Is Real Estate Crowdfunding a Good Investment in the UK?

UK real estate crowdfunding investment concept showing property portfolio

Do you have limited capital to invest in property in the UK? Real Estate Crowdfunding platforms in the UK allow beginners to invest with a small amount of capital. EA Guaranteed Rent will share insights on how crowdfunding makes sense with controlled capital and good returns.

Diagram explaining what real estate crowdfunding

What is Real Estate Crowdfunding?

Real Estate Crowdfunding is a type of property investment in which the funds from many investors (crowd) are pooled from online platforms to finance real estate projects. Crowdfunding is aimed at collecting a determined amount of capital from investors.

The funds collected are used to either buy properties or lend to developers as a loan to finance a property development project. It is an efficient way to raise a significant amount of capital, allowing investors to participate in high-value projects with limited capital.

How Much Return Do You Expect from Crowdfunding Real Estate?

Property crowdfunding typically generates returns between 5-10% annually, combining rental income and capital appreciation.

For example, UK real estate crowdfunding platforms typically deliver returns between 5-10% annually, combining rental income and potential capital appreciation. Equity-based investments may offer 8-12% annually with higher risk, while debt-based investments typically yield 6-10% with more predictable returns.

Note:

These figures represent industry averages individual platform and project performance varies significantly.

Step-by-step process of how property crowdfunding works in the UK

How Does Property Crowdfunding Work in the UK?

Instead of buying an entire property, you can earn passive income by combining your capital with other investors. Each crowdfunding platform works on the same basic models.

Due Diligence and Project Selection

A crowdfunding platform first evaluates potential investment properties and conducts due diligence to assess market conditions, risks, and projected returns. Due diligence generally includes:

National and Local Property Market Assessment.
Studying socio-demographic trends.
Rentals and sales performance analysis.
Analysis of yield potential.
Verification of the legal status of property (ownership and compliance check).
Evaluation of property condition (improvement and renovation requirements).

The platform’s Investment Committee will decide and approve to invest in the evaluated property.

Fundraising Phase

When the property is launched online on the crowdfunding platform, the investors contribute to raise funds until the target amount is achieved.

Once the required funds are raised, the property is purchased directly or from the platform if the property has been forward-purchased.
The property is then transferred to a legal Special Purpose Vehicle (SPV), which minimizes the risks for investors in case something unusual happens to the crowdfunding platform.

In the case that sufficient funds are not raised from the crowdfunding round, each investor will receive a full refund of the amount they had allocated to the property.

Management Phase

After the purchase, the property is managed and prepared for tenants or the market. The platform works in collaboration with local agents and professional asset managers. They manage day-to-day operations, which include maintenance, tenants, and property management.

Return Distribution

The property is usually rented out within the first month of purchase. The first month’s payments are received and managed by managing agents and handed over to the real estate funding platform.

The returns depend on the type of investment. The equity-based crowdfunding generates rental income and capital appreciation, while debt-based crowdfunding returns fixed interest payments.

Exit Strategy

Properties are typically held for a predetermined period (typically, 3-5 years). Exiting the investment is completely dependent upon the secondary market offered by the platform, which is typically illiquid. It is very common for investors to fail to find buyers, which leaves them locked for an undefined period.

After this period, the property is sold, and the returns are shared among the investors along with any profit gains.

Investor considering whether property crowdfunding is worth it in UK

Is Property Crowdfunding Worth it in the UK?

Unlike traditional real estate investing the crowdfunding lowers the capital, allowing individuals to participate in large-scale residential, commercial, or development projects.

This democratization opens real estate investment to those who previously couldn’t afford direct ownership or were limited to REITs.
The platform manages pooling, legalities, and distributions, which simplifies the process.
Crowdfunding enables investors with limited capital to enter the property market without purchasing the entire property outright. Most crowdfunding platforms let you start with as little as £100 to £500.
Additionally, real estate has historically provided a hedge against inflation and potential capital appreciation, making crowdfunding an appealing alternative to stocks or bonds.

However, investing in real estate crowdfunding is not a one-size-fits-all solution. This convenience comes with different risks and considerations, which include

Liquidity

The crowdfunding platform lacks liquidity, as capital is tied up until the designated holding period of the platform ends. This makes it difficult for investors to get their capital back at any time when required.

Platform Reliability

Platform reliability is typically the most crucial risk while investing in crowdfunding. The investors can face a loss if the platform:

Mismanage the funds
Goes Bankrupt
Unable to generate returns

Types of Real Estate Crowdfunding in the UK

There are different types of RE Crowdfunding according to investment and returns. Each type operates differently and has distinct legal considerations. Two types of financial returns are as follows:

Equity-Based Crowdfunding

In equity-based crowdfunding, multiple investors contribute to buy an asset through a company (SPV) that owns that property. The company allows partial ownership and returns from:

Rental income.
Capital appreciation when the property sells.

It receives long-term support from beneficiaries, as they have a financial stake in your property.

Debt-Based Crowdfunding

In Debt-based crowdfunding, the investors act as lenders and pool money through online crowdfunding platforms to provide loans to the developers in exchange for fixed interest rates. The borrower pays interest after a fixed period until the full amount is repaid. The pooled capital is used to finance real estate developments such as:

Bridge loans,
Construction loans
Renovation loans, etc.

Feature	Equity-Based	Debt-Based
Your Role	Property owner (via SPV)	Lender to developer
Returns From	Rent and capital gains	Fixed interest
Typical Return	8 to 12% annually	6 to 10% annually
Risk Level	Medium to High	Medium
Investment Term	3 to 5 years	6 to 24 months
Income Type	Variable	Fixed
Best For	Long-term growth	Stable income

Other Crowdfunding Types

Donation-based and Reward-based crowdfunding are not standard investment methods for real estate, especially. Both types are not typically applicable to investors who are looking for a financial and good return in exchange for their investment.

Pros and Cons of Property Crowdfunding

Property crowdfunding is a valuable addition to an investment portfolio, but it comes with significant pros and cons:

Pros	Cons
Crowdfunding allows starting with a low minimum investment.	The invested funds remain locked until the project ends.
Enables diversification across multiple properties.	Crowdfunding offers limited control over property management
It generates passive income from rentals or profit shares	It also carries risk if the platform underperforms or fails.
It provides access to large and high-value commercial projects.	Each platform has fees that reduce overall returns.
The platforms eliminate the need for daily property management.

Final Thoughts

Real Estate Crowdfunding has made property investment more accessible to beginners and startups in the UK. It allows investors to start with relatively low capital and offers portfolio diversification, passive income potential, and professional property management without the responsibilities of direct ownership.

However, crowdfunding is not a risk-free investment. Limited liquidity, platform reliability, and market trends should be carefully considered, and inventors should only invest money after due diligence assessments. Crowdfunding is best suited to investors with a medium to long-term horizon who clearly understand that returns are not always guaranteed.

FAQs

RE crowdfunding covers a wide range of asset types, which include residential properties, buy-to-let investments, commercial properties, mixed-use apartments, and property development projects, student accommodation or build-to-rent schemes.

Crowdfunding usually involves investors buying shares in a property-owning structure and earning returns from rental income and capital growth. In P2P, investors lend money to a borrower and receive interest repayments without owning the property.

A SPV is a legal company created solely to hold and manage a specific asset. When you invest, you buy shares or loan notes in the SPV. The SPV owns the property and profits, and income is distributed to investors via this entity.

Typically, investors are provided with:

Investment memorandum or offer document
Property valuation report
Financial Projections forecasts
Title and planning documents.
Identity Credentials.

Yes, you can use crowdfunding to raise capital for purchase, fund refurbishment costs, and reduce reliance on bank loans. This is usually done by setting SPV and listing the opportunity on a regulated platform.

Yes, crowdfunding platforms in the UK are regulated by the Financial Conduct Authority (FCA). They regulate investor protections, financial promotions, risk warnings, platform conduct, and reporting.

It depends on the structure; equity crowdfunding does not fix payments, unlike debt crowdfunding, in which payments are made with interest that is predefined and fixed. You only have to pay back money in debt-based crowdfunding, where you pay principal plus interest.