Owning a property is gradually becoming a viable investment, as its value is always on the increase.
A significant part of property investment is the buy-to-let market which seems to be unstoppable.
The increase in housing prices in the UK has made buy-to-let a popular way to invest.
Soon, this segment will be able to counterbalance mortgage interest against the profits of buying in order to rent.
This staggering factor of the buy-to-let market makes the peer-to-peer property investment even more mouth-watering and attractive to investors.
The appeal of the peer-to-peer property investment keeps increasing as the years go by.
This consistent growth is partly as a result of the numerous forms in which it exists.
The P2P investment can be started for as low as £1000, depending on the platform.
The simplicity of the peer-to-peer property investment can be observed in the provision of bridging loans to homeowners or property development projects.
These loans come with reasonable interest rates of about 10% per annum, depending on the level of risk.
One major type of peer-to-peer property investment is bridging loans. The bridging loan is a short-term type of P2P property investment.
It is one that is primarily given to persons who want to fund a property transaction.
The appeal it offers to borrowers is a result of the friendly prerequisites, unlike the stringent ones of traditional financial institutions.
The tenure of this loan can be as short as three months. This short term loan which can be available from such websites, becomes more relevant to investors who want some fast money.
In the case of the bridge loans, the investor acts as a passive one and does not go through the stress of finding tenants, property management, or paying any agent fees.
The Uk is currently experiencing a crisis of housing shortages. This makes the demand for new developments high.
Providing peer-to-peer property with bridging loans to fund development projects is a way of solving the increasing house shortage.
P2P investments also require some research before going into it. To be on a safe side, the investment platform must work with the Royal Institute of Chartered Surveyor (RICS).
The Innovative Finance Individual Savings Account (IFISA) creates a free method of investing in peer-to-peer lending.
Although this platform started in 2016, it has grown into a £270 million industry.
IFISA, though, is still plagued with the challenge of unawareness. A lot of investors in the United Kingdom are not familiar with this.
IFISAs typically offer higher returns than standard cash ISA and more stable returns than stocks, and shares ISA.
The higher target returns of House crowd’s IFISA is 7% per annum as compared to the ISA 2% average.
Pension schemes serve as another effective way of investing in P2P property lending.
They come in two popular forms; Small Self-Administered Scheme (SSAS) and the Self-Invested Personal Pension (SIPP).
SSAS are one of the most popular and flexible pension schemes in the United Kingdom.
This, however, is limited to directors, senior employees, and family members in limited companies.
On the other hand, the SIPP allows investments in different forms, and it includes P2P property lending.
These investments also enjoy the tax benefits associated with pensions.
Peer-to-peer property lending provides access to viable returns.
However, investors still have the responsibility of analyzing the risks involved.
No matter how appealing the investment is, investors must take the necessary precautionary steps to minimize the risk.
Some of these steps include:
1. Checking How Secure the Investment Is
In an ideal situation, any peer-to-peer property investment should possess some level of security. It is essential to understand the security measures for your investment. Some business platforms require collateral, usually the borrower’s property. This asset can be sold in the case of a default. Lenders do this to repay investors’ capital. Other platforms use a reserve fund to compensate investors in the case of failure or when there is a loan default. This scenario highlights the importance of knowing the security measures that are in place. It is also important to note that there is still a level of risk involved, as there is no security measure that is 100% guaranteed.
2. Making Sure You Conduct Due Diligence
Due diligence usually comes in different forms. When planning to invest or lend your money to a peer-to-peer property development project, it is important to determine whether the survey of the RICs has been conducted. It is also important to ask about market liquidity and economic projections. Another piece of information that should be checked is how the platform gauges its borrowers and how it carries out credit checks.
3. Making Sure Your Provider Offers A Sensible Loan-To-Value Ratio
The loan-to-value ratio offered by the property investment platform shows how well they value your money. Although the more conservative ratio offers more protection to the lender in case the market suffers an unexpected decline, there are still no guarantees.
4. Ensuring Your Provider Gives You Regular and Transparent Information
It is important to choose a transparent investment platform that will regularly provide updates on the loan. Precise information on the repayment of investor capital should be made available. When there are issues, the chosen platform should be clear enough to let the lender know.
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