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Is a firm bringing together property investment and crowdfunding any good?

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Foot on the property ladder for £1,000?: Is a firm bringing together prope...

http://www.thisismoney.co.uk/money/mortgageshome/article-2115887/F...

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By Emma Lunn PUBLISHED: 08:20 GMT, 19 March 2012 | UPDATED: 09:15 GMT, 19 March 2012

House Crowd offers you the chance to get your foot on the property ladder for just £1,000. Investors to club together and invest in a distressed or repossessed property which is then refurbished and rented out - but is the scheme really as good as it sounds? Fancy getting a foot on the property ladder for just £1,000? If so, an innovative new company that brings together property investment and crowdfunding allows you to do just that. The House Crowd (www.thehousecrowd.com) launched this week claiming that anyone can invest in property with just a small amount of capital, using an ‘effortless, unique business model.’ For the uninitiated, ‘crowdfunding’ allows people to group together and pool their resources into a project and share in its success. The concept allows investors to invest in new and growing businesses without having to commit large sums of cash.

House Crowd: It claims anyone can invest in property with just a small amount of capital, using an 'effortless, unique business model.'

The House Crowd takes the crowdfunding idea and applies it to property. It allows investors to club together and invest in a distressed or repossessed property which is then refurbished and rented out. The site advertises a fixed net return of 6 per cent per annum with investors also receiving a pro rata share of 50 per cent of the profit when a property is sold. The other 50 per cent is how the House Crowd makes its money.

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The company was founded by Frazer Fearnhead who has been investing in property since 1994 and founded The Armchair Property Investor in 2005. Fearnhead says the House Crowd’s business model negates all finder’s fees usually associated with property investment companies and instead works on a joint venture basis, with the investor receiving a fully secured investment with a fixed net return. It typically invests in below market value (BMV) two or three-bed properties in popular rental areas in the North West. It says these properties can be purchased for £30,000 to £40,000 and refurbished to create an ‘uplift’ in value to £70,000 or £80,000. ‘We are excited about this concept and feel that it makes great investment returns available to everyone not just the wealthy,’ says Fearnhead. ‘We have devised a model whereby we can offer a guaranteed 6 per cent return per annum; however, what is more attractive is potential greater returns possible, shared jointly, when we sell the property in favourable market conditions.’

Investors club together and invest in a distressed or repossessed property which is then refurbished and rented out

All initial costs associated with the property purchase, such as solicitors’ fees and refurbishment costs, are included in the initial investment. The House Crowd website cites the following example: If five investors invest £10,000 there’ll be £50,000 in the pot. The company buys a property for £45,000 and spends £5,000 on refurbishment and legal fees. If it sells the property in three years and two months for £90,000 it will have made £40,000 profit. Each investor receives £600 for three years (from the rent) plus one fifth of £20,000 (half the profit) and their investment back, a total of £15,800 which equates to a return of 58 per cent over three years or 19 per cent a year.

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Sounds simple but obviously the returns hinge on the property value going up – something that’s uncertain, especially at the moment. Fearnhead says if the market fell the property would continue to be rented out until the market recovered. Patrick Connolly of IFA AWD Chase De Vere says investors should always be wary of investments which promise high returns particularly if this is combined with an apparently low level of risk. ‘If something looks too good to be true then it probably is and if there was an easy way to make money out of residential property then far more people would be doing it,’ he says. ‘The reality is that it isn’t easy to make money from residential property in the current environment. While the promise of stunning returns may seem attractive it should also be remembered that these investments aren’t covered by the Financial Services Compensation Scheme (FSCS) if it all goes wrong.’ Fearnhead claims that unlike traditional property investment, investors can access their money when needed by selling their share in any investment to another investor, making it a ‘liquid’ investment. However, this of course depends on finding another investor to buy your share, something which Fearnhead concedes there is ‘no guarantee’. Mark Harris, chief executive of mortgage broker SPF Private Clients, describes property as a ‘relatively illiquid investment’ and points out prices can go down as well as up. 'Property funds come in for criticism because there is a danger of putting too many eggs in one investment basket if you already own your home and perhaps have a buy-to-let or two. Although money is pooled in a fund, if there is a downturn in the property market, you are at risk of being over-exposed,’ he warns. 'That said, the minimum investment is relatively modest. But investors who are renting because they can't afford their own home might be better off saving for a deposit than investing this cash into the fund.' In the past property schemes advertising low risk high yielding investments have often come unstuck. Inside Track, for example, sold property investment seminars and helped people invest in off-plan properties. It went into administration in April 2008 following the downturn in the UK property market. Some investors have also fallen victim to landbanking scams whereby they were sold land they were told would be worth much more with planning permission. But in many cases the rub is that there is little or no chance of that land ever being developed. Last November the FSA warned investors to be wary of such schemes.

Comments (22)
Newest Oldest Best rated Worst rated View all I have a small portfolio of my own which I probably will not be expanding for several reasons: Mortgage Availability and Mortgage Fee's; Finders Fee's, Letting Agents Fee's and the hassle of having to deal with Tenants. If I get lucky without any void periods or non payment, I may get 6% yield out of it but I still have to deal with tenant issues. When I come to cash in my investment I have to deal with estate agents and pay CGT on my investment. Not exactly an easy or hands off investment. I have looked on the House Crowd website and this appears to give all of the benefits of investing in property without having to deal with tenants or pay any of the fee's associated with buying/renting property. There are a lot of people still making money out of property in the UK, this allows you to join them for a relatively small investment. If I was to invest further into property, it probably would be under this type of scheme rather than having to do it all on my own. - John, Derby, 19/3/2012 20:42

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This looks like a good way to claim you own multiple properties. Hilarious. - Cut the waste, Driftwood City, 19/3/2012 19:52 Click to rate Report abuse What a sterling idea and an ideal way to take a modest risk to enable your cash to show a reasonable return compared to the derisory interest rates generally on offer. Ideal for those who have neither the necessary capital nor time to do the job themselves but who recognise that, ultimately, property will again show reasonable returns. Many investors/developers are enjoying success refurbishing low value properties to rent or resell and this scheme offers an excellent opportunity to use experience and knowledge of others to join in for those who can't or chose not to go it alone. Let the acorn start to grow! - Jack, Manchester, 19/3/2012 19:14 Click to rate Report abuse Equally all the risk is being passed to private investors who risk losing their cash while the company risks nothing and what stops this company creaming off all the big profits on the capital gain by charging excessive management fees on both sales proceeeds and annual rent yields. i see no gurantees or legally binding contractual commitments to pay a minimum return and protect the initial £1,000 investment or arms length third party bank accounts to which the profits from both rents and capital gains can be ring fenced and protected from abuse by the management of this company. It sounds more like someones idea of building a BTL business but unable and unwilling to raise the necessary bank debt so turns to private investors to put the cash in, trouble is as an investor you have no safe guards at all all your eggs are in one basket and you are also buying into their expertise which may be very good or maybe very poor, you just dont know what you are buying into! Hilarious - Paul, Planet Earth, 19/3/2012 17:11 Click to rate Report abuse As an investment claiming 58% returns over 3 yrs or 19% per year what assurances does this company give and what gurantees does an investor get if things turn sour and those returns vanish..As most of the return is on capital gains theres a big risk that HPs may have fallen even further by then and given that alot of these properties are in less appealing areas then unless the whole area becomes more desirable then the forecast capital gain becomes more wish full thinking. Equally the NuLabour Gov bought up huge swaths of properties under the Path Way scheme which due to a lack of funding has failed to deliver what assurances does this company give that it has any upfront funding from themselves rather than relying on private investors cash and what assurances do they provide that they won't do a runner when it all goes pear shaped? The real return appears to be just a gross 6% for the high risks involved that appears to be far too paltry with avg BTL yields of 5%+ Hilarious - Paul, Planet Earth, 19/3/2012 17:02 Click to rate Report abuse I'd consider investing if the scheme was FSA Regulated. Sounds like a good idea but those prices are unrealistic in the current climate. - Ali, London, UK, 19/3/2012 14:05 Click to rate Report abuse Despite being very bearish on the property market in the South, this doesn't seem like too bad a deal. Especially at the prices they Rating 2 Rating 4 Rating 3 Rating 3 Rating (0)

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Foot on the property ladder for £1,000?: Is a firm bringing together prope...

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can pick property up for (assuming these are correct). Only problem could be becoming a victim of your own success. If you do get a lot of subscribers and cannot find enough suitable punts to work on, and start lowering standards. Not got £10k outside of my tax free investments but otherwise might consider it. - Robert, Oxford, 19/3/2012 13:34 Click to rate Report abuse I like this idea. Every developer will know exactly what they are doing; buy at a discount, add value and sell. The model works in a rising market, a falling market and a stagnant market as long as you buy at the right price. I know because I do it myself. If this company has a structure in place to let people with small sums get involved and there are legal safeguards, what's the big deal? - Oliver Berry, Sheffield uk, 19/3/2012 13:20 Click to rate Report abuse Thank you so much for your comments on my new company. Here am I trying to do something good and give people a safe secure way for them to get a better return on their savings and get labelled as some evil scam merchant. Nice! Just out of interest have any of the people who posted negative comments here actually visited the website and investigated what we offer - it would appear not, judging by your comments which show a complete lack of understanding for what we do. Its already proving popular by the way. Still its very easy to sit there anonymously and criticise everything other people do. Opinions are cheap . Substantiating them considerably more difficult. Have a nice day. - Frazer Fearnhead, Manchester, 19/3/2012 12:44 Click to rate Report abuse "Tie up £10k of your cash for 3 years to get £600 return x3" ashenkorren - £600 p.a. is a 6% return. Do you know of any other current investment giving a better rate? I have not examined this business model in depth but it seems to me that the majority of any profit will come from buying properties signifcantly below market value and bringing them back up to the same value as neighbouring properties rather than future house price rises. - Jack, Peterborough, 19/3/2012 12:25 Click to rate Report abuse The views expressed in the contents above are those of our users and do not necessarily reflect the views of MailOnline. Rating 9 Rating 4 Rating 6 Rating 6

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Summary
Fancy getting a foot on the property ladder for just £1,000? If so, an innovative new company that brings together property investment and crowdfunding allows you to do just that.

The House Crowd (www.thehousecrowd.com) launched this week claiming that anyone can invest in property with just a small amount of capital, using an ‘effortless, unique business model.’

Description
The House Crowd takes the crowdfunding idea and applies it to property. It allows investors to club together and invest in a distressed or repossessed property which is then refurbished and rented out.

The site advertises a fixed net return of 6 per cent per annum with investors also receiving a pro rata share of 50 per cent of the profit when a property is sold. The other 50 per cent is how the House Crowd makes its money.

Tags: Crowdfunding, Crowdsourcing, mortgages, Property, Property funds, property investment, The House Crowd

Posted by Fritz Schaefer

Mar 19, 2012 01:33 pm GMT Viewed 2816 times

Author: Emma Lunn Source

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