Investment Glossary- May
Crowdfunding despite what you might think, is self-explanatory. The clue is in the title! A group of people come together to raise funds for one reason or another. It is considered a type of investment. People fund projects, musical releases or start-ups, often with a mind to receive something in return. This may be anything in the shape of money, shares or a product. The House Crowd were the first property investment company to explore the realms of property crowdfunding. Starting in 2012, The House Crowd initially offered just equity based property crowdfunding. You cannot guarantee that what you have invested in will be returned or deliver definite returns. We currently offer two different type of crowdfunding opportunities, which we have ever so kindly outlined below. Please bear in mind, every type of investment comes with risk.
- Debt Crowdfunding: People who invest expect to earn their money back with interest. This is sometimes referred to as peer to peer lending. The returns for this type of investment are financial. These types of investment include our peer to peer loans, development loans, Auto-Invest and IF ISA products.
2. Equity Crowdfunding: People who invest their money do so in exchange for shares or ‘equity’. This may also be understood as taking a small stake in the company or asset.
Capital growth, a very simple concept that can deliver big results. According to Einstein compound capital growth is the eighth wonder of the world, and as we’re sure you’re already aware, this guy was pretty switched on.
Capital growth can be understood as the increase of an asset’s (or in this case property’s) value over a period of time. The extent to which an asset’s growth can be measured is by the difference in price from its original value. To make it a bit simpler, let’s break it down with a quick example:
- An asset worth £100,000 increases by 10% a year
- In only eight years, this asset will be worth more than double its original value
- At the end of a decade, it would be worth around £259,000.
However, it’s not always simple. Capital growth, no matter how attractive it may sound, is completely speculative. It’s completely dependent on the value of property prices at that time. To invest solely on the basis of capital growth would be comparable to gambling.
In simple terms, risk refers to the chance that you may lose some of or all of your investment. It relates to how much you get vs how much you expected to get. Risk is often calculated by historical returns or the average returns generated by an investment. However, past performance should not be relied upon as an indicator of future performance. Generally speaking, within the realms of finance the higher the risk the higher the potential return. When it comes to property investment or any type of investment for that matter, risk is a factor that should always be considered. Whilst your investment may have the potential to go up, it also the potential to go down, no matter how good it looks!
For more information on risk and how it may affect your investment, please take a look at our risk warning page. Here you can find loads of helpful information that relates specifically to each of our individual products. If you would like any more information on our products or have any questions that you would like answering, please visit our FAQs page.
To discover more about who we are and what we do, visit our ‘How it Works Page‘.