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Eddie_George

Property Partner Raises £5.2M To Let Anybody Invest In The Uk ‘Buy-To-Rent’ Real Estate Market

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This'll end in tears.

Whether or not you agree that real estate should be viewed as an asset class, as apposed to simply a much needed way for everyone to put a roof over their head, there’s no doubt that the sheer expense of investing in property creates incredibly high barriers to entry. Home buyers often talk about the difficulty of ‘getting a foot on the property ladder’, and investing in real estate for rental is no different.

Enter Property Partner, a London-based startup that lets anybody invest in the ‘buy to let’ market (as it’s called here in the UK) starting from as little as £50. Today the company is disclosing new backing to help expand across the UK and beyond: a £5.2 million Series A round led by Index Ventures. Existing investors, including Octopus Ventures, Seedcamp, and Ed Wray (co-founder of Betfair) also participated.

Launched in January 2015, Property Partner currently lists properties in London and the South-East of England, for anybody to invest in. As well as a share of each month’s rent, there’s the potential upside when the property is sold. And, similar to a stock exchange, Property Partner operates what is essentially a secondary market, letting you sell your shares in a property to another user of the site if you want to exit before five years.

“Property Partner was born out of my own frustration,” the startup’s founder and CEO Daniel Gandesha tells TechCrunch. “Time and time again I wanted to invest in residential property in a particular area. I would see nice coffee shops starting to pop up, steady increases in the number of estate agents setting up shop, regeneration plans being approved, but still didn’t make the step.”

That’s because, says Gandesha, buying a residential investment property is “more like starting a business than making a simple investment”.

“It needs lots of up-front cash, a mortgage that leaves you needing to put extra cash in if anything at all goes wrong, and there’s a huge amount of hassle that goes with it all. Our purpose is to solve these problems, starting with what the investor wants,” he adds.

To date, the startup says more than 1,000 people have invested sums ranging from £50 to £50,000 in homes listed on Property Partner’s platform. In addition, it says there’s there’s been “significant activity” on its ‘resale’ market, citing the first property to be crowd funded via the site, a house based in Croydon, which it says has seen more than 50 per cent of its shares traded after it was purchased.

Meanwhile, Property Partner itself makes money through a one-off transaction fee of 2 per cent charged on the purchase of your investment (not annually recurring and no charge on disposal), and an “industry standard rate” of 12.5 per cent (plus sales tax) of rental income. The latter is designed to cover the cost of advertising, letting and managing the property.

When asked about direct competitors, Gandesha says that no one else is addressing residential property using what he calls a stock-market model. “There are one or two early-stage residential property crowdfunding sites in the UK and sites for crowdfunding property developments in the U.S. (e.g. FundRise, Realty Mogul), but our model is globally unique in that it allows you to exit your investment… whenever you like.”

http://techcrunch.com/2015/03/21/property-partner/

Edited by Eddie_George

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Nice coffee shops setting up and steady increases in the number of estate agents, that's what you've got to look out for. He's given the game away now.

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At least they publish the risks (under Key Risks in small print at the bottom), not that most will bother to read that bit.

Property Partner does not remove any of the risks that you may experience should you acquire a residential property directly and outright (i.e. without a mortgage). Some additional risks are introduced by virtue of the fact that you lack control over day-to-day decisions and timing of your exit.

We encourage you to diversify your Property Partner investments across multiple properties to safeguard against excessive exposure to any one property that could incur issues such as tenant default or a problem specific to that property that impacts valuation.

Key risks are summarised below.

1) The value of your investment may decline

The value of your Property Partner investment can go down as well as up and historic performance is not a guide to future performance. A fall in the value of your investment may be due to a number of reasons, such as a fall in the underlying value of the property or a problem with the property that will need to be funded from future rental income.

2) Liquidity

Whilst you can advertise your investment for sale to other Property Partner users at any point, there may not be anyone willing to buy your investment at a price that you deem reasonable (or buy it at all). In that event you will be required to wait until the next five year anniversary of that property's listing on the Property Partner platform. Even at this point, the timing and ability to exit will depend on completion of a transaction to sell the underlying property. This transaction could take several months.

3) Variable Income

Whilst Property Partner provides gross rental income estimates based on information from third parties, these are not guaranteed. It may be that lower rents are secured. Furthermore, rental income could cease completely for certain periods. For example if a fire were to occur which was not covered by insurance, Property Partner reserves the right to obtain a loan secured against the underlying property to rectify the damage. This loan will need to be paid down by future rental income.

4) Disposal/unexpected exit

Property Partner reserves the right to dispose of the property and return net proceeds to investors. This right is intended to cover unforeseen scenarios such as the fire example described above. As well as being likely to receive back substantially less than invested, the timing may be unwelcomed and may result in the crystalisation of taxable income sooner than anticipated.

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At least they publish the risks (under Key Risks in small print at the bottom), not that most will bother to read that bit.

Of course, I would never do this ;) , but this scheme seems open to an obvious abuse. If you actually want to make money off this scheme, move into one of the properties as the tenant-from-hell, wait for the investors to sell on the secondary market, and pick up a BTL on the cheap.

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I wonder if property partner buying the properties outright, or using leverage to make the purchases?

Are the valuations offered to investors (loosing the term loosely) based on reality - i.e. the purchase price, or does property partners adjust valuations in line with its interpretation of 'market increases'

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I just looked at the people involved...

An RBSer - he should know about mark to market risks on property I suppose

Robert Weaver

Director of Property

Global Director of Residential Property at RBS

Fund Manager, running £500m residential portfolio at Invista Real Estate

Member of the British Property Federation’s Residential Committee

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2) Liquidity

Whilst you can advertise your investment for sale to other Property Partner users at any point, there may not be anyone willing to buy your investment at a price that you deem reasonable (or buy it at all). In that event you will be required to wait until the next five year anniversary of that property's listing on the Property Partner platform. Even at this point, the timing and ability to exit will depend on completion of a transaction to sell the underlying property. This transaction could take several months.

This risk is ridiculous. If you can't sell you wait 5 years and then you might not be able to sell.....anything can happen in 5 years!

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4) Disposal/unexpected exit

Property Partner reserves the right to dispose of the property and return net proceeds to investors.

Wait, so they can dispose of the property for £1 to their pals, and the investors have to swallow the loss with a smile? Who sets the disposal price?

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