Crowdfunding a New Property Development Tips

Crowdfunding a New Property Development Tips

Despite the various attempts by the government to alleviate the United Kingdom’s housing crisis, you cannot rely exclusively on the public money to construct and new properties and boost the supply.

While the recent government’s 2-billion Euros investment in ‘social and affordable housing’ is likely to add some relief, there is an urgent need to maximize private investments to achieve real results.

One way of achieving this is by raising awareness among investors. Currently, it is easier to help fund new property development and probably enjoy some financial benefits.

According to experts, addressing a social need while enjoying good returns on investment is one of the most appealing, yet highly underrated features of real estate investments.

Older generations can successfully invest in peer to peer development loans in the process of crowdfunding investment such as the construction of new houses. This way, they can create their nest eggs, and at the same time, help millennials get a foothold on the housing ladder.

Financial resources required to construct the much-needed housing developments can be acquired quickly. As compared to the government initiative, there is far less bureaucracy and red-tape to wage through.

This can facilitate fast action and better results. Therefore, it is essential that private investment projects (in housing developments) are mode through reliable and secure platforms.

Here are ten things every investor must consider when getting involved in crowdfunding investment.

1. Get to know who controls the property development project

Nearly all peer to peer platforms raises financial resources for different third-party property projects. Note that there are many things that might go wrong with the process of property development. However, these risks can be mitigated.

It is crucial that you’re confident that the specific platform has undertaken the right level of due diligence on the property developer and that they can control any form of drawdowns carefully. Oversight help and direct accountability help ensure that the money you invest is used responsibly.

2. Ensure your investment is protected

Generally, a traditional property development project involves a bank that has the first charge over all forms of assets. Keep in mind that this is a highly risky finance deal that is likely to leave equity investors vulnerable in case something wrong happens.

One of the common benefits of debt based real estate crowdfunding platforms is that the investors are usually protected by some form of legal charge.

That means the property can’t be sold unless the investor has been repaid. One way of minimising risks is by opting for a property development deal in which all investors are paid out first.

3. Ensure that the property developer conducts research and due diligence

Many property developers out there rely on their gut instincts to when establishing the feasibility of a certain project. You should avoid such property developers at all costs.

Rather, opt for developers who do their due diligence and analyze historic sales prices, economic forecasts, market liquidity, and demographics. While all these might not guarantee absolute success, it does indicate that a property developer is willing to do all they can to succeed.

4. Find out if the development project has secured planning permission

The process of securing planning permission is challenging. Many people will agree that more houses are required, but no one wants to live next to a construction site. What’s more, councils can drag their feet for many months and sometimes years.

Note that these councils are charged with the responsibility of granting permissions, but they can impose conditions that might derail the entire development project.

To stay away from this complex and frustrating song and dance, consider investing in development projects that already have planning permission in place.

5. Learn how your capital will be repaid

You are an investor, and that means your money must be safe at all times. As properties are sold and proceeds are released, all capital must be paid to investors in the order of receipt then interest.

That means the developer will receive profits after all investors have been paid. According to experts, this is the most equitable capital repayment approach, and it is something you should look for when investing.

6. Get to know how contractors are used and their specific deadlines

If you intend to invest through a crowdfunding platform, you no longer need to deal with the builders directly.

However, it is recommended to understand how your preferred developer chooses and manages the builders. For development organisations, it is wise to pay a premium for reliable contractors with an outstanding balance sheet who commit to a certain fee and specific deadlines.

Always ensure that the investor you intend to invest with has the right professionals and processes in place to manage a certain price design and create a contract. This will mitigate the instances of the project going over schedule or over budget.