Crowdfunding system for property investors - help

[arashi87]

Recently i have met people in sydney that do crowdfunding property investment.

What that really is:

For example, a property cost $500,000. Developer wants the funds asap without going through bank for loan. So asks the middleman (agent or whatever you call them) to gather a number of investor to contribute ... Eg; 10 investors. So each of then paying $50,000. And the property is paid off in that case which skipped the banks for repayments or interests.

Say after settled, $500 pw rent earned , then it will distribute between the 10, $50 per week - on going costs .....

I found this method really interesting. And will only make money if sold price - capital gain / 10.

Can anyone tell me the downsides and why its not popular?

 

[Hooray]

Because it's illegal to advertise an investment scheme without lodging a prospectus with ASIC?

 

[MRO]

Issue would be that 'investors' would have to pay cash and could not secure against the property. Not a problem for many but does tie up equity that could be used elsewhere. Who is managing the property and the distribution to the owners and what is their fee? How does and investor cash out?

I could see it working on a bigger scale but their are already listed entities doing exactly this with commercial property.

Forget this idea and move on.

 

[The Y-man]

As MRO has pointed out, in what way does it differ from a commercial property trust?

Usual things would apply I imagine - prospectus to be published, etc etc


In this example, developer wanted to raise $118 million for a new building.

http://www.cromwell.com.au/investment/opportunity/291/box-hill-trust



The Y-man

 

[marg4000]

What security would investors have?
Marg

 

[Deltaberry]

At a certain point you need an AFSL license which is quite onerous.

 

[Truly Exotic]

+ what are you going to do if one person wants to pull out half way,

or even after its completed,
youd have to sell the share or the entire project at worst case scenario,

im sure with like minded trusted people, this would be great

hence, I would like to set up a property fund one day

 

[arashi87]

Must sign a legal contract, after a certain period (3years? 7 years?) have option to sell, if in between the time frame, cannot be sold...but like shares, u can transfer to other buyer?

That will prevent unnecessary pull outs.

Well the downside is...it will require a voting option if selling or not, increase rent or not, if you're desperate with the cash, then it will not work for you....maybe thats why not everyone is doing it becos it loses the liquidity

 

[The Y-man]

Must sign a legal contract, after a certain period (3years? 7 years?) have option to sell, if in between the time frame, cannot be sold...but like shares, u can transfer to other buyer?

That will prevent unnecessary pull outs.

Well the downside is...it will require a voting option if selling or not, increase rent or not, if you're desperate with the cash, then it will not work for you....maybe thats why not everyone is doing it becos it loses the liquidity

Yep - it is basically an unlisted property trust or syndication. The "crowdfunding" is just purely an attention grabbing term.

The Y-man

 

[willair]

Recently i have met people in sydney that do crowdfunding property investment.

What that really is:

For example, a property cost $500,000. Developer wants the funds asap without going through bank for loan. So asks the middleman (agent or whatever you call them) to gather a number of investor to contribute ... Eg; 10 investors. So each of then paying $50,000. And the property is paid off in that case which skipped the banks for repayments or interests.

Say after settled, $500 pw rent earned , then it will distribute between the 10, $50 per week - on going costs .....

I found this method really interesting. And will only make money if sold price - capital gain / 10.

Can anyone tell me the downsides and why its not popular?

Only 2 spring to mind ,"Control" and the "Exit" and the so called middle ladies or men ,,no something I would think about..

 

[Lord Shanghai]

This sort of arrangement is commonplace in Asia. It might work well if all parties trust one another. Otherwise, its going to end in tears and the only beneficiaries will be the legal profession.

 

[Deltaberry]

As mentioned, at some point it'd be construed as an unlicensed fund management business. Only takes one disgruntled investor to complain to ASIC to see some criminal proceedings.

 

[Lord Shanghai]

criminal proceedings.

OUCH! That's pretty serious.