Are You Co-investing?
The world is awash with a dizzying array of investment “opportunities”……. How can one know which is right for them?
A key feature of the traditional financial industry is the amount of time, money and effort that they will spend on encouraging you to invest in “opportunities” that they are not investing in……… this has always made me question – If it is not good enough for the promoting organisations to put their money into, then it, most certainly, is not good enough for me!!”
Most financial advisory businesses make their money not from investing in the underlying investment that they are touting as “Fantastic, The Next Big Thing, Life Changing”…… No they would not touch it….. They make their money on the commission they get from selling you an investment that is not good enough for them. Rather they hide behind the veil of discredited financial institutions and regulators. No wonder one is uneasy with the world of financial advisors.
Three Magic Words that will bring you happiness in your investment choices: Are you Co-investing?
If the salesman/financial advisor can prove that they are then consider the proposition. If not, move on. Life is too short. Look for a co-investor:
Mayfair & Morgan co-invest with you and as such you are a business partner who´s interests are aligned to ours. We only make money when you make money from the co-investments. We are the first into a deal and the last to exit.
Residential real estate investment is the largest and best performing asset class for investors. While many of us participate through buying our own home, the barriers to entry have, for whatever reason, been set high with professional developers, banks and other institutions making it something of a challenge for individuals to invest in a diversified portfolio. The rapidly emerging Alternative Finance Industry is breaking down the old order and inviting investors from all backgrounds to participate in solid but lucrative deals.
There is no doubt that CrowdFunding & P2P Finance is an appealing, offering to both sides of the property equation, i.e. offering the investor and the vendor, a significantly better deal than that what is currently offered by the traditional sources of finance. A vendor, whether they are a property developer or a landlord seeking to finance their activities, is currently very limited in the sources of finance available from banks. In addition, the price that the banks are looking for proves prohibitive for many, and acts as a significant disincentive.
It is my firmly held belief that CrowdFunding is a much more open and transparent approach to the market than that of the tightly controlled, centralised, and exclusive behaviours of the banking system. The banking system has demonstrated time and time again that it fuels a boom-and-bust cycle. This movement towards Alternative Finance is a response to the poor performance of the banks and regulators to date, and will see them increasingly disintermediated from the process.
The rise and rise of private funding will not be without its challenges, but it can only be an improvement on the failed policies of the past. We can no longer leave it up to the central bankers and politicians to address the issue of house prices. While CrowdFunding is still very much in its infancy, it still offers a highly credible alternative that needs to be given a fair chance.
The risks associated with property CrowdFunding are no different to those faced by landlords and, in the wider scope, investors in general. Economic and political issues, such as a drop in the property market or a downturn in the country’s economic outlook will always have an effect, whether you are investing solo or as part of a crowd. However, the property market has proved itself fairly low-risk over the medium to long term, and we believe this trend will continue for the foreseeable future.
Property CrowdFunding platforms are facilitating the matching of the individual, with relatively small or large amounts of money to invest, with the project sponsor. At the very least, an investor in a property CrowdFunding project should expect a rate of return that is 3 to 4 times what they currently get in the bank, at very low risk.
If you are looking to enjoy the benefits of property investment without having to invest six or seven digit sums, arrange mortgages and manage all aspects of a property yourself, the recent rise of Alternative Finance and Property CrowdFunding in particular, has created a new option for investors. Entry level investment are typically much lower at around £1,000 and the fees are much lower.
Ownership & Connection to Your Investment
The more levels of Advisors, banks, investment companies that between you and your investment, typically, you more you pay in fees and the less profitable you investment can be. A key distinction of property CrowdFunding is that it enables direct ownership in a specific property or portfolio, rather than a broader exposure to a company following its own strategy which is unlikely to meet the requirements of the individual.
Returns and Timing
When you property crowdfund, there is usually the ability to define the holding period, timing when investors will exit the investment. The investor earns both rental income and a share of any capital gain upon sale. An option can also be to lend money at a fixed rate of return for an agreed period that suits your timeframe.
At the risk of repeating, a key advantage of crowdfunding is fees. Fees really add up over the course of a 3, 5, or 10-year investment. Traditional bankers and advisors have profited greatly from coming between individuals and the property investment made on the ground with high fee structures and pay high commissions to brokers and agents. Front end fees can be as high as 10%, so you are starting out with 90 pence on the pound from day one. Crowdfunding fee structures vary, but it is important to ascertain whether or not the platform’s fees are tied to the success of the investment. Also, do they have some skin in the game in the sense that they are also taking a stake in the properties that they source, vet, and offer to investors? In short, make sure that your platform’s interests are tied to those of you the investor.
In summary, the rise of the Alternative Finance Industry is making profitable property based investments more accessible and flexible while making them more profitable and less expensive. We have truly entered into a phase where disruption to the established order will benefit the markets.