Your Investment Options on CrowdLords: Part 2
Commercial property works differently to the residential market and is an asset class, that was until now, available exclusively to Professional and Institutional investors for direct investment.
Like Buy-to-lets, High Street Retail Investments offer the potential for a steady income as well as capital growth but the dynamics of the markets are quite different. For High Street Retail the key parameter is the contracted value combined with market yields. As market conditions fluctuate so does the multiple used on the yield to establish the current value.
Ultimately though it comes down to finding a good tenant, committed to a long lease, in a good property in the right location. Align these factors and you have a good investment.
It’s worth noting the differences between a Commercial Lease and a residential tenancy. Most commercial leases are for at least 5 years and they require the tenant to be responsible for all maintenance and repairs throughout the term and prior to the property being returned at the end of the lease. This means that the majority of income is distributable income having accounted for administration costs.
CrowdLords has established a relationship with Pevam an Asset Management company established by two commercial property experts with the sole intention of making commercial property available to Crowd Investors, so that you can benefit from their experience and their contacts within the industry.
- Risk Range: A-C (low to medium)
- Projected Return Range: 9-12% p.a.
- Investment Term: 5 years
We all know that this country needs more homes and the government is doing whatever it can to create a positive environment for property developers. Planning regimes have been relaxed, there is the Help to Buy scheme to improve affordability and commercial lending rates are still relatively low.
However, a significant proportion of property development is carried out by small and medium sized developers who are often unable to take on developments due to a lack of capital. Historically, this funding gap has been filled by High Net Worth individuals who go into partnership on a project by project basis using a Joint Venture arrangement.
Using our crowdfunding model, CrowdLords is able to turn those Joint Ventures into CrowdVentures opening up this area of investment to a much wider audience whilst at the same time offering developers a more robust source of capital.
Converting an existing building or developing land into new build properties adds significant value, and as a result, investors can achieve good returns when they realise their share of the profits.
However, you do need to be aware of the risks. Invariably there is debt involved and the senior lender will have a first charge over the property. The construction itself can often be complex and unexpected issues can result in cost overruns. On top of that, the profit is realized only once the properties are sold – delays in achieving sales can eat into the profits very quickly.
- Risk Range: C-E (medium to high)
- Projected Return Range: 18-30% p.a.
- Investment Term: 8-18 months
New build developments, as the name implies, are properties that are developed from the ground up, and this can be classed as high risk, but the potential returns can be significant. Conversions, on the other hand, can be less complex than new developments, as they rely on adding value to an existing property by either modernising it, converting the property into smaller units, or increasing the habitable area by adding extensions. The strategy for these investments vary from property to property, but the developers tend to sell the properties off-plan, which helps keep the investment term on track.
Achieving a balanced portfolio
One of the main benefits of property crowdfunding is that, as opposed to committing all your funds to a single property, it’s easy to spread your investment across a number of properties to balance the risk and the reward. In the same way that investors in stocks and shares balance their ‘cash cows’ with some ‘rising stars’ to deliver a good balance of risk and reward.
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- Understanding the difference between "first charge" and "second charge"
- Comparing IFISAs with Cash ISAs, what are the main differences?
- IFISAs change what the word "savings" means in the UK
- Frequently Asked Questions: What is an IFISA?
- Meet the Developer
- IFISA at the heart of UK property lending product change
- Crowdfunding and P2P Lending - Vive La Différence!
- Is this the year alternative finance goes mainstream?
- Crowdfunding, a game changer
- Crowdfunding marks the fall
- How do you choose an investment
- The Common Questions investors are Asking About the IFISA
- Investing in Developments - Understanding the risks and the rewards
- Why invest in Birmingham
- How do you decide which investment is best for you?
- The differences between Interim Equity and Full Equity
- Top 5 Myths and Truths about Property Crowdfunding
- A Closer Look at Due Diligence in Property Crowdfunding
- Introduction to ISAs
- Understanding the Capital Stack