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.
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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.
Insights
Industry Insights
Dan Smith
· 4 min read
· Updated on

Warren Buffet- London property market entry and joint ventures

Warren Buffet, the US master of investment, is entering into a joint venture to put his money into the London property market.

Buffett, 88, known as the Sage of Omaha, is one of the world’s richest men. He invests through his vehicle Berkshire Hathaway, which has a market value of US$529bn, with stakes in some of the world’s biggest companies.

Now, it’s reported that Berkshire Hathaway’s property division has signed a franchise deal with London-based estate agent Kay & Co.

The deal involved Kay & Co rebranding its three branches as Berkshire Hathaway Home Services Kay & Co, and expanding in London through acquisitions and joint ventures with other agencies. It aims for an additional ten offices in the next decade.

The firm currently has three offices serving Mayfair, Hyde Park, Marylebone, Regent’s Park, King’s Cross, Bayswater, Paddington and the West End.

Managing director Martin Bikhit said: “We believe there will be a surge of homebuyer interest in areas across central London, driven by the arrival of Apple in Battersea Power Station, Twitter in Soho, Instagram and Snap in Fitzrovia and Google and Facebook in King’s Cross.”

All in property together

This move by one of the world’s shrewdest investors underlines the importance to the property market of collaboration and partnership through joint ventures (JVs). In a market which calls for a mix of different disciplines and expertise, as well as significant capital, JVs form an ideal vehicle for the realisation of projects.

For instance, this summer a new JV was launched by Homes England, Kier Living and Cross Keys Homes to build around 5,400 mixed-tenure homes by 2028.

Kier will receive £27m from the JV in the form of a loan from Homes England in return for an initial contribution of four development sites. The partners will contribute £47m of equity funding.

Terms of the JV are still being agreed, and third-party lenders will provide up to £80m of additional investment for the future development of new schemes.

A spokesperson for Homes England told Social Housing: “This is a big deal for us and the start of more JVs and partnerships we intend to agree with different parts of the building and investment industries. We were clear at the launch of Homes England that we wanted to create these types of partnerships with other ambitious organisations to push pace and scale.”

Decline of buy-to-let

Property JVs, however, are not only for US billionaires or major UK social housing providers and builders. They are also now a way for the small investor, or the investor who has limited knowledge or experience of the housing market, to share in some of the returns brought by demand exceeding supply and rising prices.

In the past this was done through buy-to-let and a lot of people made money out of buying properties and renting them out. But the golden age of buy-to-let looks to be over. In the end, it proved to be just too popular and the government concluded that it was distorting the housing market and making it even harder for first time buyers to get onto the ladder.

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

For this reason, it put a brake on the whole sector and hit buy-to-let investors with a triple whammy of a stamp duty hike, restricted tax relief on interest payments and tighter regulation on mortgages.

The government’s policy seems to have worked, at least in damping down the buy-to-let market. In a recent report, property expert Savills argues that not only have these measures already led to a steep fall in those buying investment properties with mortgages, but that the decline is far from over. Interest rates are still low and the introduction of restricted interest tax relief has been staggered, so the full effects have yet to feed through. Savills forecasts a further fall in buy-to-let numbers.

JVs to the rescue

So now many would-be property investors are turning to JVs. These allow you to fund a specific development project by working in partnership with professional developers and they have become an increasingly popular way to make money in the housing market.

Another reason for their popularity lies in the recent history of housebuilding in the UK. Independent builders have had a hard time since the financial crisis to get funding from the banks, so alternative ways of property investing have been devised. With the internet, online platforms have been developed to allow large numbers of investors to invest together through crowdfunding. A refinement of crowdfunding is co-investment, where ordinary investors invest alongside professional investors such as builders and developers. This gives them the comfort that deals have been professionally vetted.

These platforms are now being used to fund smaller property developments through Joint Venture Agreements (JVAs). These are temporary but formalised partnerships of builders, finance houses and developers. A Special Purpose Vehicle (SPV) is created under the JVA, as a limited company in which the investors buy shares. The money they invested in it can only be used on a specific development.

These allow investors to potentially enjoy some of the good returns available from investing in property, while the risks are reduced. If, when built, the houses sell for more than expected, then those returns could be higher. This is because the cash returned to an investor as a percentage of the profit achieved is in proportion to the amount of equity they bought when they invested in the SPV.

For example, if an investor holds 10% of the shares in the SPV, they will be entitled to 10% of the profit. Potential losses, however, as with all limited companies, are limited to the amount invested.

Read more: joint venture property investing - what is it, why is it beneficial and how can you get involved?

There are many advantages for investors to joint ventures. They can see their own bricks and mortar development progressing, but with the comfort of investing alongside property and investment experts. There’s still the security of having an asset-backed investment and the time frames for a return – typically 18 months to two years – are short relative to the possible returns.

Plus, as little as £1,000 can be invested in a single project, allowing the investors to spread their capital among a number of developments and so mitigate their risk.

Through this form of equity investment in a residential property joint venture, the investor can share in the returns available in a rising property market alongside the developers and builders – and Warren Buffet.
Driving Growth.
Creating Value.
Delivering Impact.

Backed by

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.