Property crowdfunding
The biggest asset class is property. Developers create individual companies for each development project, and decide whether to offer investors opportunities to buy equity or lend money.
Equity crowdfunding investments in US real estate on reputable platforms, with terms of 5 or more years, have an average annual return of over 17%. Shorter-term real estate crowdfunding investments have average returns in the 10% to 12% range.
I have made one modest equity crowdfunding investment in property and received a 28% gross return after two years.
The UK property loan platform Kuflink is currently offering annual gross returns of up to 7.44%. CrowdProperty is a much larger UK property crowdfunding platform (it has raised over £500 million in total) and is offering up to 8% p.a. for investments held in an IFISA.
A newer format of property crowdfunding allows retail investors to acquire fractional ownership of property that is leased or rented, and offers a regular income from it. Buy-to-let crowdfunding platform InRento, licensed by the Bank of Lithuania, has earned a historic average 19.49% ROI for its investors. It recently became the largest licensed crowdfunding platform in the EU by the number of investors, providing an opportunity to invest in rental projects. Projects currently listed on the platform offer an average 7.96% annual return.
Non-property luxury assets
Other platforms offer crowd investment opportunities in non-property, luxury item assets including fine wines, art, watches and cars.
Konvi is a European crowdfunding platform for people to invest through shared ownership of such luxury items. A holding company is created for every asset that is going to be funded. This holding company’s purpose is to own, manage, and sell that one particular asset. When a person invests in an asset, they become a shareholder in the relevant holding company that will exist for two to ten years. Average returns have been up to 20% p.a. over the past decade.
Konvi’s main competitors include Rally Road (USA), Masterworks (USA), Yieldstreet (USA), Otis (USA) and Timeless Investments (Germany).
The Masterworks platform makes it possible for anyone to invest in blue-chip art, with works by artists like Banksy. From 1995 to 2020, contemporary art prices outpaced S&P 500 returns by 174%, and it is part of an estimated $1.7 trillion asset class that is expected to grow 58% in just 5 years, according to Deloitte.
US equity crowdfunding platform StartEngine is currently offering equity in fine wine from Bordeaux, France. According to Wine Guardian, wine is a stable investment that has earned investors a solid 13.6% annualised return over the past 15 years.
Risks
Investing in luxury item assets is often beyond the control and protection of financial investment authorities. As well as poor decisions made on receiving poor advice, there is also the prospect of deliberate, fraudulent scams.
As an example, rare whisky has recently been the top performing UK luxury investment. According to The Wealth Report 2020, rare whisky was the best performing collectable of the decade, experiencing a meteoric rise in value of 586% up to 2019; faster than any other collectable luxury asset, such as watches, art or classic cars.
Whisky is not under the remit of the Financial Conduct Authority (FCA), which would only get involved if the investment was structured under a collective investment scheme.
HM Revenue and Customs is responsible for excise duty for whisky casks, approving persons to hold excise casks without payment of excise duty, while the whisky matures in a secure and approved excise warehouse. They would only get involved with a potentially fraudulent firm if it didn’t pay the correct tax.
Misleading investor advice through paid-for communications is under the authority of the Advertising Standards Authority (ASA).
Yet high returns attract undesirable actors, out to part the unwary from their wealth. And in unregulated markets, with plenty of grey areas, it can be easier to achieve.
– With alcohol there is no spot-price like with commodities such as gold to provide a common yardstick.
– Even if their was, the main problem with buying into whisky as an investment is that you don’t always know exactly what you’re getting.
– Identifying fakes, if it indeed exists at all, can be difficult, time-consuming and expensive. It could even involve lab-tests such as carbon dating.
Given time, NFT technology could make it quicker and cheaper for all stakeholders – investors, brand owners and enforcement bodies – to identify counterfeit products and distinguish fakes from the genuine article.
In the meantime, good advice for potential investors is they should fully research any firm they are looking to engage in an investment with. Look at the age of the company, the duration it has been trading whisky casks for, and whether there’s a valid Alcohol Wholesaler Registration Scheme and WOWGR licence (under The Warehousekeepers and Owners of Warehoused Goods Regulations 1999).
I am an independent crowdfunding advisor, providing strategic overviews of how to plan and structure a successful crowdfunding campaign, without links to any particular platforms. If you think that could be useful to you, please get in touch.