Top 5 Myths and Truths about Property Crowdfunding
Many people are already aware of the benefits of property crowdfunding – from the potential returns to access to specialised commercial assets and large developments, investing with property crowdfunding platforms can offer huge benefits to investors, keeping in mind that your capital is at risk, and returns are not guaranteed.
What are the common myths surrounding property crowdfunding?
However, certain myths exist that create uncertainty around the sector and create hesitancy among potential funders looking for new investment opportunities. Here's a look at the most common...
Property crowdfunding is unregulated
One of the biggest concerns regarding property crowdfunding is its position outside of traditional mainstream finance and the potential lack of regulation around such a new and innovative sector.
While regulation surrounding property crowdfunding is still evolving, there is indeed a regulatory body that oversees all activity in the alternative finance industry known as the Financial Conduct Authority (FCA). This body is responsible for the supervision of the market and regular monitoring of crowdfunding websites.
According to their own outline, they are committed to ensuring that:
"Financial promotions are clear, fair and not misleading."
Property crowdfunding businesses looking to enter the industry must pass an authorisation process from the FCA designed to protect consumers and market competition.
It is hard to exit investments
While investments are generally long-term strategies to increase capital over time, you will still want to access your funds at some point in the future.
The specific terms relating to alternative finance structures can vary depending on your model of choice, with some options such as equity-based crowdfunding presenting challenges when investors want to exit the deal after a certain point, even if the asset is performing well.
On the other hand, property crowdfunding offers realistic exit options that can be achieved through the sale of the underlying property or refinancing through bank lending. Speak with your investment platform about your exit options if you're still concerned. In most cases, these investments are often illiquid, and there could be difficulty in selling such investments at a reasonable price, and in some circumstances, it may be difficult to sell them at any price.
You need experience to invest in property crowdfunding
Crowdfunding, and property crowdfunding, in particular, is actually one of the most democratic investment models available today. While traditional methods such as investing in the stock market may require specialised knowledge and experience, many new investors are finding they can access many different options in the property investment market that suits their needs, experience level, and investment capacity.
Also, as technology and networks mature, this will allow easier interaction and exchange between platforms and investors, simplifying the process.
You shouldn't trust property crowdfunding platforms
Not all platforms are built the same. While some focus simply on connecting potential investors with opportunities, offering little ongoing support, others offer a high level of due diligence and customer support, comprehensively vetting each portfolio and servicing clients with continuing care.
It's important that funders are not complacent when they enter the sector and seek out reliable and trustworthy platforms with a good reputation – as there are in fact many!
Consider performing your own due diligence in the form of background checks and review to determine the trustworthiness of each platform before you commit to any investment deals through them.
Property crowdfunding is very risky, compared to more traditional investments
This may be true in a certain sense, but as a blanket statement, it doesn't capture the complexity of the sector. With so many options in the property crowdfunding world, there will indeed be certain assets that require a high risk when it comes to securing an investment. But usually, this will also come with the potential for greater returns.
There are also many ways for investors to lower their exposure if they are unwilling to shoulder high amounts of risk. Everything comes down to the individual investor and what their preferences are. By communicating with your platform and adjusting your investment criteria, you can create a portfolio that suits your needs.
The truth about property crowdfunding
With some research, it's possible to uncover the truth about property crowdfunding and its many inherent benefits for an investor looking to make their money work harder for them.
As a new and evolving sector, much is still adapting and there may be concerns from new funders about the likelihood of realistic returns or the potential dangers that come with dealing through online platforms. However, investors should not be put off by the various myths that surround the industry in order to make the most of the benefits property crowdfunding has to offer.
Always remember: Never invest without considering the full information available.
Investing on property crowdfunding sites involves risk, including the loss of all of your invested capital, illiquidity (the inability to sell assets quickly or without substantial loss in value), and it should be done only as part of a diversified portfolio.
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