Crowdfunded buy-to-let offers a new way on to the property ladder

http://www.theguardian.com/business/2014/jun/14/crowdfunded-buy-to-let-new-way-property-ladder

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Young professionals hoping to get a foot on the property ladder and people in their 40s or 50s hoping to fund their retirement through buy-to-let investments have had their plans thwarted by booming house prices in recent years. Now, however, there is a new option: crowdfunded buy-to-let. An entirely new industry, it could mean that buying a home to live in or to let is no longer the preserve of the wealthy.

Crowdfunded projects attract a large number of relatively small sums of money from private investors, usually via a website. With buy-to-let, a crowdfunding company gathers investors who put in as little as £500 each to buy a property for rental for a fixed term – typically two to five years. The company manages the property and pays a regular dividend, with the prospect of capital growth as the value of the property rises.

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.

Last month Property Moose opened to investors with a minimum of £500. The firm's 28-year-old co-founder James Cadbury, from the confectionery-making family, said: "I was 27 and wanted to get on the property ladder but couldn't because I never had a big enough deposit or income. All my friends were having the same problem. I've known some who have clubbed together to buy, but then I and my business partner thought with advances in technology we could do that on a new scale, so anyone with £500 can get a foot on the ladder."

The firm has taken £130,000 from 50 investors, mostly aged around 30, in its first three weeks. "When the pension reforms come in and a lot of older people have a lump sum to invest, they will also be looking at schemes like this."

One investor is Hugh Hutchison, a 28-year-old lawyer who lives in London. "I've wanted to buy a property since I left university, but haven't been able to because of the deposit issue," he said. "So I was looking for a way to see the upside of the property price rises without having £20,000 in the bank.

"I live in Brixton, where a modest two-bedroom flat costs £350,000, so even a 5% deposit is £17,500, and a 20% deposit just isn't worth thinking about. But with crowdfunding I can get into it."

Over the past decade, buying to let has become a popular alternative to traditional pensions. But it has only been for those with very substantial funds at their disposal. Crowdfunding is democratising that option. Dr Joe Cox from the University of Portsmouth Business School said: "There's already a strong buy-to-let culture in the UK, but until now it has been the preserve of a relatively privileged few with the financial means to pay a deposit and for upkeep. The advantage of crowdfunding is that it smashes down the barriers to participation and offers the possibility for a much wider involvement in the buy-to-let market, perhaps turning us from the nation of shopkeepers that Adam Smith described into a nation of landlords."

One of the first property crowdfunding sites was the House Crowd, founded two years ago. It owns and manages 62 homes and now buys an average of one a week. "We've seen a number of investors putting money in because they can't get a foot on the property ladder otherwise," said Frazer Fearnhead, one of the founders. "Our investors are everyone from manual workers to investment bankers but very few are professional property investors. Many invest a little bit in every project we do, to build something up for retirement. Half the people I speak to ask, 'Why am I bothering putting money into a pension?' And investing this way you control it, rather than handing your money over to some City institution, with all the shenanigans that go on there. So you control your own destiny."