the problem with mortgages are that they are so cheap 2-3% that its almost not worth chasing that market. But the crowd could demand more than that as they are taking on more risk than the bank and the arbitrage between the high rate on 95% of the mortgage vs a much cheaper rate on 80% of the mortgage.

I was thinking more from being the facilitator rather than from the investor side, I haven't looked at it in any detail, and I don't know what regulations would become obstacles, they would probably kill the idea. But what I was thinking of was, maybe instead of traditionally selling our properties, we could sell % of them annually over a period of time to a company set up to offer properties for crowdfunding. Similar to these ones (which I have only glanced at by the way, I'm too busy and shouldn't really be on here either):

https://propertymoose.co.uk/properties

https://propertypartner.co/

I know that it is pie in the sky (so very much daydreaming rather than actually believing that it is possible to achieve at the moment), but just maybe, it might be possible. I can see potential substantial savings in estate agents fees and possibly CGT (although we do tend to use our annual allowance for bed and breakfasting shares, so maybe not much scope there), as well as possibly reasonable profit from the admin side.

cells

I think you are just descirbing a property company and owning its shares.

putting properties into a company and then selling the shares in the company to investors?

why not just get a load of investors, say 100 of them, they buy 10 shares each for £1k a share = £1m in capital. Then go out and buy say 5 flats in inner London (mortgaged to 60-65%) or 2 flats unmortgaged. Pay out in dividends monthly or quarterly any net rent.

Some investors, instead of putting money into the company in return for shares could potentially put property into the company in return for shares. So if its £1k a share if you put a £500k property into the company you get 500 shares in return.

I thought this would potentially be a good way to start a residential property company. If the company was big enough to be a FTSE 100 I would hand over my properties in return for shares as I am sure a lot of older landlords would. However at the beginning stages the problem would be one of trust so I cant see it being possible unless one big investor (or a handful) jump started it towards a £100m cap company and it could move on from there.

Graham_Devon

One of the biggest problems with Crowd Funding for property investment, according to Forbes is that you not only take a gamble on house prices themselves, but you also take a second gamble on the crowd funding platform itself.

So, essentially, if you have a scenario where house prices fall and you want out, you will need someone to buy your portfolio off you. If prices are falling, people are less likely to take part in crowd funding (or lose confidence in it altogether). So you become a little stuck. it's a bit of a double whammy in terms of needing to sell a niche product as the price is falling.

Secondly, you have no voting rights, so if the platform decides to pull the plug either on the fund itself, or several parts of that investment you only get a share of what's left after costs. The risk is put implicitly on the investors. Easy to lose your shirt, and you are hardly making a normal investment into property, it's just another fund at the end of the day where the fund owners and managers are covered.

chucknorris

cells wrote: »

I think you are just descirbing a property company and owning its shares.

putting properties into a company and then selling the shares in the company to investors?

why not just get a load of investors, say 100 of them, they buy 10 shares each for £1k a share = £1m in capital. Then go out and buy say 5 flats in inner London (mortgaged to 60-65%) or 2 flats unmortgaged. Pay out in dividends monthly or quarterly any net rent.

Some investors, instead of putting money into the company in return for shares could potentially put property into the company in return for shares. So if its £1k a share if you put a £500k property into the company you get 500 shares in return.

I thought this would potentially be a good way to start a residential property company. If the company was big enough to be a FTSE 100 I would hand over my properties in return for shares as I am sure a lot of older landlords would. However at the beginning stages the problem would be one of trust so I cant see it being possible unless one big investor (or a handful) jump started it towards a £100m cap company and it could move on from there.

No I am talking about more or less what you are talking about, but on a smaller scale. We would own the company but the investors would own the properties (not the company).

cells

chucknorris wrote: »

I was thinking more from being the facilitator rather than from the investor side, I haven't looked at it in any detail, and I don't know what regulations would become obstacles, they would probably kill the idea. But what I was thinking of was, maybe instead of traditionally selling our properties, we could sell % of them annually over a period of time to a company set up to offer properties for crowdfunding. Similar to these ones (which I have only glanced at by the way, I'm too busy and shouldn't really be on here either):

https://propertymoose.co.uk/properties

https://propertypartner.co/

I know that it is pie in the sky (so very much daydreaming rather than actually believing that it is possible to achieve at the moment), but just maybe, it might be possible. I can see potential substantial savings in estate agents fees and possibly CGT (although we do tend to use our annual allowance for bed and breakfasting shares, so maybe not much scope there), as well as possibly reasonable profit from the admin side.

good idea but these ideas suffer from high overheads and liquidity and poor price discovery when small.

If they could grow it substantially to reduce all of those negatives it could take off.

Its interesting that they have split properties into 1 million shares and seem to be doing it on an individual property basis (although some of the properties are multiple flats)

I would rather a system that pools a lot of properties together. So a thousand properties in a company with a million shares. 1 share = 0.1% of an average a property.

A big landlord with homes in a self running company could perhaps do this but its going to have to be a decent size ideally 1000 properties +

chucknorris

cells wrote: »

good idea but these ideas suffer from high overheads and liquidity and poor price discovery when small.

If they could grow it substantially to reduce all of those negatives it could take off.

Its interesting that they have split properties into 1 million shares and seem to be doing it on an individual property basis (although some of the properties are multiple flats)

I would rather a system that pools a lot of properties together. So a thousand properties in a company with a million shares. 1 share = 0.1% of an average a property.

A big landlord with homes in a self running company could perhaps do this but its going to have to be a decent size ideally 1000 properties +

It needs a lot of thinking over, I can see the attraction of pooling the properties, as it reduces risk to the investors, but them having enough faith and trust might be a problem that needs overcoming.

When I get time I plan to see what all the various schemes offer see if a hybrid scheme comes to mind. At the moment I am treating it as an interesting scenario, I think all sorts of problems will come out of the woodwork that create obstacles.

abinanthanb

Why does this remind me of the all the highly traded fancy Derivatives stuff based on Mortgages that profited none but only the fat Bankers and the eventual housing market crash that brought the whole Financial System crashing down?!!!

cells

abinanthanb wrote: »

Why does this remind me of the all the highly traded fancy Derivatives stuff based on Mortgages that profited none but only the fat Bankers and the eventual housing market crash that brought the whole Financial System crashing down?!!!

securitisation is a good idea all it does is bundle mortgages and offer it to investors. the underlying risk is no higher or lower it just shifts the risk from the bank to individual investors which is a good thing because in many ways the state if it likes it or not has to stand behind its banking system while individual lenders (buyers of these securities) can go to hell