The House Crowd
House Crowd: My Estate Crowdfunding Platform Analysis
Regular readers should know I'm a real-estate investment enthusiast (and specifically for real estate crowdfunding). I like the fact that you can make money from both rental income and capital growth. So investing in property can be a safe way to distribute risk for equity-based investments.
The House Crowd was the first property crowdfunding business I invested in, beginning in 2014. So I thought I'd say a few things today about my company experiences and their investment opportunities.
When I started investing with The House Crowd, they offered shares in different assets. Investors pooled their capital to purchase a property and, when the property involved was sold, earned a share of rental income (distributed annually) with their money back – and potentially good profit. Generally, a five-year period was defined, allowing investors to vote on whether to sell and take their profits or continue for another year (or more).
I still have seven House Crowd shares. No accidents have occurred, although some rental income has been lower than expected. This was usually due to voids (tenants left and have not been replaced). There were even a few incidents of tenants not paying their rent and absconding. And there was one 'hell resident' who supposedly threatened other tenants with a knife so they all fled, did significant damage to the house, and fled a six months' rent. Reading about this made me happy to invest through property crowdfunding platforms (and REITs) and not become a landlord.
One downside to such investment is that it's rather illiquid. If you want your money back before a property is sold, the company will seek to sell your share to another investor. However, there's no guarantee that a buyer will be identified, and even if one is you'll just get the price you paid for your part. There is currently no structured secondary market, as on other websites like Property Partner.
On the other side, it has its advantages from a tax perspective. Rental returns are dividends. There's already a £2,000 taxable tax-free dividend bonus that many people don't use otherwise. So even though your dividend income reaches £2,000, you're only going to pay 7.5 percent tax on the balance above. Gains after sales are, of course, classified as capital gains, and again a generous annual tax-free CGT bonus (£12,000 in 2019/20) exists.
Fresh Investment Forms
Recognizing in recent years that some investors were deterred by lack of liquidity, The House Crowd introduced other forms of investment. One is covered loans. Here money is provided to developers (or the sister company of THC, House Crowd Developments) for short- to medium-term projects, usually between 6 and 18 months.
Clearly, these don't give you rental income, so you get your money back with interest until the loan is paid off. Interest rates differ, but are usually 7-12 percent annually. The rate paid usually depends on the LTV. The higher the LTV (the debt sum relative to the value of the property), the higher the debt, and the higher the interest rate as a result.
I've even invested in House Crowd loans. Many have gone well. I invested £5,000 in a construction loan for a Welsh property named Croesyceiliog Farm. Ten months later I got this with £461.99 interest.
Other loan investments didn't go as smoothly. For example, in 2016 I invested £1,000 in a loan for Caverswall Castle. It was supposed to be a 12-month loan, but the defaulted creditor is taking legal action to sell the property and repay creditors. Ultimately, I do hope to get my money back, but cases proceed at a slow pace. How much interest I get after paying all expenses I don't know. At this point, if I get my £1,000 back, I'll be happy.
Secured loans have various benefits for investors, and many property crowdfunding sites, as well as House Crowd, now provide more incentives of this kind. We gain from shorter timescales than direct investment and respectable return rates (assuming the borrower is not default). One downside is that interest charged on the loan is viewed as income, and you'll have to pay tax on it at the highest marginal rate.
Auto-Invest & IFISA
The House Crowd has launched an Auto-Invest plan that you can (optionally) keep as an Innovative Finance ISA (IFISA).
As you might know, IFISAs provide incentives to invest in P2P loans and get tax-free returns. All can have a generous annual £20,000 ISA bonus (current tax year 2019/20). It can be split among the three forms of ISA. And if you open a House Crowd IFISA, you can still have cash and stocks and share ISAs with other suppliers as long as you don't spend more than £20,000. You can also invest in one ISA of each form per financial year.
The House Crowd Auto-Invest product enables you to invest in one of three portfolios: Cautious, Balanced, or Bold. Each contains a bridging and development loan package, offering automatic diversification. The Cautious product's target return is 5%, the Balanced 6% and the Bold 7%. Notice that these target levels are not guaranteed. I copied a review table of the three House Crowd goods below.
The more 'adventurous' the commodity, the higher the average LTV, the higher the maximum LTV. The higher the LTV (other things being equal), the more risky the loan, the higher the interest rate on offer as a result.
There's a £1,000 minimum investment and a fixed 12-month period. Then you can withdraw by giving 30 days' notice. Your money is secured by a civil claim against land/property of the borrower, which may be owned and sold if the creditor refuses to repay.
The ISA can be moved free of charge to the House Crowd IFISA if it's over £5,000 (there's a £50 conversion fee for ISAs priced from £1,000 to £4,999).
Benefits and Drawbacks
1. Well-established, well-tracked property crowdfunding site.
2. Customer service is fast, polite, helpful.
3. Choosing investment types.
4. Tax-free IFISA available.
5. Competitive interest rates.
6. Attractive, easy-to-use website.
7. Details on loans and investments.
1. Poor liquidity without secondary market.
2. Rental profits (where applicable) allocated only annually.
3. Investment minimum £1,000.
4. Several loans are currently in default.
5. Can't open an IFISA if you've already used another IFISA this year.
To date, I've been very pleased with The House Crowd. While there have been ups and downs (as mentioned above), overall, I've still made decent net returns from my investments.
I like the new Auto-Invest/IFISA option, automatically diversified across a range of loans (lowering volatility and risk). The minimum 12-month and 30-day notice withdrawal is also desirable. Nevertheless, it is important to be aware that the target return rates are not guaranteed.
You should always bear in mind that deposits with The House Crowd do not enjoy the same degree of insurance as bank savings and building society assets protected by the Financial Services Compensation Scheme (up to £85,000). Assets are protected against bricks and mortar, and you can always get your money (or much of it) back after the property has been sold. Yet clearly, it can take a while.
In general, the lack of liquidity with property investments – and the absence of a structured secondary market with The House Crowd – means you can only spend capital you are unlikely to need shortly. Therefore, this should be called a medium- to long-term investment.
Clearly, nobody would bring all their spare cash into The House Crowd (or any other investment platform). Nonetheless, a diversified portfolio is worth considering. The return rates are far higher than those provided by banks and building societies and they are largely unaffected by stock-market volatility. Property investments aren't a way to directly hedge the equity assets, but they help spread the risk.
Another factor is that with world stock markets currently in turmoil due to coronavirus outbreak, investing in stocks and shares is possibly not an optimal time for the average investor. The House Crowd's P2P style loan reflects an alternative investment strategy that could be less vulnerable to crazy ups and downs (mostly downs) on stocks and shares right now.
The House Crowd actually has no welcome offer (or referral scheme) for new investors.
The House Crowd main features and highlights
- Crowdfunding Platform
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