Crowd funding over the internet is a popular recent phenomenon involving a group of investors that team up for a financial opportunity and pool their resources together.
Crowd funding has grown in stature over the last few years, with investors providing funds for an increasing array of investment opportunities, typically in return for either equity in the borrower’s company or based on debt repayment plans. The added draw for investors is that they can invest in projects for relatively small sums of money, such as a £500 minimum entry.
In the property context, crowd funders become the shared owner of a property investment or the registered (i.e. secured) charge-holder in exchange for their financial backing. Projects can vary from short-term funding to longer-term matters.
As with all investments, the merits of each project need to be carefully reviewed. Crowd investment is also subject to the general drawback of generating sufficient interest from other potentially likeminded investors.
As with all investments, potential investors should therefore carry out sufficient due diligence in order to form a balanced assessment of their proposed investment. However, some investors may decide to rely on the investment platform organisers’ expertise and knowledge of specific property market areas and opportunities.
Once sufficient interest and funding is generated for a particular project, the conveyancing process commences in the usual fashion, with the added structuring of a Special Purpose Vehicle (‘SPV’) for the post-completion ownership of the property or in relation to the corporate loan arrangement over the property.
A Special Purpose Vehicle is a company set up for the sole purpose of a particular property investment and is, by its nature, intended to be legally separate from the crowd funding organisers.
Following completion, the investor will hold a specific share allotment in the SPV.
If the SPV is for property investment purposes, tenants are sought and lease arrangements are entered into with personnel from the investment platform organisation coordinating with lawyers and managing agents. Rental income is accordingly received and the platform organisers deduct their commission fee.
Furthermore, at the relevant time, it may be decided by crowd funders on a particular project to sell the property acquired. The subsequent pricing of the said property would be a matter for the crowd funders to agree collectively. In addition, investment platform organisers would charge a fee on the capital growth in the value of the property asset.
If you require any assistance with a matter such as the above, please contact Richard Greenby on 020 7387 2032, or complete our online enquiry form here.
