As I’m a professional property investor, you might assume I’d be against crowdfunding. After all, doesn’t it just mean more competition for the best deals?
Not at all. I love crowdfunding.
In fact, crowdfunding is how I got started as an investor back in 2015. And even as a professional investor, I still love projects that have a crowdfunding element.
Of course, it depends on the crowdfunding platform – a have-a-go developer setting up a GoFundMe page isn’t exactly reassuring.
But a project financed by a respected property crowdfunding service is a good sign.
And it’s also great for property developers too. In fact, it offers five big benefits:
1) You have other property professionals in your corner
Crowdfunding platforms want to be seen as effective incubators for profitable projects. They want big projects, completed on time, with high returns, and everyone left happy.
(And of course, they really don’t want the bad PR of a deal gone wrong).
This means that the best platforms are built and run by property professionals with plenty of their own experience. They offer all that knowledge and expertise to users to help projects be as successful as possible.
After all, that’s how they build a reputation and grow their platform.
2) You can get help with the project comms
When you’re a developer, each project has hundreds of moving parts to maintain, so sometimes communicating with investors can take a back seat.
But the reality is that developers going quiet is a massive red flag for investors.
Good developers are excellent project managers who provide excellent returns. But if the experience for the investor is one of silence, nervousness, and general anxiety, those investors might not invest again – even if the returns are good.
Luckily, many crowdfunding platforms will handle a lot of the comms for you. They’ll act as a midpoint between developer and investor, providing information and reminders to both sides.
That means you can focus on what you do best – maximising returns.
3) You get a lot of visibility and PR (for better or worse)
Crowdfunding is a relatively open space. Other professionals can see your projects and results.
That makes it a quick way to build an excellent reputation.
In fact, I know many developers who are large enough that they no longer need crowdfunding support, but they continue to use it more as a networking and PR resource than a funding one.
Even those who don’t invest will start to hear your name being talked about, and learn more about the kind of work you do. Get things right enough times, and they might start coming directly to you to see what else you’ve got coming up.
Of course, that does require your projects to go well. If a project goes horribly wrong, that’s all public too…
4) You’re protected by increasing regulation (and self-regulation)
When I started in crowdfunding there used to be lots of outlandish claims – people guaranteeing 50+% return with zero risk etc. that fizzled away to single-digit returns (if you were lucky).
Self-regulation has seen these kinds of claims mostly disappear, so developers can be realistic and still get investment. After all, outlandish claims have the air of a scam about them, rather than an opportunity.
Then there’s increasing FCA regulation of the space too.
These aren’t perfect changes (for instance they stopped "retail investors" being part of bond-style deals, which has taken away the option for them to invest in what should be the "safer" end of the market, leaving only the riskier "equity" options).
But, right or wrong, changes like this are a sign that crowdfunding has matured and is now seen as increasingly mainstream.
5) Crowdfunding reassures other investors
I like projects with a crowdfunding element, and I know a lot of other property investors do too.
Essentially, it’s another pair of eyes on the due diligence. It tells me:
You’ve gone through the hoops required to get the crowdfunding
You have the platform on your side wanting you to succeed
You’re confident enough in your deal to do it in the open
Of course, from an investor perspective, none of this guarantees the deal will be a success. There’s still an element of risk. Investors can lose their money (and the platforms are pretty honest about that).
But a platform thinking you’re worth taking a risk on is very reassuring for me.
Want to hear more? Check out the on-demand webinar
Helen recently joined the LandTech team for a more in-depth chat about alternative finance.
Watch the full webinar below and see what she had to say on the subject – and how you can get started in the space.
Helen is a seasoned property investor, and the only female Angel investor from TV’s Property Elevator show. Having an investment pipeline of development projects with a total end value of over £50 million, she’s taking everything she’s learnt and is using it to help the next generation of developers.