Crowdfunding for self build

[Internet Know How]

Hey Everyone,

 

With so many options for funding a self build, property development crowd funding looks like a good idea. When taking into account platforms that are only focused on property crowdfunding, the five largest appear to be: Kuflink, Octopus Choice, Proplend, Property Partner and Cogress.

 

- Have you had any experience with any of these, or maybe another that you can recommend?

- Once the project is fully funded by private investors will it allow immediate draw down of some funds, or do they always pay in arrears, meaning I would have to find cash elsewhere to make a start on the build?

 

Thanks

 

Chris

[ToughButterCup]

7 minutes ago, Internet Know How said:

... 

With so many options for funding a self build, property development crowd funding looks like a good idea

.... 

 

Might you have meant ... so few... options? 

 

[Ferdinand]

There are two sides to this - investor and borrower. Just thoughts.

 

The control with crowd funding is with the platform not the investor.

 

In general, suspect the well developed funding infrastructure and many options in this country makes it difficult for them. I am only aware personally of one self-builder who uses them, and that was one of our members who used Folk2Folk, who do have a track record. But I understand that they have stopped doing self-build funding. Their main business is crowdfunded loans secured against commercial buildings.

 

Investor side

 

1 - To me, crowd funding platforms are still a bit short on track record for this area. It does not yet for me pass the gift-horse test.

2 - There is a long history of innovative-looking get rich quick ideas in the property sector, wide boys and non-transparent deals, and it all going either missing or tits-up. And some of it can walk a bit too close to the line. Professionals and developers are still quite shy, imo for good reason, and every so often there is some sort of scandal.

3 - They would normally offer investors a 5-10%+ return at present. That is a lot for a self-builder to carry at present.

4 - I am not really convinced that any of them are self-build experts, which is what would be needed. I could be wrong - Have not looked at them all.

 

Borrower side

 

4 - I can see it maybe for upfront or build or bridging costs, but is dependent on the build succeeding and a robust payback method afterwards. If a borrower cannot borrow from a bank, that is a telltale that they could be a high risk, or the crowdfund is the last chance saloon.

5 - The indeterminate end of self-build projects is a difficult-to-manage risk.

6 - The lack of experience of most self-builders is also a risk. 

7 - I am not clear what sort of verification they run on borrowers. Pro developers would normally have other assets, and so could be gone after. If self-builders have other assets they will often be using them to fund their contribution to a build.

 

All of the above is open to debate.

 

One alternative is a private loan arranged via a local solicitor.

Ferdinand

 

Edited September 5, 2020 by Ferdinand

[Internet Know How]

2 hours ago, ToughButterCup said:

 

Might you have meant ... so few... options? 

 

well yeah.....there are plenty of people offering finance but the main things I come across are....

 

1.) you need 15 to 20% deposit of your own to start as money is paid in arrears

2.) What experience do you have

3.) Can tell you anything unless you have planning permission

 

So,  looks like I have to shell out £13k in planning 1st stage to get speaking to someone and get an application in. Problem is that I dont want to design a house so big I then cant obtain the funds to build it.

 

[Mr Punter]

A friend has a number of investors and he pays them 8%.  He is in the property business and will, say, use the funds to purchase a house, add 2 rooms in the roof under PD, let it as a small HMO, refinance with a commercial mortgage, repay the investors and keep the change.

[ToughButterCup]

1 hour ago, Internet Know How said:

...

. Problem is that I dont want to design a house so big I then cant obtain the funds to build it.

Then don't. 

Too small a budget is normal. It's a useful stimulous to creative thinking. 

@Ferdinand's yer man for that.