Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong.
Risk Summary

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

  • You could lose all the money you invest
  • Most investments are shares in start-up businesses or bonds issued by them. Investors in these shares or bonds often lose 100% of the money they invested, as most start-up businesses fail.
  • Checks on the businesses you are investing in, such as how well they are expected to perform, may not have been carried out by the platform you are investing through. You should do your own research before investing.

You won't get your money back quickly

  • Even if the business you invest in is successful, it will likely take several years to get your money back.
  • The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.
  • Start-up businesses very rarely pay you back through dividends. You should not expect to get your money back this way.
  • Some platforms may give you the opportunity to sell your investment early through a 'secondary market' or 'bulletin board', but there is no guarantee you will find a buyer at the price you are willing to sell.

Don't put all your eggs in one basket

  • Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. A good rule of thumb is not to invest more than 10% of your money in high-risk investments. Learn more here.

The value of your investment can be reduced

  • If your investment is shares, the percentage of the business that you own will decrease if the business issues more shares. This could mean that the value of your investment reduces, depending on how much the business grows. Most start-up businesses issue multiple rounds of shares.
  • These new shares could have additional rights that your shares don't have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.

You are unlikely to be protected if something goes wrong

  • Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker.
  • Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here.

If you are interested in learning more about how to protect yourself, visit the FCA's website here.

For further information about investment-based crowdfunding, visit the crowdfunding section of the FCA's website here.

Investing Capital

Can anyone make money by investing in property?

If, by this question, we mean ‘do you need to be rich or have expert knowledge or experience to make money in property’, then the answer is no - not necessarily.

There are some ways of investing in the residential property market, which only require modest capital and no specialist knowledge and I’ll go on to outline some of those.

But, if the question is taken to imply ‘is it easy to make money in property, or is it guaranteed’ then the answer is an emphatic no. As is the case with all investments, your capital is always at risk and property can’t be excluded from that.

However, it continues to be an attractive investment.

The Wealth and Assets survey by the Office for National Statistics (ONS) has revealed that 49% of non-retired UK adults chose property as the most sound investment choice for maximising finances, making it consistently the most popular investment option since 2010.

The ONS said:

“Since July 2010 and continuing into the latest period of July 2016 to June 2017, the percentage of people identifying property as making the most of their money has been increasing, which may reflect a growing confidence in property prices over this period.”

The proportion of people who still put property as the top investment option has grown by 9% from 40% back in 2010-2012.

This reflects the wisdom of crowds.

For one thing, over the long term, house prices rise. The Department of Communities and Local Government records that the average UK house price in 1969 was £4,640. By 2007 this had risen to £223,405.

There are ups and downs and property prices took a knock in the financial crisis and, while earlier in the year Nationwide reported that property prices in the UK saw their fastest annual growth rate since March 2017 at 3.2%, in its August House Price Index, Nationwide reports a slowing to 2% annual growth.

Property expert Savills in its autumn 2018 Residential Property Forecasts foresees a total house price growth of 14.8% at a national level over the next five years. Within this there’s likely to be considerable regional variation, with prices in the North West and Yorkshire likely to grow by more than 20% by 2023 and, for the North East, Savills forecasts a 17.6% rise. London can only anticipate a 4.5% price rise over the period.

So, particularly in the North, residential property looks like a good investment opportunity, but is it one that is only available to a fortunate few with the money, experience or connections?

Better options than buy-to-let

Until recently, buy-to-let was a popular option for people wanting to benefit from property as an investment. By buying a property and then renting it out, they could enjoy an income with the satisfaction of owning an asset that was rising in capital value. It worked as long as the rental income exceeded any financing costs and house prices keep rising – or until the government stepped in.

And this is what happened. The government took fright at the effect buy-to-let’s popularity was having on the housing market, pushing house prices up beyond the reach of younger people who couldn’t afford to get onto the housing ladder. So, the government raised stamp duty restricted tax relief on interest payments and tightened regulation on mortgages.

It looks like these measures have led to a steep fall in those buying investment properties with mortgages. Having said that, there are still returns to be made from buy-to-let in certain parts of the country.

Totally Money has put together a report of postcodes across the UK to reveal average rental yields available in each area. Liverpool is top in terms of yield, with L7 – which covers the city centre, Edge Hill, Fairfield and Kensington – returning an average yield of 11.8%. In Newcastle, for example, another university city, its NE6 postcode, which covers Walker, Byker and Heaton, shows yields of 9.5%. The North generally offers better opportunities for the investor than the South.

Read more: with buy-to-let tax reliefs going, what are your property investor options?

Another route for the would-be property investor is buy-to-sell: acquire a property at a good price, improve it and sell it for a profit. This is an age-old and popular way of making money out of residential property, not least because it’s easily understood. However, that doesn’t mean it’s not an easy way to lose money. It presupposes that you have an eye for a bargain and calls for a good knowledge of the local property market. Also that you have relevant renovation skills yourself, or know trusted people who do. If the property market takes a tumble before you can sell on, then you could be left with a capital loss. If you’ve borrowed to buy the property and it takes longer to sell or renovate than anticipated, again you could be in trouble. It looks simple, but it’s probably one of the most demanding ways to invest in property.

And many people prefer some form of indirect investment. This could be as straightforward as buying shares in a publicly listed builder such as Bellway, Barratt or Taylor Wimpey, or by investing in a fund that goes on to invest in the market for you.

Real Estate Investment Trusts (REITs) have been around in the UK for about 10 years and most of the UK’s largest property companies have converted to REITs, including big names such as British Land and Land Securities.

A REIT is a property investment company which can be easily traded on the stock exchange. And to encourage investment in UK real estate, REITs don’t pay corporation or capital gains tax on their property investments. But, to qualify as a REIT, at least 75% of profits must come from property rental, and 75% of the company’s assets must be involved in the property rental business. REITs must also pay out 90% of their rental income to investors.

Buying shares in building companies or REITs is a relatively safe way to invest in residential property, but it’s unlikely to generate the same levels of return that a more direct participation in the market can bring. Nor does it give the same sense of having a direct involvement in a development.

Joint ventures: the right property investment route for you?

But with many investors not wanting to be so involved they’re (almost) laying their bricks themselves, joint venture property investing can be a great middle ground.

Generally facilitated through online platforms on which large numbers of investors invest alongside each other, a joint venture - or JV - is a common way of structuring a property development, as it brings together a mix of different disciplines and expertise, as well as capital.

Giving retail investors the ability to co-invest alongside angel investors, institutions and venture capitalists, each can take an equity stake in a residential property development project by buying shares in a Special Purpose Vehicle (SPV).

Read more: Is joint venture investing the best way to get into property investing?

A limited company, the money invested into or lent to it can only be used on a specific development. The investor’s exposure is limited to the amount invested, but if the houses sell for more than was projected, the return for investors can go up.

As little as £1,000 can be invested in a single project (with development periods often between 18 and 24 months), giving investors the ability to spread their capital among a number of developments and therefore spread their risk.

So, to return to the question - can anyone make money by investing in property?

The answer is yes. A return on investment is never guaranteed, but there are undoubtedly plenty of opportunities available now for an investor without huge amounts of capital or specialist knowledge to be able to share in the residential property market.

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Growth Capital Ventures (GCV) is backed by funds managed by Maven Capital Partners, one of the UK’s leading private equity and alternative asset managers.