Alternative routes into buy-to-let property

Britain’s obsession with the housing market, the rapid growth of alternative finance and the increasing sophistication of the internet are coming together to offer buy-to-let investors new ways of profiting from property.

Two alternative property investment routes are attracting particular interest – off-plan auctions and crowdfunding.

Off-plan auctions

The quest for online bargains most often starts at leading auction site eBay. But dig a little deeper into the growing number of auction-style sites and opportunities to pick up property bargains will appear.

Many of these new sites specialise in off-plan properties that are yet to be completed. Allsop, for example, is a new concept that represents the first solely internet-based channel for bidding on new-build properties.

It works in a similar way to eBay, except that steps have been taken to eliminate “sniping” or bidding at the last second so rival buyers will not have time to respond. If a last-minute bidder turns up, the clock will reset for another 60 seconds to give people who have already entered the auction time to respond.

Bidders pay a fee of £5,000, but this becomes part of their deposit if they win and is refunded if they lose. Auctions last a little over 24 hours, and when bidding ends the winner will have to pay 10% of the purchase price plus a buyer’s fee of £1000 plus VAT. They then have some months to complete the transaction, though it’s normally advisable to have finance lined up before bidding as a winning bid constitutes a legal contract to buy.

Crowdfunding

The concept of crowdfunding has received most publicity as a way for small businesses to attract funds through websites like Kickstarter. But it has also become a way for investors to club together and purchase properties, with each one individually putting far less money up front than it would take to invest in traditional routes.

Several websites have been launched that offer investors this route into the property market, including Property Partner and Housecrowd.

The idea is fairly simple. Investors pick a property they want to invest in from those available, and then contribute part of the cost.

The minimum investment varies from platform to platform, but is often £1000 and can be as little as £500. Once the entire purchase price has been raised, the property is either bought by the company operating the investment platform or by the investor who has contributed the largest amount and let out to tenants just like any other property.

Returns are distributed to investors in proportion to the amount they contributed. The advantages for investors are obvious – they gain access to the property market and proportionally similar returns on a much more affordable investment.

In most cases, the property will be sold after a certain number of years and the revenue shared among investors. With some platforms, it may also be possible to sell your interest in the property to another investor ahead of time.