Dan Norman explains how he profited from property investment by using a peer-to-peer platform.
Is property investing still worthwhile? Faced with rising property prices and taxes, some buy-to-let landlords have started looking at other ways to make an income from property.
Peer-to-peer investing is one option. This allows investors to lend money to property developers and to get a return on that loan.
But there are pros and cons to peer-to-peer investing.
Find out: Guide to property investment
Rising house prices
Faced with rising property prices, buy-to-let landlord Dan Norman started to wonder whether there was a different way to make money from bricks and mortar.
Dan, 44, had been investing in property for more than 20 years, carrying out 70 refurbishments and building a portfolio of 10 rental properties.
However, surging demand has made it increasingly difficult for developers to find low value properties.
“Prices had become high for my business model and a different market was emerging,” he explains. “I was going to viewings with 15 other potential buyers.
“To think how easily I bought my first rental property in Birmingham for just £50,000 in 1997.”
Find out: Is now a good time to buy a house?
Peer-to-peer
Dan, who owns a marketing company, heard about the peer-to-peer lending platform CrowdProperty.
The company started in 2014 and Dan kept a close eye on them over the years. When his buy-to-let activity started slowing down in 2017 he invested £50,000 in a 12-month project in Plymouth through the CrowdProperty platform.
He got his investment back before the end of the term with a fixed 8% return.
CrowdProperty allows property buyers and developers to source loans directly from investors through an online platform rather than a bank. It selects the projects and carries out due diligence.
But Dan always checks out projects himself if he is interested in them.
While peer-to-peer investing can come with lucrative returns, it is a very risky way of investing. This is because there is a higher chance of small projects failing, which means you could stand to lose your money.
But provided you leave your money invested for the long term, investors typically get a rate of return that is higher than from a savings account.
Looking for a more traditional route to investing? We list our favourite stocks and shares ISAs here.
Find out more: 10 buy-to-let tips for budding landlords
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What I did
- In 2017 I registered online, uploaded proof of identity and residence, and went through anti-money laundering checks to open an account with CrowdProperty.
- I invested £50,000 in a 12-month office-to-flat-conversion project in Plymouth. The company kept me up to date with the project every three to five months. Two weeks before the end of the term I received my investment back and 8% interest.
- I invested £150,000 across two projects: one in Birmingham and another in Kent. Both projects delivered in the same way as the first. An example of one of those projects: I invested £64,500. The return came to £4,877.26 (8% per annum for the 345 day period pro rata) as I was, again, paid back a few weeks in advance of the deadline.
- I have invested money from my company and my pension scheme. I currently have between £1,000 and £100,000 invested in four live projects – in Cambridge, Tunbridge Wells, Eastbourne and Redbourn.
What worked
A bullet-proof due diligence process
Check everything out. I have looked at other crowdfunding platforms and not liked the look of some of them.
For example, I looked at a platform that manages different property types such as business manufacturers and retail. I find those types of property more difficult to assess.
The business model is more complex and you are not left with an asset to at least live in, if all else fails, as you do with a house or flat.
I like to keep things simple.
Speaking to the developer
You can speak to the developer and the team about the ins and outs of their decisions to take on projects.
Each project on the CrowdProperty platform has been assessed twice – first by the developer proposing the project, then by the team at CrowdProperty. Obviously only workable projects make it anywhere near the platform. I can then do my due diligence on the project and the developer.
That “triple-check” is very comforting, even for someone with a knowledge of property.
Find out more: How to invest £10,000
Working out my risk profile
I only invest big sums where I either know the developer involved or I have experience of a similar project.
Everything is paid back on or just before the deadline – developers don’t want to pay more interest than is necessary.
If the developer misses their deadline they will be charged a higher interest rate – an additional 0.42% per month – until the date of repayment.
Investors receive part of this additional interest for the inconvenience of a loan running late.
It is straightforward and secure. Anti-laundering money checks are renewed periodically.
There is a pledging round where you can invest anything from £500. Then you transfer the money.
You can view your investment in an individual wallet online, and updates come through as the project advances. You are notified when the project comes to an end.
Diversifying
Diversifying is a good idea. Birmingham has had its fair share of local pressures, for example the Rover plant shutdown in 2005. Thousands lost their jobs and the city struggled as a result.
This kind of investing allows me to invest in different parts of the country.
I prefer to have something concrete and physical to invest in rather than stocks and shares.
But be aware of the pitfalls
The risks are reduced as much as they can be but property projects can go wrong.
As with all investments, investing in property comes with risks. Properties can require more work, and there are unforeseen circumstances, void periods, and longer refinancing.
There are also the occasional national and global issues that can occur, which affects all business, not just property.
There are 8,500 lenders now. This increased pipeline of lenders means you have to invest quickly when a project comes up. Sometimes it feels like a race.
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