Property crowdfunding, and the alternatives.

Crowdfunding promised to open property investment to anyone with a few hundred pounds, and to give developers a new source of money. For some projects it worked. For others it ended in administration. Here is how it works, what went wrong, and how developers fund a project today.

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The basics

What is property crowdfunding?

Property crowdfunding pools money from many investors through an online platform to fund a property purchase or development. There are two main types.

Equity crowdfunding

Investors buy shares in a company that owns the property, and share in any profit or loss.

Loan-based crowdfunding

Also called peer-to-peer. Investors lend to a developer or landlord, usually secured on the property, in return for interest.

The record

What went wrong?

The House Crowd, a Manchester platform that raised money for property projects across the North West, went into administration in March 2021. It was not alone: several UK property lending and crowdfunding platforms have failed or wound down since 2019.

The common problems were projects that overran or failed to sell, platforms that were themselves thinly funded, and investors who did not realise how hard it is to get money back when a borrower defaults. Investment through these platforms is not usually covered by the Financial Services Compensation Scheme.

Both sides

The risks, in plain terms.

For investors

You can lose some or all of your money. It can be tied up for years. If the platform fails, recovering your share depends on the administrator.

For developers

The money can be slower and less certain than it looks, terms can change if the raise falls short, and a platform failure can leave a project without its funder half way through.

The routes that are left

The alternatives for developers and landlords.

  • Development finance. A loan from a specialist lender to buy a site and build, released in stages as the work progresses. Most lenders want experience, a clear appraisal and a realistic exit.
  • Bridging finance. A short-term loan, usually 3 to 24 months, for purchases that need to complete quickly, auction buys, refurbishments, or to bridge to a sale or a longer-term mortgage.
  • Joint ventures. A partner puts in money, land or experience in return for a share of the profit. Done properly, with a written agreement and clear roles, a JV can fund projects a lender will not touch on its own.
  • Mezzanine and equity funding. Additional layers that sit behind the main lender, used to reduce the cash the developer needs to put in. More expensive, but faster and more predictable than a crowd raise.
  • Commercial and buy-to-let mortgages. Longer-term finance once a property is built, let or refurbished.
Working it out

How to choose.

Start from the exit: how the money will be repaid, and when. Then work backwards to the cheapest funding that fits the timescale and the risk.

Our free bridging and development finance calculator shows the gross facility, rolled-up interest and the net amount you actually receive, so you can test the numbers before you speak to anyone.

This page is general information about funding routes. It is not investment advice, and nothing here is a recommendation to invest.

Questions

Property crowdfunding, answered.

Is property crowdfunding safe?

It carries real risk. You can lose some or all of the money you invest, it can be hard to get out early, and investments through these platforms are not usually protected by the FSCS.

What happened to The House Crowd?

The House Crowd, a Manchester property crowdfunding platform, went into administration in March 2021.

What is the difference between crowdfunding and a joint venture?

Crowdfunding pools money from many small investors through a platform. A joint venture is a direct agreement between a small number of partners, usually with a written agreement setting out who puts in what and how profit is shared.

Can I get development finance without experience?

Some lenders will fund first-time developers, usually with a lower loan-to-cost, an experienced contractor or a partner with a track record. Each lender sets its own criteria.

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