FundingCircle brings Crowd Funding to the Property World

Crowd Funding moves into property

In April Funding Circle, one of the largest crowd funding providers, announced that it had listed its first ever large property investment on the site. Its success illustrates the desire of everyday investors to use crowd funding to make the first steps into property investment.

Funding Circle's listing, which focused on a large housing development in Surrey, was notable for two reasons. First, at £400k it was far larger than the average £50,000 loan that most businesses on the platform apply for. Second, it all but sold out within four hours.

It comes at a time when other entrepreneurs are creating similar services to leverage the power of the crowd. In February James Cadbury, the ancestor of George Cadbury the founder of the chocolate empire, launched his own website which allows people to invest bit by bit in property. It's just one of a number of new platforms providing this service such as The House Crowd, Crowd a House and Propertycrowdfunding.co.uk.

What's the benefit?

The attraction is clear to see. Rising house prices has been the foundation of economic growth over the past 12 months. In London prices have jumped by an average of £80,000 since the beginning of the year. But, with access to capital still limited, there is a disconnect between the number of people who want to invest in property and those who actually can.

How would it work?

Property Crowd Funding allows people to get involved without the need for substantial capital backing them up. For example, if a property was worth £100,000, investors could invest £1,000 each to receive a 1% stake in the property. Tenants can then be acquired delivering a regular income which can be divided amongst the investors – with a portion also going to the crowd funding platform as a service fee.

This is not, it should be remembered, a get rich scheme or a short cut into full scale property investment. But what it does do is provide initial access without capital. Think of it as a drip feed process, gradually increasing your stake and the amounts you receive.

Like any aspect of crowd funding, returns vary depending on the performance of the investment, and your assets are not protected in the same way as a savings account would be. However, typical returns quoted on these platforms average out in the region of 6-7%, similar to many of the other P2P lenders.

The Funding Circle deal represents an important landmark for crowd funding. The size of the investment far outstrips the average loan size, with property deals reaching into the hundreds of thousands rather than just the tens of thousands. That, and the speed with which this investment was snapped up, means we're likely to see many more opportunities such as that in the future.