What is Property Crowdfunding in Commercial Property Finance?

If you get together with a few friends to buy a property between you, you could call that crowdfunding.

These days, though, property crowdfunding is based on online platforms which bring together a large number of investors and manages the whole investment process for them.

Many people are finding that it is an ideal way to fund property development and buy to let deals – while investors can start investing in property with sums as low as £1000 – a far cry from the minimum (probably closer to £100,000) it takes to buy property directly.

Property crowdfunding is a form of equity crowdfunding - investors own a share in the property. Peer-to-peer lending means that lenders take the place of a mortgage company: they lend money so you can buy or develop a property.

You pay them back when you sell the property for a profit or when you refinance it with a mortgage lender.

If you are a property developer, you will probably be more interested in Peer-to-peer funding. If you are a buy to let landlord, you may be able to take advantage of Property Crowdfunding, where a property is bought and rented out and the rental income is split between all the different owners.

But just to complicate things, there is also Property Development Crowdfunding, where investors buy a share of your development project, whether it is a newbuild or a large conversion, perhaps converting something like a school or a warehouse into flats.

When the project is finished and units sold on, the profit is split between between all the different owners. Property Crowdfunding has become a mainstream funding choice. There are now many lending platforms in the market who manage to offer excellent returns to individual lenders, while often undercutting banks.

It also means that if you have property plans, there are a number of ways to get the finances you need to put them into action with crowdfunding. 

Who uses this kind of funding?

Make no mistake about it – crowdfunding has become mainstream in the property market. Whereas a few years ago it was likely to be the solution of last resort for builders and developers, with projects that were simply too radical or too speculative for most commercial lenders, today it is recognised as a highly competitive source of funding.

While those who want to convert churches and industrial buildings may still choose crowdfunding - either because of their ethical stance or because they cannot attract funding from banks and other institutions - many small estate developers now use crowdfunding solutions to build new homes. 

Not only is this very good news for investors, who know that their money is being lent to highly professional businesses, it demonstrates the commercial impact of crowdfunding. 

Crowdfunding is able to compete with commercial lending - and may even cost less for some projects.

How can you get crowdfunding for your property project?

The most direct way to get crowdfunding for your property project is to work with a property platform. There are now many in the UK, and many can now offer a full suite of property project funding products. These can include Development Finance, Refurbishment Finance, Bridging Finance, Development Exit Finance and Auction Finance.

They are, therefore, just like a traditional bank or specialist property funder, the only difference being that the capital they provide comes from individuals, rather than from their own cash reserves or from other institutions, as is the case with traditional lenders.

Of course, as there are now many specialist property crowdfunding platforms, there can be a wide variation in exactly what is offered, the time taken to credit check you and to approve your project, and to gather together the funds you need.

The best platforms may have access to a pool of funds which can be made available quickly, and be able to call on additional capital from a growing investor base – essentially institutional and other large-scale investors who recognise the returns to be made in the property crowdfunding sector.

However, you should remember that there will also be other platforms who cannot match the choice, efficiency and overall value of the market leaders.

You may want to have specialised, expert help to ensure that the platforms that you approach really are the market leaders.

How can you apply?

Anyone with a UK-based limited company and a UK property project can apply for Property Funding via crowdfunding platforms. Some may insist on doing business only with either established partnerships or limited businesses, with at least two years' worth of published accounts, as well as a record of success with building/property development or refurbishment projects.

But there is another way to get the support you and your development project need. To find out more about working in partnership with Rangewell to find better answers to your development needs and those of your clients, call us at Rangewell on 020 3637 4150 - or email contact@rangewell.com. Our service is free.