The Benefits of Investing in Property Through Crowdsourcing

Market Insights
7 years ago
5 minutes

Matthew Lewison, Director at OpenCorp, explains why more and more Australians are pooling their cash with other like-minded investors to break into the lucrative property development market.

The introduction of ‘crowdsourced’ products to the property investment market has allowed everyday Australians the chance to become property developers. 

Unlike traditional property investments that rely on a sole source of capital, crowdsourcing offers the opportunity for investors to collectively pool their money into developments, creating a larger overall investment, and potentially greater returns. 

At OpenCorp, we have been using crowdsourcing in various capacities since 2009, but the popularity and viability of the model has recently led to the creation of an ongoing ‘Open Access Fund’ – Australia’s first ever crowdsourced property fund. 

The product allows clients to invest in a fund that is managed by a team of property investment specialists, with the opportunity for clients to allocate money to new projects as they wish, with a fixed investment term. 

The choice of when and how much to investment remains the decision of the customer. Profits plus original capital are paid out after settlement.

For an example of how this might work, if someone were to invest $50,000 into this type of fund, they may choose to allocate $20,000 towards a current project, and leave their remaining $30,000 in the fund to for a future project of their choosing. 

The benefit provided to the property investment company is essentially the opportunity to act more quickly on new acquisitions and negotiate on stronger terms, giving rise to additional high quality opportunities for the company and its clients. It’s a model to suit all parties. 

The Australian market now boasts a number of products, funds, companies and platforms using crowdsourcing. Some are based entirely online and offer a range of projects for clients to invest in, while others offer opportunities of just the one developer. Some offer ongoing financial support, others require clients to seek advice externally. 

Each platform has it key advantages and demonstrates why crowdsourcing has so quickly established itself as a viable, exciting financial opportunity.  

A model to suit all investors

Crowdsourcing is often promoted to those on low to moderate incomes given they allow people to enter the market at a much lower price point than has previously been possible.  

Some funds on the market allow clients to invest for as little as $10,000, with investment into specific projects for as little as $100. 

These figures are significantly less that’s what’s typically required to purchase a home, currently $73,000 in Sydney, $47,000 in Brisbane, $34,000 in Hobart and $56,000 in Melbourne (based on the average 10 per cent deposit as reported by the latest Housing Industry Association Affordability report). 

While the potential for young people and those with fewer savings to invest in property is undoubtedly a drawcard of crowdsourcing, these products also hold significant potential for established investors looking to diversify their portfolio.

It also provides a hassle-free opportunity for financially stable Australians without the knowledge of how to successfully invest in the market. 

A crowdsourced product might suit someone looking to take control of own their finances following the volatility and relatively poor returns from the stock market since the global financial crisis. 

Put simply, they are a viable ‘stepping stone’ for budging first homeowners in the process of saving up for their first deposit, and as a long-term option for established investors. 

Benefit from multiple markets

A key benefit of investing in a crowdsourced fund or directly into a crowdsourced project is the ability to be in multiple markets at the one time for a relatively low price. 

For example, if you invest in a national crowdsourced property fund, the company managing this may offer several projects across the country for you to allocate your money into. This allows investors to strategically benefit from the highs (and steer clear of the potential downfalls) of multiple areas as they choose.

Ongoing support

What deters many potential investors from entering the property market is the perceived work and knowledge that is required to be successful.

What crowdsourcing does is essentially remove the admin that comes with property investment, taking the hard work off clients’ plate.  

Depending on the company and product, investors are sent regular updates about their investments, without being to subject to the ongoing administration required to successfully manage a property portfolio. 

Some companies also offer the ongoing support of an experienced financial adviser.

Lucrative returns

Strong returns have been recorded for numerous crowdsourced property products and the companies who offer them.

To use my company as an example, OpenCorp has seen an average return of 20 per cent per annum for its investors over the last six years with our philosophy to produce architecturally designed developments that add value to their communities. We anticipate this success will only continue for our Open Access Fund clients. 

Already, demand for the fund has been overwhelming. Since launching less than two months ago, we have enlisted over 160 active investors in the Open Access Fund and over $14.0 million in funds.