If you’re keen to invest your cash but want to be sure it’s doing some good, Reap is worth a look
It’s described as an ethical alternative to buy-to-let aimed at those keen to invest in housing but who want their money to do good.
Reap (it stands for “real estate annuity plan”) allows people to lend money to a social enterprise that specialises in providing affordable rented homes for people in housing need, including those at risk of homelessness. Investors will receive a fixed 3% a year interest, with the income paid monthly.
If that sounds like an OK but not amazing return, those behind the scheme point out that with Reap, that 3% comes without any of the associated risks, responsibilities and inconveniences of being a landlord, such as finding tenants, checking references and dealing with problems such as a broken boiler.
That income is unaffected by “voids” (periods when a property is not rented out), or any maintenance costs or rent arrears. And it does not rely on house price growth to generate an income for investors.
But it isn’t risk-free. The biggest drawback is that it isn’t covered by a financial services compensation scheme. So if the social enterprise behind it were to go bust, you could in theory lose some or all of your cash. That said, your money is secured against property.
Some Guardian Money readers may recall that we featured Reap back in May 2015. It is the brainchild of Equfund, an affordable housing provider based in West Kirby on the Wirral peninsula near Liverpool. Equfund is a “community benefit society” (like a co-operative), and since 2002 it has found homes for thousands of people through investments of more than £33m.
The 2015 version of Reap raised more than £3.7m and involved refurbishing long-term empty homes, now Equfund will be acquiring properties nationwide that are ready to move into. The 2015 scheme offered 7% a year. Andrew Mahon, director at Equfund, says: “The interest we pay to our investors comes from the rents we receive. In order to make it as affordable as possible, we are paying 3% now.”
He adds: “We are trying to look to ethically minded investors … A lot of people know about the housing crisis and want to help, but don’t know how to.”
The minimum investment is £15,000, and 100% of the original lump sum is returned after five years. So someone investing £33,000 would receive £990 income a year, or £4,950 over the term.
Equfund says Reap protects investors’ money by only borrowing 85% of the property value. It adds that if Equfund were to go to the wall, the appointed security trustee (a solicitor) would step in, take charge of the property, sell it and return the money to the investor(s).
Each property has its open market value assessed by a chartered surveyor, and investors can arrange to visit a property before committing their cash.
For those seeking further security, and to limit exposure to any single home or area, investors can ask to have their money split and lodged against more than one property.
Equfund says Reap actively rents to tenants receiving local housing allowance or universal credit, “with the belief that doing so is an important step in breaking the cycle of housing poverty caused by rampant discrimination against people receiving housing benefits”.
Source: The Guardian