Invest with Profitus

Profitus is a Lithuanian real estate crowdfunding and investments platform. It acts as an intermediary between investors, who are looking to employ their free money and those who want to receive funding for business ideas and real estate projects.

When I asked them what their main goal is, they said:

Our main goal is to make investment available to everyone. Even those who doesn’t know a lot about investing.

That’s a typical story with such platforms, nothing new here.

How does Profitus work?

So let’s take a deeper dive.

Investments start at 100 euros. Investments are secured by pledging real estate, as well as by other collaterals (e.g., indemnity or warranty). Different projects have different security tools that users can access in self-service for each project.

Profitus opened for business on the 8th of August 2018, so it’s already been in operation for a few years now, and any platform that survives 5 years plus typically is getting things right.

The platform has funded more than €100 million and helped raise money for 805 real estate projects. There are more than 29,000 investors registered as of March 2023.

Some stats from Profitus:

• Investors earned an average annual interest of 10.65%.
• All investments in the Profitus platform are secured by pledging a first-rank mortgage.
• Average investment at Profitus platform is 10,371 €
• 477 projects have already successfully repaid their investments and earned interest from investors.
• Maximum platform LTV (loan-to-value) 70%.
• Average LTV in 2023 – 56%
• Average loan term (month) – 11,34 months
• Profitus platform is regulated and supervised by the Bank of Lithuania.
• Profits accepts investors from all EU.

Note that LTV stands for loan-to-value ratio. It shows the percentage of loan in the pledged property. So if the borrower seeks to raise EUR 70,000, its pledged real estate to investors must be at least EUR 100,000, in which case LTV will be 70%.

The lower the LTV percentage, the better, as it means more real estate is pledged to investors. However, it should be borne in mind that the mortgaged property is a primary mortgage.

What Opportunities Are Available?

By investing through Profitus, individuals can gain exposure to different types of real estate investments, which can be broadly categorized as follows:

1. Residential property investments: Investors can invest in residential properties such as apartments, houses, and townhouses. These investments can generate income through rental payments from tenants or potential capital gains when the property’s value increases over time. Residential projects listed on Profitus may include new constructions, renovations, or refinancing of existing properties.
2. Commercial property investments: Profitus provides opportunities to invest in commercial real estate, including office buildings, retail spaces, warehouses, and other business-related properties. Investors can earn income from these investments through rental payments from businesses occupying the properties or potential capital gains if the property value appreciates.
3. Property development investments: Investors can participate in funding property development projects, such as new construction, renovations, or expansions of existing properties. These investments typically involve providing loans to property developers, which are then repaid with interest once the project is completed and sold, or refinanced through traditional financing methods.
4. Real estate-backed loans: On Profitus, investors can also invest in loans secured by real estate assets. These loans are typically provided to property developers or borrowers who require funds for various property-related projects. The loans are backed by collateral, usually in the form of real estate, which provides a level of security for investors. Investors can earn returns on these investments through interest payments made by the borrowers.

The vast majority of projects are based in Lithuania, which is great if you want exposure to the economy of this country.

How to Borrow Money Through Profitus

The website also details the process that property developers go through when applying for loans.

They previously promised a reply in 2 days, which is on the optimistic side and could suggest a lack of serious due diligence. This is no longer promised on the site, but I still have some concerns about their due diligence procedures given how many projects they published on the platform since their inception.

If we take the optimistic stance, they might just have a great team that is very efficient at processing applications and doing due diligence, and also a great pipeline for new projects.

Team Behind Profitus

The founder of Profitus is Viktorija Cijunskyte. Viktorija is also a co-founder of asset management company Victory Funds and real estate development company CITUS.

The about page on the Profitus website shows a good-sized team with a short description about each person and a link to their Linkedin profile.

They seem to be a young team, with limited experience being the number one factor that I would think about when I look at their profiles. But that alone is not enough reason not to trust the platform.

How does Profitus handle risk?

RE evaluation and business analytics experts on the team evaluate each funded project individually to set a risk rating ranging from A+ to F.​

Profitus have also developed a unique risk assessment algorithm to determine the rating of the project. This algorithm consists of a wide range of individual indicators and evaluations which focus on funding requirements and an appraisal of the property by an independent appraiser, the project owner, and the final beneficiary, their financial indicators, credit rating, experience, and reputation. Profitus also evaluate the project, its potential and concept, business plans presented by the project owner, and the pessimistic scenario plans, which incorporate possible market developments and the risks that could affect the project. 

How does the project vetting process work?

I’ve asked Profitus for more details about their project vetting process. Here’s what I learned:

1. In the first stage, the application is evaluated by the Project Manager, who, after asking questions and collecting the necessary documents for the inspection (Financial statements, business plan, company composition and JA register data, valuation of the mortgaged property from a third party) – decides whether the project is suitable and has the potential for financing.
2. Then the project manager forms a financing protocol. The protocol data is collected from local registers: the company’s credit history and shareholders with a larger than 20% package, property registration, and existing property restrictions and pledges are checked. The completed report is submitted to the credit committee for evaluation.
3. The credit committee’s business, real estate, and financial analysts evaluate all project information using a unique risk assessment algorithm that determines the risk rating and offers a financing price. In addition, real estate analysts perform a cross-check to determine the property’s value using a comparative method with similar transactions that took place on the market and previous transactions for the purchase and sale of the mortgaged property.
4. The credit committee makes the decision to finance or not by presenting the terms of the proposal.

Withholding taxes

Profitus practices a 15% tax retention that is deducted from investors’ profits, which is a deal-breaker for me. The vast majority of other platforms don’t take this cut, so it’s an unnecessary reduction of profits that doesn’t make sense given how many alternatives to Profitus there are.

I asked Profitus to explain why they withold taxes on profits and here’s what they had to say:

According to Income Tax Law of the Republic of Lithuania, Profitus is responsible for the collection and payment of income tax for non-residents. The income tax rate is 15 percent and it is deducted from earned interest. The platform automatically deducts it every time when loan installment is received.

If you are a non-resident of Lithuania and you are living in a country which has valid Double Taxation Avoidance Treaty with Lithuania, you can apply for the reduced personal income tax rate.

After application for withholding tax deduction, Profitus will apply a reduced PIT rate to the investor, with a deduction of 10%, or in case of Latvia or the United Arab Emirates – 0%.

I understand that this is one reason why other platforms opted to base their company in Estonia, and I believe Profitus should do the same if they want to compete on a level playing field with other platforms.

Moreover, this fact is not clearly mentioned on the website, and I know that several investors have been very disappointed to learn about the fact only when they went to withdraw their earnings.

Alternatives to Profitus

There are several alternative platforms to Profitus that cater to investors interested in real estate crowdfunding.

One notable example is EstateGuru, which operates across multiple European countries and offers short-term, property-backed loans to borrowers.

Similarly, CrowdProperty focuses on the UK market, specializing in financing small-to-medium-sized property development projects.

These platforms, like Profitus, offer an opportunity for investors to diversify their portfolios, access various real estate markets, and potentially earn passive income through interest payments or rental income.

My Opinion on Profitus

The best thing about Profitus is that it allows us to invest in Lithuanian real estate. I’m very bullish on Lithuania as a country and have several friends there who report about things improving very rapidly in the economy, the startup culture and real estate.

I definitely consider Profitus to be a good option for Lithuanian-based investors since they will not be hit by the tax retentions, and they can read the website in Lithuanian as well as communicate with the team in their native language. It’s also a good option for UAE residents since they pay no withholding tax due to the DTA treaty between Lithuania and the UAE.

For the rest of us, I think suffering a withholding tax cut of 15% is a significant disincentive to invest on this platform. Structuring your investments in an intelligent way tax-wise is one of the most important pillars of investing.

However, if you want to invest in Lithuanian real estate specifically, then Profitus is one of the best options around.

Check out Profitus

Have you invested in Profitus? What are your thoughts and experiences?

Here’s another platform that I don’t trust. When parting with my money for investment purposes, I always make sure that as far as I can see, the investment platform or opportunity checks out 100% and has no red flags.

To be clear, if I find just one red flag, I am not touching that investment.

That’s the case for Monethera. When I checked out this platform recently, I liked the overall design of the website but a recent change raised an important red flag.

I can’t comment on the quality of loans they offer or the people running the platform, because I stopped looking at the platform the moment I came across this buyback guarantee red flag.

Basically, late in December 2019, Monethera announced that they have a deal in place with a third party company, based in Hong Kong, that is willing to cover 95% of any bad loans on the platform.

[Read more…]

I’ve written about what I consider to be the best P2P lending platforms at the moment for investing, however after the debacles on various other platforms during the past few months, people have been reaching out to me to ask about which platforms they should not trust.

I think it’s a good idea to list which platforms I actively avoid so you can do your research about them and potentially avoid them as well. I’ve had the idea to write this post for a long time but I originally wanted to write a longer post about each of these platforms to explain my reasoning. Until I have the time to do so, I’ll just list them and try to describe in a line or two why I don’t trust them.

Platforms that were in the original list and eventually went bust are marked with a strikethrough.

• Lendermarket – many delayed loans, the non-fulfillment of the buyback guarantee, and blocking of withdrawals via pending payments.
• EstateGuru – too many delayed loans, incompetent management
• Nordstreet – complicated to link up your bank account; you need to first open a Paysera account.
• Fast Invest – funded by an ICO and too much focus on the founder’s story, which I don’t find believable anyway.
• Kviku – They don’t communicate with investors anymore and lots of loans pending.
• Housers – no due diligence on their projects and a murky fee structure along with many loan projects that were never concluded. As close as a scam as you can get without technically being a scam. Currently being investigated by the police in Spain.
• Bondster – Way too many defaults and no response from the team, seems to be going out of business soon.
• Crowdestor – little due diligence done on projects, leadership does not inspire much confidence, clearly on a downward trend towards its eventual demise.
• Quanloop – similar team to Bondkick – apparently a failed ICO project that did more or less the same thing that Quanloop is doing. I don’t have strong negative feelings against this platform, but it’s too early to recommend it.
• Wisefund – sparse information about the projects they are funding.
• TFG Crowd – Sparse info about the managing team as well as being based out of coworking spaces. Not a serious financial platform.
• Iban Wallet – Very shady details uncovered about the company. Stay away unless they come clean.
• Dena Invest – all the indications of a “me-too” scheme with owners having no relevant experience.
• Grupeer – people have provided evidence of scam practices by this platform, active lawsuits are underway and interest payments have been frozen.
• Boldyield – not convinced about their way of measuring LTV, and I’ve had negative experiences with a similar platform in the past (Lendy).
• Monethera – shady buyback guarantee.
• Kuetzal – seems to be a scam.
• Envestio – featured several dubious projects in the past, although things seem to be improving lately.
• Agrikaab – ridiculous and obvious scam.

Hopefully, I’ll have some time to write about the platforms mentioned above in more depth at a later stage, if they survive till then.

There are some other platforms that I don’t necessarily think have serious management problems or are scams, however, I do avoid them just the same as I don’t think it’s worth the time and hassle to invest in them.

Lenndy is one such example. They are small players in the business and show no signs of catching up with platforms like Mintos nor are they offering anything innovative compared to the top players. I, therefore, see no reason to invest in them.

Bondora is another platform that is hated on by many investors, however, I’ve gotten decent and stable results over the years, which is more than can be said about most of the platforms on this page.

Do you agree with my choices? Let me know if there are other platforms you actively avoid investing in and why.

The P2P Platform Graveyard

Several P2P lending companies have gone bust over the past years. Here’s a list of them:

• BulkEstate (2024)
• Viventor (2023)
• IbanWallet (2023)
• Wisefund (2022)
• TFGCrowd (2022)
• Dena Invest (2020)
• Grupeer (2020)
• Boldyield (2020)
• Monethera (2020)
• Envestio (2020)
• Agrikaab (2020)
• Kuetzal (2019)
• FundingSecure (2019)
• Lendy (2019)
• Collateral UK (2018)

What’s your prediction for the next one to join the list?

So far I’ve lost money on Lendy. It was one of the first platforms I invested in, and since I didn’t know much about lending at the time, I luckily had the good sense to only invest a relatively small amount into the platform. It is now in administration and there is hope for some recovery of the debts, but I will lose part of my investment there. The owners of this platform sent millions of GBP to their accounts in the Marshall Islands and drove the company bankrupt. It’s one of the first big scams in P2P lending, and the fact that the platform was fully licensed in the UK should show us that being licensed does not mean that everything is rosy at a platform.

Overall the net result from investing in P2P lending platforms is still very positive, and that is what matters since we all know that these are relatively high-risk platforms in the first place, and there are bound to be borrower defaults, loan originators going bust and in some cases platforms themselves failing for myriad reasons.

The most important thing when you lose some money is to review what happened, understand what lessons can be learned, and move on. All investors lose money at some point, but as long as you’re right about your investments most of the time you will make money. It’s important to understand the concept of risk in investing and make peace with it right from the start.

Faced with the pain of losing money, many investors throw in the towel and write off investing altogether, but this is a mistake. As humans, we are wired to feel much worse about losing something than about gaining something, so you need to understand the psychology of risk and reward and push beyond it to continue learning and investing because it’s the only way to become a better investor and ultimately make serious money in the long run. Remember that if you’re not investing, your money is actually losing value due to the effects of inflation.

If you’re just starting and you’re feeling that the prospect of investing in P2P lending is daunting, you might want to check out my tips for evaluating P2P lending platforms as in that post I’ve shared all the lessons learned along the way and my criteria for deciding whether or not to invest in a platform.

A note on Trustpilot

Over the years I’ve come to understand that many new investors rely heavily on Trustpilot to formulate their decisions on whether to invest in a platform or not. By default, I don’t trust sites like this and would never rely on them to make up a decision.

I have looked at Trustpilot reviews a few times as some platforms proudly display their rating, but it turns out that several of them are clearly abusing the system. Basically, it consists in posting positive fake reviews while simultaneously taking down bad reviews.

I think the following video fully exposes the uselessness of Trustpilot as a review platform:

On this P2P lending glossary page you’ll find all the important terms you’ll encounter as an investor in P2P lending platforms around the world, with Mintos being my favorite platform. If there are any other terms I missed out on, let me know and I’ll add them in.

AML – Anti-Money Laundering. It refers to a number of policies that governments, banks, and financial institutions have to abide by. They are obligated to proactively monitor clients and new customers so corruption and money laundry can be prevented. They also have to report any kind of financial crime. When you as an investor are asked to supply picture id, address id and documentation on where the funds you are investing are coming from by e.g. supplying bank statements and copies of your paychecks, this is part of the AML procedures.

Annuity Type Loan – a loan in which both the loan interest and the principal will be paid periodically

Auto Invest – a tool for automated purchases of Claims on the Platform, functioning according to the User’s selected settings and used by the User to purchase Claims on his/her own behalf in accordance with the selected settings.

Borrower – a natural person or legal entity, wherewith the Loan Originator has concluded a Loan Agreement

Borrower APR – Annual Percentage Rate (APR) is the cost of credit as a yearly rate. It is designed to accurately disclose the true cost of credit and provide a standard basis of comparison for the costs of credit.

Bridge Loan – a short-term loan used until permanent financing is secured, or current obligations met. It provides immediate cash flow required to achieve a specific target, such as enhancing the value of the property or selling the underlying asset

Bullet Type Loan – a loan in which the loan interest will be paid periodically, with the principal amount being paid at the end of the loan period

Business Loan – a loan used to cover day-to-day expenses of the firm, acquisition of goods or equipment, business expansion, pending obligations, etc.

Buyback Guarantee – a buyback guarantee is a guarantee usually issued by the loan originator to the investor for a particular loan, that confirms the loan originator will repurchase the loan from the investor if that particular loan is delayed by more than a particular number of days, typically 60 days.

Cash Drag – money sitting in your P2P lending account that is not being lent. This is usually due to the platform not being able to offer any loans that match your Auto Invest criteria.

Crowdfunding – financing a project through a crowd of people instead of the traditional route of bank loans.

Crowdlending – a form of investment in which a group of people lend money to individuals or companies in exchange for interest, usually through an online platform.

Default rate / Delinquency Rate – the ratio between the value of defaulted loans and the value of the total loan portfolio.

Development Loan – a loan used to finance the construction or planning process of a project

First ranking mortgage – A lender of a first ranking mortgage is the lender that has the first right to proceeds from the forced sale of the property.

Full Bullet Type Loan – a loan in which both the interest and the principal will be paid at the end of the loan period

Installment Loan – a loan that is repaid through a set number of scheduled payments or installments; the minimum number of payments is usually limited to two. The loan term may last between a few months to 30 years.

Invoice Financing (also factoring) – a way for businesses to borrow money against the amounts due from customers’ invoices. When a business sells a product or service to a customer or another business, it often happens on credit in the form of an invoice with a number of days until the amount owed is due.

KYC – Know Your Customer, alternatively known as know your client or simply KYC, is the process of a business verifying the identity of its clients and assessing their suitability, along with the potential risks of illegal intentions towards the business relationship.

Loan Agreement – a loan, lease, credit agreement or a financial arrangement of different nature concluded between the Loan Originator and the Borrower.

Loan Originator – a lending company which is the Creditor, who, in compliance with the co-operation agreement concluded between the Creditor and the Platform, has authorized the Platform to transfer the Loan Originator’s Claims towards the Borrower, by using the Platform, and on behalf of the Creditor, to take other steps prescribed in the Agreement and in the Assignment Agreement.

Loan-to-Value (LTV) –  refers to a ratio between a loan amount and the collateral’s market value. An LTV ratio of 50% would mean that collateral’s value is twice that of the loan.

Payday Loan – a small, short-term unsecured loan which is sometimes referred to as a “cash advance”. Payday loans require the consumer to have a previous payroll or income, employment records, and a checking account. The repayment of these loans is not necessarily linked to the borrower’s payday.

Primary market – market in which we investors purchase loans or shares from the platform or loan originator.

Principal – the amount of money you originally put into your investment and now earn interest on in return. When you borrow money, it refers to the amount of money you borrow, excluding interest payments and fees.

Reverse Auction – In a conventional auction each bidder makes an individual judgement on how much the item is worth to them and bids up to that limit. The item is then won by the person who valuers it highest. In a conventional auction items usually go for above the reserve price; that’s kind of the point. So in a reverse auction for a loan each lender decides the minimum rate they are willing to accept from that borrower and the loan is funded by the lender(s) who are prepared to lend at the lowest rate.

ROI – Return on investment (ROI) is a financial metric used to analyze the efficiency of an investment. ROI = profit from an investment / investment cost, and is usually expressed as a percentage.

Secondary market – a facility that enables investors to trade loans between themselves. The secondary provides a mechanism to quickly sell your shares or loans for quick liquidity, and also provides a place to grab some good deals, since other investors might be offering shares or loans at a discount in order to achieve quick liquidity.

SEPA transfer – short for Single Euro Payments Area. It’s the newest format for cross-border Euro bank transfers. SEPA aims to make cross-border Euro transfers within this area equivalent to a domestic transfer within your own country. You should always use SEPA if available over wire transfers as they are faster and cheaper.

XIRR – a financial function that returns the internal rate of return (IRR) for a series of cash flows that occur at irregular intervals. It is commonly found in spreadsheet programs such as Microsoft Excel.