Property Partner is a property crowdfunding platform I've been dabbling with for a couple of years. In my longer-than-I-set-out-for-it-to-be Property Partner review, I'll give you all the background you need to decide whether it might be for you – then tell you how it's worked out for me.
Important note: This review was written before some major changes to Property Partner's fee structure in mid-July 2019, which you can read about here. I'll update this page once it's clearer how the changes are going to shake out for investors.
|Target total return||6.5% - 8% (with investment plans - each individual property varies)|
|Early exit||Yes, on secondary market|
|Minimum investment||£250 (can split across multiple properties)|
|Speed of investment||Instant|
|Time to manage||None!|
|ISA available||Not for equity investments|
You might want to check out my article about property crowdfunding for more context and background information on the sector as a whole.
What does Property Partner do?
The concept of Property Partner is simple: you can buy a fraction of a property. The minimum investment into Property Partner as a whole is £250, but you can split this between different properties – and own as little as a £1 share in a property if you want to.
Compare this to normal buy-to-let. There aren't many properties you'd want to buy for less than £50,000, and most are a lot more expensive. Even at this very bottom rung, you'd need to find a 25% deposit and use a mortgage for the rest – making your minimum investment £12,500 per property (plus tax and fees).
This makes property partner appealing if:
- You want some exposure to residential property, but not much.
- You want to diversify across more properties than you could afford to by owning them directly.
- You want someone else to do all the work.
What kind of investments are available?
The majority of investments are normal residential properties like you might choose for your own buy-to-let portfolio. The difference is they'll usually offer an entire block of flats, or a number of flats in a larger block, rather than a single unit.
They also offer some purpose-build student accommodation, and the odd commercial property.
You get to choose from two different ways of investing:
- Pick individual properties that you like the look of.
- Buy into an “investment plan”, where they'll spread your investment across at least five different properties based on a specific objective.
How do you make money?
Just like any other property investment, you make money in two different ways:
- The monthly profit from the rental income exceeding costs
- The uplift in the value of the property when you sell
Some investments are geared more towards capital growth prospects, and others are more focused on providing a strong income. You can choose which to go for depending on what matters most to you.
How does it work?
The process is simple:
- Property Partner goes out and finds a property that they think will make a good investment.
- They provide investors with all the information, and investors decide whether to put money in.
- When an investment is fully funded, Property Partner buys it on behalf of the group of investors.
- They oversee finding tenants, dealing with maintenance, and so on.
- They pay out the monthly profit to investors, proportional to the amount of money they each put in.
As in investor, this leaves you in the happy position of not having to do anything at all. You literally buy, then leave the platform to do everything for you.
(In my case, I even forgot I had an account with them for over a year. That level of hands-off-ness / negligence is optional.)
What information do you get about the property?
A lot: an impressive amount, actually.
You need to create an account to see the details, but once you do there's a wealth of information you can use to help make your investment decision.
As well as all the normal information you'd expect to see if you were buying a property on Rightmove, there are several important extra sections:
- A breakdown of all the elements of the purchase cost.
- A detailed projection of the property's expected income and costs.
- The original reports from the surveyor and solicitor.
- An explanation of the investment case, in Property Partner's opinion.
For properties that have already been fully funded, you can also see how the value of shares in that property have fluctuated over time and what's available to buy on the secondary market. None of that will quite make sense right now: don't worry, we'll cover it all later.
Do you really own the property?
So far I've stuck to the basics of how it all works, and spared you the detail of how it's structured. Before going any further though, it is important to understand a bit more about how it works behind the scenes.
Normally when you buy a property, you're the only owner (unless you've bought with a partner), your name appears on the Land Registry, and you make all the decisions. Simple.
When there are hundreds of owners each with a tiny amount, that's never going to work. So instead, Property Partner forms a company to buy the property, and the investors become in that company. The company is known as a Special Purpose Vehicle (SPV), because it exists for the specific reason of owning that property and will cease to exist when the property is sold.
So, are you really the owner of the property? Well, yes: you own part of the company that owns the property, which is no less “real” than owning the whole thing yourself.
The difference is, if you owned a property yourself you'd have the rent come in, and the expenses go out. With Property Partner, you receive dividends as a shareholder.
Does any of this matter? In your case maybe not, but it does produce some interesting possibilities in some situations. One to talk to your accountant about.
Who makes the day-to-day decisions?
When you invest through Property Partner, you have no say in the day-to-day running of the property.
You don't get to decide which tenants live there, what the rent should be, how much to pay for repairs, or anything else that would normally be your responsibility as a property owner.
Property investment can be hands-off if you pick a good managing agent, but this is a whole other level: you can't make any decisions, and you don't even know what decisions there are to be made!
Depending on your level of control-freakery, that can be a good thing or a bad thing. For many people, the (perceived) effort involved in property will be off-putting and having it all taken out of their hands is a huge plus. But it does mean you're putting a lot of faith in Property Partner and the agents they delegate to. If you're not the kind of person who's comfortable sitting back and letting other people take decisions about your investments, it might not be for you.
Who decides when to sell?
When you buy into a property, it's for a period of five years. At the end of that five years, everyone gets the option to sell at the current market value or keep on holding.
Property Partner totals up the shares of everyone who wants to sell, and offers them to new investors. If they find buyers to cover everyone who wants to get out, great: you get your initial investment back, hopefully with a nice premium from the capital growth the property has benefited from.
If they can't find enough buyers to cover everyone who's selling, Property Partner takes the decision to sell the entire property. So even if you'd personally chosen to keep on holding, you'll end up being sold out of the investment anyway. (This could be a drawback, which we'll come to later.)
However – you can actually get out earlier than five years…
That's because you can list your shares on the “secondary market”, for other investors to buy.
Let's say you buy one share of a property for £1, then decide six months later that you want to sell.
By that point, the property could have increased or decreased in value – so in this case, let's say the “market value” of your share is £1.05.
You can list that share on the secondary market for £1.05, and if you find a buyer you'll bank a 5p profit. Don't spend it all at…oh you already have.
Alternatively, you can list it at a different price: lower if you want to be sure to get rid of it quickly, or higher if you want to try your luck.
This liquidity is one of the best things about Property Partner. Normally, you can only sell an entire property – and it can take months to do so. With Property Partner, you could choose to sell 10% of your shares in a particular property if you wanted to – and assuming there are lots of buyers in the market, it could be all done within days.
What fees do you have to pay?
Annual “Assets Under Management” (AUM) fee
The AUM fee is applied annually to the company that holds each property, which has the effect of reducing the amount of dividends that can be distributed to investors.
The fee is 1.2% for properties with equity of under £25,000 and 0.7% for those with equity of over £25,000. If you as an individual investor have total investments of £25,000 or more with Property Partner, a fiendishly complicated system of rebates comes in that reduces your overall rate. You can read all the detail here.
Monthly account fee
Every month, you get charged £1 + VAT if you have any cash or investments held on the platform.
At the time of writing, the main fee is 2% of the funds you invest. So if you put £100 into a particular property, you'll end up only getting shares worth £98. On top of that, you'll be charged 0.5% Stamp Duty on the value of the shares you buy.
There's also a “sourcing fee” of 3.5% + VAT. You don't pay this in cash terms: it's bundled up into the purchase price of the property, along with other costs like Stamp Duty. Nevertheless, it's a real cost because it inflates the cost of the property above its market value. (It's entirely possible, though, that Property Partner manage to negotiate a discount that matches or exceeds this fee because of their buying power.)
The AUM fee and account fee were announced in July 2019, and were wildly unpopular – largely because they were applied to existing investments, so you ended up making less profit than expected on investments you'd already committed to.
I don't think that's particularly fair, but I can see why they did it: it instantly produced a significant income stream which, presumably, they believed was necessary for the company to remain viable.
My main issue now is that projected dividend yields are stated before the AUM fee – so it's hard to work out how much money you can actually expect to make. Again, I understand why they do this (because it can end up being different for each investor depending on their portfolio size), but it's still annoying.
Investing through Property Partner exposes you to all the normal risks that are a part of property investment: tenants not paying, maintenance costing more than expected, a market crash, and so on.
We don't need to get into them here, because they're not unique to Property Partner. You do, however, need to be very clear that the returns they project are estimates. When they tell you what the monthly “dividend” payment is likely to be, it could end up being less if some units are empty or there are unexpected costs. When they tell you what the five-year capital growth might be, this is basically a guess.
There's nothing wrong with that at all: it's impossible to predict the future with any degree of accuracy. Don't invest in property – including crowdfunding – if you want to know exactly what return you'll make, and if you're not comfortable with the possibility of losing money.
There is one additional risk of investing through Property Partner rather than on your own: what if something goes wrong at Property Partner and they cease to exist? It's worth noting that Property Partner is well-funded, but is still losing significant amounts of money each year at the moment.
The good news is that because every property is held within a separate SPV, your investments won't (theoretically) be affected. The administrators of the company would appoint someone else to step in and administer the properties. Presumably (but this is just a guess), the administrators would list the properties for sale so they could return funds to investors and wind the company up. However, being a forced seller is never a good position to be in – so it's entirely possible the properties would sell for less than their expected value, and the administrators' fees would need to be paid too.
I'm not aware of a property crowdfunding platform having gone through this process before, so we don't know. It's worth noting, though, that when peer-to-peer lending platforms have collapsed in the past it's proven complicated and expensive to straighten things out.
What are the benefits of investing through Property Partner?
This is an easy section to write, because it addresses some of the main drawbacks of normal property investment.
1. You need far less money to invest
This brings property investment within the reach of a lot more people – and means that you can get exposure to property without having to make a big bet on it.
2. You can diversify more
Because you can buy a single share in a property, costing less than £1 in some cases, you can diversify your investment across tens of properties very easily if you want to.
That's not the case with direct ownership, unless you've got a lot of money to invest.
3. You have better liquidity
If you want to sell a property you own 100% of, it can take several months even if you get a lot of interest quickly. You also don't have the option of selling just some of your property.
With Property Partner's secondary market, you can sell any proportion and do so quickly – as long as there's a good balance of buyer and seller demand on the platform.
4. You don't have to do anything. At all.
As I said earlier, this could be a pro or a con depending on your outlook. For many people though, being able to invest in property without having to do anything will be very appealing.
What are the drawbacks?
1. There's less leverage than you could use on your own
Some Property Partner investments use leverage, or what they call “gearing”: meaning using a mortgage to fund some of the purchase price rather than the whole purchase being funded by investors. Each opportunity clearly says whether gearing is used or not.
Where it is used, it tends to be restricted to around 50% of the purchase price. That's sensible, because they need to balance risk and reward for large number of investors who will all have different opinions.
If you were going it alone though, you can generally gear up to around 75%. That gives you more upside when prices are rising…but of course also more downside when prices are falling.
It's also possible that you could secure a lower interest rate on your own, thus increasing the ROI compared to what you get for the same investment through Property Partner.
2. You might be forced to sell at a loss
In property, as long as you're never in a position where you're forced to sell you rarely have much to worry about. There are always going to be periodic crashes, but you can ride them out as long as you're making a monthly profit and you can hold your nerve.
With Property Partner, there's a risk that you'll be dragged out of an investment against your will at the five year mark. It will only happen if there aren't enough buyers on the platform to take over the shares of those who want to exit. But if the property's price has been falling over the years and investors are sitting on a loss, the likely cause will be the property market generally having a tough period.
That's exactly the time when you don't want to sell…and also the time when the fewest people will want to buy in, so being forced to sell is most likely.
Then again, the property market is very “sticky downwards” because property owners hate taking a loss. You could therefore consider it likely that most investors will want to stay in a deal even if it's had a bad few years, because they'd rather hold on for recovery than lock in a loss.
3. You have to take the income
This is a subtle point, but if you invest in property on your own through a limited company, you can leave the profits rolling up in the company for future purchases. That means the company pays Corporation Tax, but you don't have to pay any personal tax on them.
If you invest through Property Partner as an individual, you have no choice but to receive your dividends (even if you choose the option to re-invest them, you're still taxed on them). That means the SPV that owns the company pays Corporation Tax first, then you have to pay Income Tax on the dividends you've received (above your allowance).
The exception is if you invest in Property Partner through a limited company, in which case your company gets paid the dividends but doesn't get taxed on them again.
(None of this is tax advice, check with your accountant etc etc.)
4. You lose control
This is the flipside of being hands-off: lots of decisions will be made, and they might be made differently from how you'd make them. That covers everything from small day-to-day details, all the way up to not having full control over when you sell.
Ultimately, the success of your investment depends on Property Partner doing a good job, and indeed continuing to exist. You have no control over those things. Maybe you're OK with that as the price to pay for being hands-off, maybe you're not.
I've been investing with Property Partner in a very small way since December 2016. As I mentioned earlier, for a substantial chunk of that time I forgot I even had an account with them – yet continued to receive dividend income every month.
Because I've been hands-off to the point of negligence, I've only invested in three different properties on the platform. Across the three, I'm receiving a dividend yield of 3.6% (before fees).
This is nowhere near the return I'm making on the buy-to-let properties in my portfolio, but not bad considering I've done literally nothing.
The performance of “my” properties has been pretty much in line with expectations, but I've spotted others on the platform where the expected dividend has been cut significantly because of voids, evictions, and unexpected maintenance. Could they have done better to avoid these situations? I don't know, because I don't know any of the specifics – but it shows why it's so important when being hands-off that you can trust the company you're delegating to.
Of course, when it comes to property, rental income (or dividend yield in this case) is only part of the picture. Historically, the bulk of the gains have come from capital growth.
This is where I've suffered from a lack of diversification.
One of my properties is up by 17.5% in the two-and-a-half years I've held it – which is pretty spectacular.
But another is down by 22%. After factoring this in, I've actually made a paper loss over the years because the capital loss exceeds the dividends I've earned. Of course, it's not a “real” loss until I crystallise it by selling.
The performance of this property isn't any fault of Property Partner's: it can be filed under “sheer bad luck”, because it happens to have a type of cladding that might need to be replaced at great expense. As a result, its valuation has been marked down significantly while we wait for the situation to be resolved. It's likely that much of the cost will be met by an insurance claim or a government grant, and as soon as that happens the value will bounce back up again.
So, will Property Partner continue to have a future as part of my portfolio?
Fractional ownership isn't going to replace my buy-to-let investments, which have plenty of strengths of their own. But it has its place as a nice way to get a little extra property diversification with no effort whatsoever.
And as a Property Geek, it means I get to be nosey about lots of different properties and play “fantasy portfolio building” with real money – which is a nice bonus too.