Crowdfunding and real estate is a perfect match. Either debt or equity the equation just works. Investors understand the asset class. The promise of higher returns on a tangible asset is a compelling proposition for investors both large and small. The buy to let market in the UK is booming now. A recent article placed monthly rents at £2.7 billion. Gross mortgage lending hit $18.6 billion in August – a 13% increase over last year. Meanwhile buy to let yields have risen as rents have increased 8.2% year over year.
CrowdLords is prepping to enter the space and they are accepting pre-registration now from both investors and landlords now as they gear up for an October launch in the UK. Investors will be able to become partial landlords – without the hassle. Expectations are that participation will begin at just £1000.
Becoming a landlord is no easy task. Purchasing a property to rent is just the first step in the process. CrowdLords shares that much “experience is needed to maintain properties properly at a reasonable expense. All things that people usually learn by making mistakes. With CrowdLords, we decided, we could help people avoid making mistakes by sharing our own experiences and also enabling others to share theirs. By pooling our local knowledge, and by negotiating better terms with suppliers to keep costs low and returns high”.
Crowdlords was co-founded by Bethan Jenkins and Richard Bush. They are joined by Otto Stevens the CFO and Sam Page as the CTO. Bethan is an experienced landlord with over 9 years experience in the buy to let market. Additionally she is described as a seasoned brand and marketing consultant, having worked at Base One, thus bringing much needed marketing skills to the new platform. Bush has operated as the founder and CEO of Base One – a successful branding and communications firm. For the past 20 years he has worked with big name brands including PayPal, Elsevier, Vodafone, Rackspace and more. Between the two they hope to bring the buy to let market to the UK masses.
Crowdfund Insider recently caught up with Bethan to learn more about their new venture and to hear about their vision for CrowdLords and the future of their real estate crowdfunding platform.
_____
Crowdfund Insider: So how did the concept for CrowdLords come about?
Bethan: The idea of CrowdLords really came about as a result of Richard’s fascination with crowdfunding and my own experiences in property. We loved the idea of combining crowdfunding and property as a way of enabling more people to get on the property ladder. After doing some extensive research and exploring a number of different business models we settled on CrowdLords – an equity based crowdfunding platform for Buy-to-let property. We felt it combined our desire to open up the property market to more people with our ambitions to create an attractive and successful business.
Crowdfund Insider: When do you expect the site to officially launch? (I see you are waiting on FSA approval)
Bethan: The platform will launch in October. We are in the process of obtaining FCA approval. If necessary we will obtain AR status [appointed representative] so that we can meet our launch deadline.
Crowdfund Insider: As a real estate platform will you be doing debt or equity or both?
Bethan: We are a two-sided equity based platform. We directly connect people who wish to build and manage a property portfolio (LandLords) with savers looking for secured investments (Investors).
As a two-sided model we were keen to ensure that both parties have a secured interest in the property, sharing the costs and benefiting from both income and capital growth.
We also wanted to offer something different and new in the market.
Crowdfund Insider: Your site is unique in approach. Have you had experience pooling funds for Landlords offline?
Bethan: We don’t have any experience of raising funds for Landlords offline. However, we do have our own personal experiences of trying to raise finance for a Buy-to-let property – and it definitely highlighted the barriers that exist.
We do have very stringent processes and legal frameworks that support both parties (Landlords and Investors).
Crowdfund Insider: How will you qualify properties as suitable for investment?
Bethan: From the outset the landlord will be aware of the types of returns that are most likely to be attractive to the crowd of Investors and so it will be in their interest to source appropriate properties. We will work very closely with the landlords when they are preparing the property listings and we will review and approve each one before they go live on our platform. As part of our due diligence process we will visit the properties and carry out our own valuation.
Crowdfund Insider: Establishing who is a solid operator is very important. How will you vet potential “landlords”?
Bethan: Once the landlord is fully registered and shows an interest in preparing a property listing we will begin the vetting process. The vetting process will be extensive, including credit checks, criminal conviction checks etc…
We also plan on building a close relationship with our landlords from the beginning so that we can understand their intentions and motives for becoming a landlord. As such we will also be using our judgement during the vetting process.
In the unlikely event that a landlord is not performing his duties to a high enough standard, as described in the Landlord Agreement, an independent director will have the power to remove the landlord from the post. We are confident this will rarely, if ever, happen but it’s essential we have all the correct frameworks in place to protect the investment.
Crowdfund Insider: Will every property have a term where it is expected to be sold so an investor may cash out?
Bethan: Yes, each property will have a set term, which will be clear on each property listing. The terms will either be 1, 3 or 5 years and defined by the landlord.
Our hope is that eventually we will be able to offer investors a re-market area where they can sell their shares to other investors at any time, however this has not yet been planned from a development point of view.
Crowdfund Insider: What if a landlord decides they prefer not to sell?
Bethan: If the landlord does not wish to sell at the end of the agreed term but all the investors wish to take their money out then the landlord does have the option to re-market the property on our platform to attract new investors. However, it’s essential that the landlord does this in plenty of time so that if they are unsuccessful the property can be sold in the open market.
Crowdfund Insider: How will expenses be monitored on purchased properties?
Bethan: An independent director will be appointed to each property. It will be their responsibility to ensure that the expenses submitted by the landlord are reasonable and fair. The landlord will receive the money once the independent director has approved the expenses.
Crowdfund Insider: Will these be residential or commercial or both?
Bethan: The properties that will feature on our platform will all be residential, from the beginning anyway.
Crowdfund Insider: CrowdLords was denied access to Crowdcube. Will you be raising capital elsewhere?
Bethan: We are still surprised by the fact that we were denied the opportunity to raise money on CrowdCube. In fact, Richard has just written another blog post about it.
We are raising capital through private investment and crowdfunding. We are just about to launch our crowdfunding campaign on Seedrs, we are hoping to go live next week. So, if you know anyone who might want to invest in CrowdLords definitely point him or her our way!
Crowdfund Insider: How do you see crowdfunding evolving in the UK?
Bethan: I think it’s a really interesting question. I love the idea of crowdfunding and the opportunities it presents to aspiring entrepreneurs, individuals, and investors. It’s amazing looking at the positive impact it’s already had and I believe it will continue in the UK.
I have my concerns that it could become too regulated and too structured which for me goes against the whole idea of crowdfunding. But equally I understand the need for the regulation in order to protect people and their money.
We have already seen some rather strange campaigns in the US (e.g. the Kickstarter potato salad campaign) and I wonder whether we will have a few crop up in the UK. But I think these are as a result of people testing how far they can push crowdfunding. And the crowd excited to get involved in any new and crazy idea. Over time and as the market matures I think crowdfunding will become more established and more accepted in some key markets and I think the crazy campaigns will die down. As part of this market maturity we expect to see other specialist crowdfunding platforms come to market, like CrowdLords, that serve particular audiences with added value propositions.