The simple way of understanding property crowdfunding is that the home buyer is buying a property and instead of going to conventional bank financing, he got the investors in the crowdfunding platform to pool their resources to finance the intended purchase of the home buyer.
In another words, the home buyer is in a joint investment with all the crowdfunding investors and in return they will share any profit made from the subsequent disposal of the said property proportionate to their contribution into the initial purchase price. The logical disposal is to the same homebuyer to buy over the investor’s portion of the same property based on an option to purchase granted to the homebuyer and exercisable after a fix period of time at the prevailing market rate at the material time. To secure the crowdfunding investors, the same homebuyer would normally underwrite any or the substantial part of any losses in the event that the market price of the property is below the original purchase price during the initial acquisition.
Therefore, the risks to the homebuyer is in the fluctuation of the market price, the underwriting of any losses as well as the consequences in. the event that the said option granted is not exercise by the same homebuyer that might include an option to roll over another fix period as well as an immediate disposal thus moving out of the property eventually.
As for the Vendor of the property sold to the Homebuyer, normally they would get paid fully of the purchase price in the completion of the initial transaction. There should be no more risk to the Vendor, unless a buy back option is part of the original transaction.
For the lawyers attending to the transactions, they normally will work closely with the crowdfunding platform to set the terms and conditions that are unique to facilitate the operation of that particular platform, and usually they are representing the platform as well as the crowd investors. Homebuyers are advised to get their own legal advice.
To have further understanding of property crowdfunding, you may consult our lawyers.