This is a must watch for sophisticated and high-net worth property investors, looking for higher returns on their investments.
More and more would-be buy to let landlords are turning to ‘easier’ ways to make money from property these days. And who can blame them? Landlords have been hit in recent years by government tax incentives, such as abolishing landlord mortgage interest relief and adding Stamp Duty to second homes.
But there are other ways to invest in property without actually having to do much – hands-off property investing from a distance. These include P2P and Crowdfunding. Although neither qualify for the Financial Services Authority (FSA) Compensation Scheme, they are FSA-regulated. And, the loans are secured against property. Below, we have listed the benefits of both P2P and Crowdfunding:
Benefits of P2P
P2P is where you provide cash to borrowers, which is secured against property. This is usually for large-scale new developments and covers both the residential and commercial property sector (crowdfunding tends to be heavily on the residential side).
● You can invest ‘little and often’ with P2P. In other words, it’s possible to ‘spread the loan’ across various borrowers and their development schemes. This is obviously safer, should one borrower end up in difficulty. Anyway, it’s never a good idea to put all your eggs in one basket, regardless of what industry you happen to be in.
● The returns are fixed, so you’ll know how much you should receive every quarter or year (whatever the agreed returns timetable).
Benefits of Crowdfunding
When investing in a crowdfunding platform, it’s closer to the act of being a buy to let landlord. That’s because you can receive a share of the rental income from the property you’ve put money into, which is based on your investment. You’ll also benefit from capital gains if the value of the property accrues (which it should).
● Like P2P, you don’t have to invest a lot of money, and it’s possible to split your investments across several properties.
● These returns aren’t fixed like the Peer 2 Peer loan model, so may differ, depending on how well the property performed in the marketplace.
Why you should have both P2P and Crowdfunding in your property portfolio
It makes sense to diversify your income and investments stream. That’s because if one online investing platform were to go under, you wouldn’t lose as much as if you had invested everything there. You have a safety net, in other words.
Also, although many platforms do have contingency funds, that’s not to say there is enough in the pot for every single investor. So, although that is a safety net of sorts, it may not be quite as secure as you hoped.