Investment Guides

Advantages and Disadvantages of Property Crowdfunding

Adv vs Dis Property
Lily Bridgwood
Written by Lily Bridgwood

Property crowdfunding offers investors the chance to participate in the housing market without necessarily having the funds to buy a property outright. Investors buy shares in a company holding a property and potentially profit when the asset gains in value. Because many properties are let out, the property also has an income (provided tenants make timely payments), and investors get a share of this as well (the yield).

When you invest in property crowdfunding your money is at risk, and you may lose your initial investment. To help you decide whether this form of investment is for you, we’ve compiled the advantages and disadvantages below:

Advantages of Property Crowdfunding

  1. Invest in the Property MarketTraditionally, the property market has only been accessible to investors with a certain net-worth. Property crowdfunding allows you to invest in the property market from as little as £10, which means it can become part of a diverse portfolio even if your budget for investment is small.
  2. Good Returns on Successful Investments
    £100,000 invested in property in 1985 would have (on average) grown to just over £500,000 by 2014, a 5.7% annualised rate (source: thisismoney). In addition to the capital gain (the increase in the value of the property), you also receive a yield – your share of the rent paid for that property.
  3. Secondary Markets Available
    Most property crowdfunding platforms do offer a secondary market. If you’re using one of these platforms, and you need to sell your shares, you can. This liquidity is useful in the event of an unexpected change in your financial situation.
  4. Protection Against Platform Going Out of Business
    If the platform you are investing in goes out of business, you still own your share of that property. As a group, shareholders can get together and decide what to do with the property.

Disadvantages of Property Crowdfunding

  1. Property Market Fluctuates
    The big attraction of property crowdfunding is that you can invest in the housing market, but just like the stock market, the value of property can go down, as well as up. If the asset you have invested in goes down in value, then the amount you own is worth less, and you have a capital risk.
  2. No Tax Relief
    Your property crowdfunding investment does not qualify for EIS or SEIS tax relief . Additionally, the company which holds the property is subject to corporation tax; this is deducted from funds before they are distributed among the crowd. You may also be liable for personal taxes on the income you receive; we advise you seek independent tax advice if you are unsure.

Please head over to the OFF3R property investments channel to compare the latest opportunities.

Risk Warning: Investing in property involves risks, including illiquidity (the inability to sell assets quickly or without substantial loss in value), lack of dividends, loss of investment and dilution, and it should only be done as part of a diversified portfolio. Your capital is at risk.

About the author

Lily Bridgwood

Lily Bridgwood

Lily is the Partnerships Associate at OFF3R. She has previous work experience in both the corporate and start-up environments. She joined the OFF3R team in October having recently graduated with First-Class Honours in International Business from the University of Edinburgh.