Crowdfunding is a concept which has been brewing since the 1700s. Crowdfunding is one of many types of microfinance; microfinance was originally used to raise money for the poor in small rural communities, but advances in technology and digital channels have forged a new crowdfunding trend. Websites such as Kiva.org allow individuals to fund entrepreneurs in poverty stricken areas on the other side of the world and Kickstarter allows people to fund creativity and innovation (and even potato salad).
An area of crowdfunding which has begun to grow popular recently is crowdfunding and peer to peer lending in the property market. Companies such as Crowd2Let.com, Property Moose and CrowdLords are providing an opportunity to aspiring landlords and property investors of all backgrounds. Millennials and digital disruption are at the forefront of this rise in property crowdfunding; why has it come about though, and what does it mean for millennials looking to get a return from the money that they earn?
Crowdfunding works on the basis of people with similar interests or goals bringing their money together to achieve what they want. In the case of property crowdfunding, 2 common goals are to establish or grow a property portfolio and to become a buy-to-let landlord. Increased connectivity through the internet and other digital channels has meant that these people with a common interest have found it even easier to join together; instead of trying to encourage friends or family to invest in properties, investors can use crowdfunding sites to receive the additional financial backing that they need. A large amount of changes have come about for investors, aspiring landlords and estate agents because of the digital disruption we have witnessed in the 21st Century; increased use of digital channels has meant wider information availability and transparency in the property sector – something which could be considered as lacking before.
Changes in digital and the internet aren’t the only reasons for people wanting to join in with the property investment crowd. With house prices edging up to five times salary here in the UK, buying your first property as a millennial singleton or couple is near impossible without a little helping hand. Crowdfunding means that investors don’t have to find the money to invest in a property outright or fork out for an expensive mortgage. Revenues are of course shared out but so are the costs of investing.
With house prices rising, the pension age increasing and interest rates remaining low, millennials looking out for their future need to look at options other than investing in property on their own or keeping all of their money in a savings account. Interest rates remaining low means that ISAs, building societies and other saving options are not a sure fire way of growing income for a later date. In the current market, property investment is becoming a more attractable option for those not previously considering it and crowdfunding platforms are offering the medium to invest through. With many of these platforms offering opportunities from investment amounts as little as £1000, those with a dream to invest, to become a landlord or to grow their savings have a real opportunity…no matter what their current income or age is.
So property crowdfunding is an important opportunity for millennials due to the financial opportunities it offers, but also because it is through the digital channels which they have helped to evolve. Rising transparency across industries, which has come about because of changing use of digital channels and advances in technology, has been driven by millennials demanding more from the companies and services that they interact with. Crowdfunding has been given the chance to grow because of these technology trend setters and they now have the opportunity to benefit greatly from crowdfunding in property. Millennials are the generation of individuals most comfortable with using the technology these platforms are hosted upon and they are faced with an economy which forces them to find an alternative to standard savings accounts. That’s why property crowdfunding is a big opportunity for millennials to begin a property portfolio.
There are more benefits of property crowdfunding to millennials than just being an opportunity to call themselves a landlord or have their own property portfolio. Not only does property crowdfunding offer greater returns than the standard savings account but it also means property investment with a lower standard of risk. Not all of your eggs have to be put in one basket; you can diversify your property portfolio by investing in various properties across the country and you will always have that equity which you don’t get with an ISA, your money is invested in real life bricks and mortar. Buying a property online is also often seen as less of a hassle than using a traditional estate agent. Millennials massively benefit from the stripped down processes of online estate agents and property crowdfunding platforms; there are a lot less people to meet and less phone calls to make, but if they need help there is usually a customer service department just a tweet or live chat away.
Crowdfunding is a new way for those on lower incomes (such as young millennials) to invest in their futures, through online tools which are a few clicks away and simple to use for those that are tech savvy. It has the potential to make big changes in the property sector in terms of the people property companies should be targeting and the channels in which they should communicate with them. Property crowdfunding has become an accessible and popular investment opportunity in the mainstream because of digital channels but we can only wait and see what the full effect on estate agents, millennials and other property stakeholders will be.
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