Joining the Madding Crowd

Private Property South Africa
The Roosting Venus

Crowdfunding is a new way for ordinary people to invest in commercial property. So what are the pros and cons?

Once he has a bee in is bonnet, it’s very hard to get him to concentrate on anything else. And that’s surprising, as it’s generally very hard to get him to concentrate on anything at all, especially anything I say. But that’s par for the course with Other Halves I suppose.

This time, the bee was about commercial property investment, and the danger only that once he’s with bee, he’s been known to make decisions that are way too hasty and eventually end up stinging.

I knew it would take some fast action to slow him down, so that I could do a little research before he threw all our savings into a new shopping centre in Hellsville or the like. Until I heard him talking about crowds and crowdfunding and stopped dead in my tracks.

No, he hadn’t suddenly lost it and become an avid shopping centre groupie, he’d got a whiff of one of the country’s newer ways of investing in commercial property and it was interesting.

A little nose-to-the-net revealed more, and pretty soon I too was biting.

While crowdfunding has been used in a number of industries by people looking for start-up capital, its use in the property market is one of the newest and most innovative ways that amateur property investors can get a foothold into the world of commercial property. The main reason is of course that most amateurs can’t afford the sizeable investment, and risk, that involvement in commercial property generally takes if you’re going the traditional route. Crowdfunding however requires a much smaller outlay, and being largely web-based, allows potential investors to access properties worldwide and choose what they’d most like to invest in.

Through crowdfunding the ownership of any crowdfunded property is shared amongst all its investors, and so too are the profits. This means that once you have invested a given amount in a particular property you then own an equivalent percentage of that property, and thereafter any money earned by that property through rent or sale will be shared amongst all its crowdfunding owners, including you.

Advantages:

  • Through web-based operations you can invest anywhere in the world, increasing your global wealth.

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The smaller sized investment means that people are more likely to be able to invest in multiple properties, thereby allowing amateur investors to minimize losses.

  • Crowdfunding is deemed low-risk as you don’t fund the entire property yourself.

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You become a buy-to-let landlord without the hassle of tenants as this is handled by a third party.

  • Much of the due diligence around the property is taken care of prior to your investment.

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Much of the legal documentation is done by a third party too.

  • If you crowdfund through a reputable organization you can benefit from the expertise of that team.

Disadvantages:

  • Your investment will probably be for a fixed term and early exit can cost.

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Your returns will probably not be as high as if you had bought the property yourself (but the risk is significantly lower).

  • You will need to trust someone else to tenant and manage the property and you will probably be largely removed from decision making.

Tempting - I liked it! But before I gave him the silent nod, it seemed prudent to recap a little on the tried and traditional take on commercial property investment too.

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