The Baltics are one of the hotbeds for crowdfunding innovation in Europe; new platforms keep popping up every year and existing ones keep getting better and better.

Today I want to focus on one of my favorite platforms, Bulkestate, which was founded in December 2016 and has a financial institution license in Estonia (EU). The people behind Bulkestate are from Latvia.

The Bulkestate platform, as the name implies, enables real estate investment project crowdfunding and apartment bulk-deals for a price lower than the market value.

Their website is available in multiple languages: English, Ukrainian, German, Estonian and Russian. That gives you a clear idea of their target markets.

The vast majority of the deals available on Bulkestate are in Latvia. However, as a result of the pandemic, 2021 saw a slowdown in the supply of properties on the Latvian market and as such the team at Bulkestate are looking to expand their offerings to Lithuania and Finland in the short term, with Germany and Estonia also in sight. This was confirmed directly by Igors Puntuss, the co-founder and CEO at Bulkestate, while hosting him on one of my recent podcasts as Bulkestate celebrates its 5th year launch anniversary.

The founders are from Riga and are experts in that market, so they are trying to stick to their core competencies and focus on a few quality projects at a time. In this sense, they are different from the other bigger platforms like EstateGuru which also have a secondary market and go for high volumes.

I think this is a good sign and expect EstateGuru to have a significantly higher default rate due to the sheer volume of deals that they are putting up on their site, which to me means that there is a lower amount of due diligence on each project. In the aforementioned podcast Igors Puntuss did however point out that Covid has inevitably given rise to several defaults and longer project delays, most of which have been resolved amicably and the rest are still being followed-up. He added that while it is still quite easy to sell flats it is not the case for commercial premises given that they are harder to rent out or sell in the light of difficulties being experienced by businesses in general. This, he hopes, is something temporary until life in Europe gradually returns to normal.

The bulk of the investors that use Bulkestate hail from Germany, Estonia with a trend for new investors from Denmark, Holland, Spain and Portugal.

[Read more…]

Real estate investing needs little introduction. We all know that this asset class has been one of the top choices for investors since time immemorial. Nothing beats owning land and buildings. It’s an asset that you can see, use or rent out. It doesn’t require any technical knowledge so the barrier to entry is very low. And that is why real estate remains the number one place for people to park their money.

I have been dabbling in real estate through various platforms over the years, and this has given me a good idea of what works and what doesn’t. Here’s a quick list of some of my favorite property-based P2P lending and real estate crowdfunding platforms reviewed on this site.

• EstateGuru
• Raizers
• Bulkestate
• Property Partner
• Rendity

For more information about real estate investing you can head over to my dedicated page on property investments.

REITs vs Real Estate Crowdfunding vs Private Investing

When talking about the real estate market, currently there are three ways of investing:

• Property Crowdfunding
• Real Estate Investment Trusts (REITs)
• Private Investing

There are various pros and cons of each way of investing, so I will describe all three of them in more detail so that you can decide which one is most suitable for your situation and goals.

Property Crowdfunding

Real estate crowdfunding platforms are part of the fintech surge of recent years and have become very popular in countries such as the US, UK, and Spain. A property crowdfunding platform will typically have an attractive and modern website and give the user an experience that is very similar to owning the property directly. As an investor, you will have the opportunity to view properties in exposition phase, where you can read about the location of the property, the developer’s plans and financials, as well as the type of financing to be used (leveraged vs non-leveraged).

Typically, your money will be tied up for a 3-5 year term, although many platforms have now introduced a secondary market where you can put up your shares for sale to other investors.

I have personally invested in several property crowdfunding platforms (such as Rendity, Raizers, and Reinvest24) and so far I’m happy with the results. I’m convinced that we’ll be seeing many more people making their first entry into property investing via property crowdfunding platforms versus REITs or private ownership.

Real Estate Investment Trusts (REITs)

Let’s now talk about one of the best ways you can diversify your property portfolio; real estate investment trusts (REITs). They started in the USA but are now available in many other countries around the world. A pure REIT represents the shares of an individual real estate company, while a REIT electronically traded fund (ETF) passively track indexes for the larger real estate market. These REIT indexes include a number of different types of REITs as components. The individual performance of REITs can vary widely. Many REITs are traded on major stock exchanges, but there are also a number of private and non-publicly traded REITs.

REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and timberlands. Some REITs engage in financing real estate.

The iShares Europe Developed Real Estate ETF is an example of a European real estate ETF that you might want to check out. The ETF seeks to track the investment results of an index composed of real estate equities in developed European markets. You can expect to pay around 0.5% in fees when choosing such an ETF.

The Vanguard REIT ETF (VNQ)is the largest US REIT in the sector and began trading in 2004. It invests in stocks issued by REITs and seeks to track the MSCI U.S. REIT index, the most prominent REIT index.

One thing to consider is that a publicly-traded REIT is usually highly liquid. That means that you can easily sell your investment at any point in time if you need the money or if you’re not satisfied with your investment.

With a REIT you can obtain much wider portfolio diversification with the same amount of money when compared to private investment. You will also be totally detached from the management of these properties, which you might consider to be a bad thing or a good thing, depending on your interest and skills in real estate.

Private Investing

Private investment is the oldest and most well-known form of investing in the property market. An investor would purchase one or more properties and rent them out to obtain a monthly rent payment. To possibly obtain higher returns, the investor could also flip properties. Flipping properties involves buying an older property, fixing it up and selling it again. The whole operation is usually done within 8-12 months and in areas where the price of housing is rising in a fast and consistent manner.

Private investing offers you maximum control over your investment. You can deal with clients personally as well as refurbish the property as you deem fit. If you’re an expert in the local market and have the right contacts, this might be a good opportunity for you. Needless to say, you will need a lot of time to supervise the refurbishment of properties, as well as to make sure that your rented properties are well managed and your clients are properly taken care of whenever they have a problem.

The biggest con with private investing, apart from the time requirement, is the lack of diversification. Unless you have millions of euros/dollars to invest and have a deep knowledge of the property market in several countries/cities, you will struggle to diversify your property portfolio. You will thus be at the mercy of the local economy of typically one city/country, as well as the building you invested in.

Another issue is that if you invest in just one or even a few properties, vacant periods will seriously affect your cash flow. It might easily take one or two months to find a new tenant (even assuming strong demand in the rental market) and during that period you will have zero income from your property. Whether this will affect your lifestyle, of course, depends on your particular situation. Imagine a retired person with limited savings who relies on the rent payment from one property to get him through each month. Then imagine the property remains vacant for a few months due to whatever reason. You can understand why that would have a very significant impact on his life.

Personally, I am not a fan of private investing. Dealing with the day-to-day issues that crop up is something that would seriously affect my sense of freedom, and hiring a property management firm would involve more overheads and take away control over the level of service that the clients receive.

Secondly, I am not a property market expert and have little interest in keeping up-to-date with several local markets.

Thirdly, I don’t have the money to purchase several properties in order to diversify, and neither do I fancy taking out loans from the bank to fuel such purchases. Again, I’m only giving some insight on my personal situation to illustrate that every person needs to make his own analysis of his situation and conclude whether one style of investing is ideal for him or not.

To sum this section up, I would say that private investing is ideal for people who are passionate about property, have considerable capital to play around with (or are comfortable with taking out several loans), and want to do this as a part-time or full-time job.

Why I Prefer Real Estate Crowdfunding

As I already mentioned, private investing is definitely not something I’m interested in at this stage. I have zero interest in the day-to-day management of properties, and furthermore, I don’t have the capital nor the wish to take on loans to finance the purchases of property.

My biggest issue with REITs is precisely the fact that you are very detached from the underlying properties.

With property crowdfunding, I find that I can stay free from the annoying parts of managing properties, while at the same time having full access to the properties’ financials, business plans and individual performance. So far I’ve had a go at investing in Spanish property, UK real estate, as well as participating in a German real estate crowdfunding platform. The Baltic real estate platforms were the best performing by far.

Apart from the potential to earn a good return, property crowdfunding is a great educational experience that will probably come in handy in the future if I decide to go for private investing or buy my own property to live in.

Why do Borrowers Obtain Finance from Real Estate Crowdfunding Platforms?

A common question that comes up with investors new to real estate crowdfunding, is why exactly do borrowers go to these platforms when borrowing rates are so low these days? Why don’t they go to the banks directly?

Every entrepreneur and property developer is looking for the best measures to save money and earn a solid profit, so why would they take on debt obligations with an interest rate of 11% per annum?

The answer is not unequivocal as there are several advantages to be taken into account when evaluating financing possibilities on P2P lending platforms and real estate crowdfunding sites:

Speed

When using traditional financing methods, real estate developers often fail to get the desired results within the required timeframe – banks make decisions slowly, the period from application submission to receiving funding may be up to 4-6 months, while P2P lending platforms can provide an indicative offer within 24 hours of submission and money on the borrower’s account within 2 weeks. Developers are happy to use this opportunity as a “bridge” – you can start working on your project while the bank is still evaluating it.

Loan Period

When considering the possibility of using a P2P lending platform for financing your project, it should be taken into account that this is a short-term solution for the sales period of the property, during the development phase of the project or a bridge loan. The major benefit can however be seen in the fact that many of the above platforms allow early repayments with no penalties, so should the borrower sell one of the apartments or establish long-term financing, they can repay the loan earlier if convenient. This means that if the funds were used for 6 months and 6 days, then the interest payment will be calculated for exactly 6 months and 6 days.

No monthly payments

P2P lending platforms normally enable flexible repayment schedules, for example, the possibility to pay both interest and principal at the end of the period – you won’t find this kind of opportunity in traditional financial institutions. This significantly boosts work on a new project by enabling the borrower to fully focus on the project, with no additional liabilities each month. The developer can use the money to actually finance the project, not to pay interest.

Additional marketing

What is the cost of a new development project’s sales campaign in the media and how effectively can you reach people who are interested in real estate? Many of these platforms have thousands of registered investors from different countries interested in property and development, which gives the developers free publicity for their projects.

Doesn’t the publication of a project’s financial data in a public manner negatively affect the eventual sale of the property?

Not really, although it might initially appear to have that effect. In reality, what happens is that the eventual buyer is looking at the property and comparing the price to other properties in the same area in the same conditions. The buyer is also comparing the price and property to other properties he has shortlisted, even in other areas. Therefore, ultimately these two facts are much more important than the limited downside of the project details being published on the platform.

Many platforms also limit access to the project’s most important financial details to investors themselves, meaning the eventual buyer (unless he is an investor himself) would not have seen those details.

Communication and knowledge

A less important factor might be the opportunity to get another partner on board. A partner who understands the business has evaluated dozens of similar projects. If your project gets rejected, it probably means that there is something seriously off and you can go back to the drawing board to make adjustments. With banks, sometimes getting rejected is just the result of excessive bureaucracy and doesn’t mean there is necessarily anything wrong with your project.

When investing in real estate, there are many ways we can put our money to work. Each type of real estate investment carries its own risk factor as well as yield percentage.

How Property Crowdfunding is Taxed

So how does taxation of property crowdfunding finance work? We can use Property Partner as an example.

Property crowdfunding is a form of indirect property investment. This consists of the investment in shares of a company that owns, develops and manages property on behalf of its shareholders. Investors will hold legal shares in the company that owns a specific property. For each investment, an SPV company is created. Information on the special purchase vehicle (“SPV”) that holds the property can be found on the companies house website. Please type the SPV name into the search box on their site to find out more details.

Each property is held for a fixed term which is specified on each investment page. The investor hopes to receive a financial return in the form of dividends on rent received as well an increase in the value of the property subsequently shown as an increase in share price. The value of investment may go down as well as up and, as with all investments, you may get back less than you have invested. Indirect property investment allows investors to enter property markets without having to provide the full, up-front capital of buying a house or flat.

Your shares are held in a nominee account, registered in the name of Property Partner Nominee Limited. This account is ring-fenced from the assets and liabilities of Property Partner. You, as the beneficial owner, will receive all of the economic benefits including dividends and capital returns. More information on the nominee structure can be found on the Property Partner site.

Investment Costs are calculated using a First In First Out (FIFO) costing method per share, rounded to the nearest penny.

What income is taxed?

In most countries, you are taxed on capital gains as well as dividends, which are the two ways you can make money with property crowdfunding on platforms such as Property Partner.

With that in mind, you will then have to consult the laws of your country of residence to determine the tax rates for capital gains and dividends.

Please note that I am not an accountant or financial advisor, the above is the fruit of my personal research, and might contain inaccuracies. Before you submit any tax returns, I highly recommend you contact a tax consultant or accountant to check your numbers. 

How to Evaluate Real Estate Crowdfunding Investments

With the proliferation of real estate crowdfunding websites over the past years, investors can now invest all over Europe and the UK from the comfort of their homes.

Not all platforms and investments are equally good, however, and while it is good practice to diversify and thus spread the risk, it still makes a lot of sense to have a basic skill set in evaluating real estate investments, before you hit the Invest button.

In general, from my experience, investing in loans tends to be riskier, however, it is the format favored by many projects on these crowdfunding websites, as it is much more straightforward to structure. The alternative is to set up a company that owns the property, but that incurs more costs and is harder to manage. The advantage for an investor, however, is that he would own shares in a property and thus not be at the sole mercy of the developer.

Loan-To-Value

If the deal involves giving a loan to a property developer to build or refurbish a property, a very important metric to look at is loan-to-value, or LTV in short.

The lower the loan amount compared to the value of the property, the safer you are as an investor, as it means that in case of any problems, the chances of recouping the investment are higher.

You have to be extra cautious with this one, and take a close look at what value figure is being taken into consideration.

This can easily be explained by an example. Let’s say the developer puts up a project that involves buying an old and dilapidated building at 500,000 Euro, refurbishing it completely to luxury standard, and selling it off within a year for 1,000,000 Euro. He asks for a loan of 250,000 Euro for the project.

Now, here’s the trick some platforms use. Instead of listing the project as having a loan-to-value figure of 50% (250,000 divided by 500,000), they will use the anticipated value of the finished project, giving a loan-to-value figure of 25% (250,000 divided by 1,000,000).

I would advise staying away from these kinds of projects, as they tend to be much riskier. The price that the project is eventually sold at depends on many factors, including how good of a job the developer does, prevailing market conditions, the buyers’ profile, etc. As investors, we should concentrate on the facts, and therefore look at the value of the property right now, and that is 500,000 Euro in our example.

The fantastical figures that developers provide can lead to investors getting burned, as happened with the Lendy platform, which eventually went bust.

Some platforms with convservative LTVs are Reinvest24 and LendSecured.

First or Second Rank Mortgage

A mortgage is the collateral of real estate which is pledged against borrowed capital. It is divided into primary and secondary ranks, which indicate which investor or institution is the first to recover the money. Typically, a first-rank mortgage holder in large projects is a bank or other large financial institution, while the second-rank mortgage is held by crowdfunding platforms or other institutions.

In general, you should prefer first rank mortgages. Platforms like LendSecured only do first rank mortgages, for example. Other platforms might offer the riskier (but potentially more profitable) second-rank mortgages.

Secondary rank mortgages are quite popular on the German and British real estate crowdfunding platforms, such as Property Partner.

There are nuances, of course.

For example, if the property is already built and has tenants that generate rental income the risk is naturally lower. When assessing the risk in such a scenario, one should look at the property’s profitability.

Consider the case of a €5M property that is generating a net rental income of €350,000 or a 7% annual return, You can check what would be the return for primary and secondary mortgage holders. You can do this with a simple formula:  €350,000 (rental profit) / €3,600,000 (sum of primary and secondary mortgages loan values) * 100 = 9.72% net yield.

This step is important to assess the liquidity of the real estate, which helps to understand whether after a takeover of the asset it would be difficult to find a buyer and repay both mortgages to the investors. In this scenario, selling a property that is generating a yield above 9% shouldn’t be complicated.

Apply Financial Ratios & Rules

When you are buying a property, or investing through online real estate crowdfunding platforms. it’s a good idea to keep in mind the following ratios that can help you in judging whether this is a good investment or not.

Price/Rent Ratio

Look at the median price and median rent for the area in which you are considering buying a property. You will want to favor lower ratios versus higher ones.

The 50% Rule

The 50% Rule is just a shortcut to estimate the Net Operating Income or NOI of a rental property.

The 50% Rule says that you will only keep 50% of the rent you collect on an average rental after paying for vacancy, management, taxes, insurance, and maintenance.

The 50% Rule and NOI exclude mortgage costs.

Capitalization Rate

The 50% Rule allows us to quickly determine a cap rate so that we can decide to pursue the deal or not.

A capitalization rate is a tool experienced investors use to compare the performance of one property to another.

In some neighborhoods, a 6% cap rate will be a great deal. In other neighborhoods (usually lower-priced ones) a 12% cap rate or more might be needed to make it worthwhile.

The 1% Rule

The 1% Rule states that your gross monthly income from the rent of a property must equal or surpass 1% of the total investment in that property. By total investment, I mean the purchase price plus fees and expenses to refurbish the property before putting it onto the rental market.

As an easy example, if your total investment into a property was €100,000, then you would want to get at least €1,000 a month in gross rental income.

The 2% Rule

This is exactly the same as the 1% Rule, except this time we are looking for a 2% gross return in monthly rent versus the total investment.

When To Apply Each Rule

The obvious question is, therefore: when should we apply each of these rules. The answer is that it is totally dependent on the area you’re considering. There are some areas where a 2% deal is possible from time to time, and other areas where even a 1% deal would be a real stroke of luck.

The key here is to know the yields being produced in the area and the investments needed to produce those yields. Armed with that information you can then decide whether to apply the 1% or 2% rule to your investment options.

Rule Limitations

Like every shortcut, these rules have limitations. The major limitation you should be aware of is that what matters most in buy-to-let is the net rental income.

Here are a few costs that will eat into your gross monthly rental:

• Taxes
• Insurance
• Maintenance
• Management
• Vacancy/Turnover
• Condominium Fees

Some of these costs will inevitably be equal for all properties in a particular area (taxes is one such example), but others may not (for example maintenance). An older building might meet the 1% Rule criteria while a new building wouldn’t, however, the older building will probably have significantly higher maintenance costs. It might therefore very well be the case that the newer property might end up outperforming the older property even though at first glance and based on the 1% Rule the old building looked like a better investment.

Using the Rules

Given the additional intricacies we discussed, the best use of these rules is for quick filtering and comparison. If you’re using crowdfunding property platforms, for example, you’re likely to have several options to consider every month, and having a few quick rules to sort out the wheat from the chaff will be useful in saving precious time. Once you narrow down your options to a handful of properties, you can then dig deeper until you find your perfect investment.

Consider the Platform’s History

Take a look at the history of the platform you plan to invest in. Ideally, it should have been operating for a number of years already with no significant issues. If it’s been through a sideways or downward market and emerge unscathed that’s even better. Everybody can perform well when the market is up, but when the market is not helping many platforms cease to make updates and run into problems.

Property Partner are a good example of how to keep things professional and take care of your investors in a bad market, such as that of the UK during and after Brexit and the COVID crisis.

Read Reviews

While you should always assume that the reviews you read online are biased in some way or another, I still recommend checking out blogs, forums and specialist review websites to get a general feel of whether a platform is trustworthy or not.

Do you use any other criteria when evaluating real estate crowdfunding platforms? Let me know in the comments section.

Yield VS Risk Relationship in Real Estate Investing

Like any financial product, the higher the estimated yields the higher the risks. Investment opportunities with renovation are placed in a balanced position in the real estate investment type chart, almost in the middle, which is also why they are one of the most popular projects on many crowdfunding platforms.

Which are your favorite types of real investment? I’m a big fan of renovations that last around 8 months from purchase to an eventual sale. I tend to balance my portfolio with this type of investment together with savings opportunities where I get dividends/rent every month and have a constant flow of income.

Do you invest in real estate? Have you tried out property crowdfunding or other types of investing in property? Let me know in the comments section.

In this article, I will tell you why I chose to invest in the German real estate market, specifically through the Planet Home platform.

The German real estate market has been on a boom for a number of years now, so I decided to investigate the situation and see whether it’s potentially a good investment.

It turns out that German cities have statistically been Europe’s most highly favored real estate investment for the past few years, as investors seek out well-performing safe-haven assets.

Berlin, Hamburg, Frankfurt and Munich represent four of the top five European markets for real estate investment and development; the other being Dublin.

Recent data from Real Capital Analytics confirms that Germany has overtaken the UK in post-EU-referendum investment volumes. Although London remains Europe’s primary market for global capital – it has fallen in the city rankings for investment and development prospects.

Since the Brexit vote, Germany has enjoyed a pick-up in interest. Meanwhile, real estate investment trusts in Germany and Scandinavia have risen since the Brexit vote to trade at premiums to the value of their assets, a sign that investors feel their cash is safer there.

With more than 80 million people, Germany is Europe’s highest populated country. It boasts Europe’s strongest economy, which is now the fourth largest in the world, and has approximately 42.8 million people in employment.

Factor in that Germany has one of the most productive economies in the world and a booming export market and it becomes understandable as to why its property market attracts large amounts of international capital. A total of EUR70 billion was invested in the sector, for example, between 2010 and 2015, with Germany attracting nearly half of the capital invested in Europe’s residential property sector.

The German Real Estate Situation

As I was doing research on the German real estate market, I learned some surprising facts. Apartment viewings often turn into mass events, with 50 or 60 would-be tenants turning up at an appointment.

Many bring application portfolios with detailed information on their earnings, their creditworthiness and their family situation. It can be insanely difficult to find an apartment, and you are still expected to pay a deposit of 2-3 months rent. At least the agency fee is paid by the landlord, which is not the case in Spain, for example. One other curiosity is that most apartments don’t come with a fitted kitchen; you have to install it yourself.

In Hamburg, apartment prices rose by 70 percent between 2010 and 2015. They are expected to surge by another 50 percent by 2030. A three-room flat can cost around $450,000 (400,000 euros) in residential areas close to the city center.

Not all regions have registered rapid property price increases, however. Even in cities like Berlin, Hamburg and Munich, high rental prices in the newbuild segment have not necessarily been matched by high rents in the existing rental property sector.

Secondly, price increases have been driven by population growth, the ongoing trend toward urbanization, and strong economic fundamentals, combined with historically low interest rates. At the same time, Germany’s rental housing sector has seen vacancy rates fall close to zero.

Finally, loan-to-value ratios are typically no more than 75 percent, which underscores the financial soundness of the German market.

Let’s have a look at some of the major cities and how they’re faring. One important rule of real estate investing is that you need to be looking at cities rather than countries in general, as the dynamics can be totally different from one city to another with the same country.

Berlin: Full boom at the moment, with a rapidly growing demographic as more people move into the city from all over Europe given its development in sectors such as technology.

Frankfurt: Another city that is in full swing, it is benefiting from Brexit news and the promise to become the financial centre of Europe in the coming years.

Cologne: Demand exceeds supply in this city, so the forecast is good for investment in the next few years.

Dusseldorf: The luxury property market is getting saturated, but there is still demand for basic housing.

Hamburg: Gentrification is underway in several areas and this is paving the way for further growth in the property market.

Munich: Prices have risen very far and are approaching London territory. Locals find it very hard to keep up with rental prices and are even more priced out when it comes to buying. Rent has not yet risen as much in comparison to purchase prices.

The PB3C website is an excellent source for updated news about the real estate market in Germany, it is worth following.

How to Invest in German Property – The Easy Way

The volume of investment raised by crowd-investing platforms for property developments and redevelopments has been doubling every year and there are no signs of saturation yet.

Planet Home, previously known as iFunded, is the leading property crowdfunding website in Germany. They have a very nice interface and all the information is well presented in German and also in English. They are open to investors all over Europe and signing up is super easy.

To get verified, you will need to download the Deutsche Post app and then arrange for a video chat through the app. A Deutsche Post employee will call you and take a photo of yourself and your passport in order to complete verification. It’s one of the swiftest and most straightforward ways of verification that I’ve encountered so far. In this sense, the platform lives up to the German standards of professionalism and organized way of working.

Planet Home offers two types of investments: bonds and loans.

Bonds belong to the investment class of securities under the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG), in which creditor rights, in particular interest and repayment of the borrowed money, are securitized.

A subordinated loan is a debt to the receiver which ranks below senior loans and is regulated under the provisions of the German Investment Provisions Act (Vermögensanlagengesetz, VermAnlG).

The minimum investment is EUR500 and the maximum is EUR10,000 as a private investor. Returns can be as much as 7% per year, which is excellent when you keep in mind the low risk profile of the German market.

The investment is paid back at the end of the investment term, which varies from project to project but is already determined during the Funding Phase. Interest is either paid during the project in the course of the year or at the end of the term. This depends on the project. The Planet Home platform receives marketing fees from the project developers. These include a one-time fee per project and ongoing fees depending on the duration of the project.

Alternatives

There are many other real estate platforms that you could check out, although most of them do not offer properties in Germany. The top three I would recommend checking out are the following, with the first one also offering properties in Germany:

• Rendity (read my review)
• Reinvest24 (read my review)

My experience

I have so far invested in two projects on the Planet Home platform, and there were absolutely no problems whatsoever. At the end of the loan period, I received a transfer in my bank account to cover the principal plus interest. I also got an easy-to-understand statement about the transaction that I could then use for presenting my tax returns.

Planet Home is definitely a platform that can be relied upon if you’re looking for a safe investment in German real estate, and I’ll continue investing here for the foreseeable future.

Invest in German real estate through Planet Home

Update March 2021:

So far I’ve had a few loans get delayed, SAN ANDRÉS, La Boladilla Village, La Boladilla Beach. I’m not too happy with how things were done on these projects. All investors were called to vote, however, the results of the vote were not announced nor have investors been notified via email about the results. In the case of San Andres, the developer promised to have the project completed before the end of 2019, but then failed to communicate again before the end of the year.

At this point, I have decided to exercise more caution when investing in Spanish properties. I’m going to concentrate on other countries for the majority of my investments, as the Spanish investments have been lacking professionalism in some ways. Development loans, in particular, are quite risky in my opinion.

As of March 2021, 36% of the projects on Housers have been delayed. Rather than address this problem, Housers seems to continue focusing on marketing with great aplomb as if everything is fine. Therefore my respect for this platform has greatly diminished and I will not continue investing in it.

I had written some parts of the review below before the COVID crisis and I’ll keep it here until we know for sure how things turn out with Housers. However, I suggest you avoid this platform for the time being.

If you’re looking for exposure to real estate, use these platforms instead:

• Reinvest24
• StockCrowdIN

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Housers is the largest online real-estate crowdfunding platform in Southern Europe and allows you to invest in property from any part of the world.

When investing with Housers, your investment is backed by a tangible asset (“brick and mortar”), and hence it is considered a much safer investment than, say, cryptocurrencies. That’s not to say that you shouldn’t invest in cryptocurrencies, but real estate investment is definitely a lower risk investment.

When investing at Housers, you will earn monthly rent and also benefit from capital gains. Properties in southern Europe are currently rapidly rising in value.

You can easily diversify your portfolio. Compare investing in tens or hundreds of properties all over Europe to buying one apartment in your home country. You’re spreading your risk much better if you use Housers.

A great advantage is that all this is hassle-free. Everything relating to the property is taken care of. You won’t receive any calls from tenants asking to fix their broken pipes or have to fight to collect your rent.

The Spanish and Italian markets are recovering very rapidly and are projected to continue rising in the next few years at least. The rental yields in both markets are among the highest in Europe.

When investing in property, you also need to pay more attention to cities rather than countries as a whole. That’s why Housers focuses on high-growth and successful cities such as Madrid, Barcelona and Milan.

Housers itself as a platform has achieved tremendous success. There are more than 115,000 registered users and more than 95 million euros have flowed into the platform to fund properties. The average reported annual yield is 4%.

Exploring one of my projects

To illustrate how Housers works, let me take you through one of the projects I invested in. Note that this is one of the earlier and successful projects, most other projects I had have yet to supply a return and unfortunately this positive project is the exception not the norm.

We’ll be considering the project named Pez; a buy-to-sell opportunity in Madrid. In this case, the legal form of the investment was a loan to the developer.

Here’s how the project timeline went:

• I invested on 22/06/17, the day the funding period started.
• The project was fully financed on 11/07/17.
• The property was acquired on 02/10/17.
• Refurbishment works started on 20/10/17 and completed 20/02/18.
• The project was finally sold on 05/07/18.
• Project fully finalized on 25/07/18 and money sent to investors.

The visual information provided for the project was actually quite scant. As investors, we only got a few standard photos of the area where the apartment is located, the floor plans and two renders of how the refurbished apartment would look like.

We did, however, get some PDFs about the project which gave us more insight into the strategy:

• Business plan
• Loan information
• Budget
• Dossier
• Real-estate evaluation

Based on that information I decided to invest in the project, although I would have liked some more photos and plans for the project.

A bit more than a year later, the project was sold.

Once the project was sold, there was some more information available about the internals of the project.

• Average investment per investor: 213.65€
• Number of investors: 412

Pez was a buy-to-sell opportunity with an expected return of 6,59% in 12 months, that ended with an annualized IRR of 4,42%. The yield is the same 4,42% since the project took 12 months from start to finish. 

Net Yield from the Sale: Represents the dividends that the investor will receive derived from the sale. (12 months)

IRR: Internal rate of annualized return of the investor. It’s the interest rate or yield offered by this investment. It serves to evaluate the profitability of the project and compare it with other types of investment in the market.

A few days after the project was sold, I received capital and interest in my Housers account, closing off a successful investment.

From the interest paid by the developer, a 10% Housers commission was deducted along with 19% for IRPF (Spanish tax). The net interest was then sent to my account.

How Things Work

Housers is currently operating in three markets:

• Italy
• Spain
• Portugal

Housers operate an opaque fees structure that is hard to understand. In fact, I have not found a single good explanation of the fees they charge. They started off in the early days saying that they would only earn commissions when the project was successful, taking a chunk out of investors’ profit, but things changed along the way.

I have to be honest and say that after spending 20 minutes trying to figure out the latest fee structures I gave up, but it’s definitely not the best fee structure for investors.

I was also bemused to see how their CMO totally avoided answering a direct question about commissions in a recent interview in Spanish::

Here is more information about Housers fees taken directly from their website:

– Application of fees to investors:

For making the necessary model contracts for participation in the projects available to the parties: a percentage to be determined on the value of the financing project in accordance with the documentary needs of the project in question shall be applied at the time of making the above documentation available. The commission will be charged only once for each project and not for each document or contract made available to the developer.

• For communication to investors of information provided by the developer regarding the progress of the project: a percentage to be determined on the value of the financing project shall be applied in accordance with the documentary needs of the project in question.

• For services of judicial and extrajudicial claiming of the credit rights (forced or unforced): at the time the judicial or extrajudicial claim is presented, the investor must pay a percentage to be determined on the value of the unpaid claims in order to cover related expenses.

• For the service of formalising loan and share subscription contracts, based on agreement expressed through the platform, acting on behalf of investors: In this case a percentage to be determined will be applied on the value invested or lent by each investor when the financing objective has been reached and the loan contract or share subscription is formalised. The accrual and collection of the same is deferred to when investors begin to receive a return derived from and proportional to their investment (both ordinary interests generated by the loan and interest for delay due to breach of contract).

Many projects are designed to attract investors with special promotions like extra interest or cashback. Once the project is funded, typically the interest repayments start going out regularly and later stop abruptly. Once this happens, you will be asked to vote on whether you want to engage a debt recovery company or give the borrower more time to repay. All the projects I was involved in ended the voting with investors giving more time to the borrower and hoping for the best.

Curiously, Housers customer service gets back to life in these events, and are very proactive in calling you to urge you to cast your vote. I’m not sure why they are so motivated to get people to vote, perhaps there is some legal reason behind it, but it definitely feels fishy given they fail to respond to investors’ emails.

Keep in mind that if you live outside these three countries you will incur withholding taxes that are applied by the countries in question. I have not found a way to offset those taxes so it’s a further reduction in returns.

Projects Available

Housers grew very rapidly, and after starting with Spain soon expanded into Portugal and Italy.

They even briefly delved into art projects, although that was a one-off and probably not something they will do again as it requires a totally different set of skills to evaluate, not that Housers do much evaluation on their projects anyway.

You can invest in the following project types:

• Buy-to-let (5 years+ investments with monthly payouts)
• Buy-to-sell (12-24 months window to refurbish and sell)
• Development loans

Investors seem to still be very keen on putting in their money, as all projects are quickly fully funded, but I’m starting to suspect it’s a case of dumb money at this point, as the projects themselves have become more and more speculative over time.

I’ve seen many projects in the south of Spain, mostly around the Malaga and Marbella regions, which by the looks of it seem to have been in some kind of bubble, as more and more development loans kept showing up for grandiose projects, which we now know were never completed due to various reasons/mismanagement cases/excuses.

Housers seem to be branching off into two new lines, Green and Corporate. Green is for sustainable and environmentally friendly projects while Corporate stands for development loans to open new businesses.

Secondary Market

The Housers secondary market seems to be dead at the moment. In fact, it was never really alive so to speak, as it is horribly complicated and very few deals were over struck on it.

Platform Interface

I’m not a fan of the current interface. The User Area uses a side menu with icons that really don’t mean much to me, so I end up having to click through all the items in order to finally find what I want.

It should be easier to see what amount investors have invested in each project, but it’s not easy to find out that information unless you click through the individual project’s page, which can be very tedious if you have many investments.

Team

In 2018, the current CEO Juan Antonio Balcázar replaced Tono Brusola, who was one of the co-founders. I’m not sure what led to Mr Brusola stepping down, but things have definitely gone downhill after he left. Perhaps he saw bigger opportunities in the Fintech space as he is now leading Fundsfy, a savings platform. He is a well-known serial entrepreneur in Spain and things were going great at Housers while he was in charge.

I know very little about Mr Balcázar, although a scroll down his Twitter feed doesn’t really provide me with much reassurance. This is just one of many factors I consider, and in this case I was not impressed.

At this point, I believe there are very few people actually running the platform; I don’t believe one bit the idea that Housers has 40+ employees, as they claim.

Customer Support

In the first two years, Housers had very good customer support both over email and via phone. During 2020, support has gone down the drain. Nobody answers emails anymore and phone support, while friendly, basically promises that things will be done and then never get back to you.

One thing that has absolutely diminished my trust in the platform is the use of a tactic in support whereby any finance-related questions are deflected with words along the following lines:

“We’ll pass on your query to the finance department and wait for them to get back to us”.

I’ve seen this tactic one other time, coincidentally (or maybe not) on another Spanish platform, and all it means is that they are never going to get back to you.

This is no way to treat customers. If you have a customer service line open then they should be able to answer any questions within normal limits. Questions related to the status of certain projects or the finances in our accounts should definitely fall under their remit.

Public Reputation and Social Media

If you take a look at the Housers rating page on Trustpilot you will find many other investors expressing their concerns and disappointment at the way Housers have been handling things.

The same happens on Twitter and Facebook. In most cases, Housers promptly reply asking the investor to contact them privately so that they can look into their case. This is quite ridiculous given that the investor would have typically contacted them several times before and received no reply. It is pretty obvious that they are just trying to politely silence all negative opinions.

Their latest strategy is to delete all negative comments or ask Trustpilot to take them down for supposedly breaking some guidelines. Housers are just trying to silence all negative opinion, but it’s only a matter of time before it becomes obvious to all that Housers is not to be trusted.

On the other hand, there are also several reviews that have not yet been taken down and clearly share many of the same concerns that I and others do. Here’s are a few:

In January 2021, Trustpilot itself started showing a warning saying that Housers have been caught manipulating the reviews. Basically what they did was to buy a bunch of fake reviews in an effort to counter the many negative reviews that many real users were leaving. Another scammy move from this company; at least Trustpilot called them out on it.

On the Spanish investing forums you will find a lot of feedback about this platform. Some investors even went to their offices to demand explanations for certain things and never got anywhere.

Here’s one of the Google reviews in Spanish for those of you who speak the language, I think it sums up the platform perfectly:

NO INVERTIR AQUÍ

La idea era buena desde que empezaron los proyectos, pero la plataforma nada tiene que ver con la inversión inmobiliaria.

La forma de actuar de Housers es la siguiente:
Lanzan un proyecto con un tipo de interés prometido. Los inversores entran y dejan su dinero. Cuando Housers consigue el dinero objetivo de la financiación, se queda una parte como comisión entre el 8-10% sin haber hecho nada, solo por ser intermediarios.

Ese dinero que se va perdiendo por el camino hace que su negocio sea financiar proyectos más que la parte inmobiliaria. Que luego funcionen o no los proyectos eso ya es secundario. Su objetivo es captar inversores.

La prueba está en que la mayor parte de los proyectos siempre tienen problemas y no se cumplen plazos, alegando toda culpa al promotor.

Cuando Housers te vende la idea te dice que ellos solo cobran si el proyecto funciona quedándose el 5% de los intereses generados, pero si fuera así no tendrían ni para pagar las oficinas de Madrid.

Por supuesto, las opiniones con 5 estrellas son tan falsas como decir que Housers es una plataforma seria.

Nada profesionales. No tienen ni idea del negocio, bueno sí, del negocio de la estafa y la publicidad engañosa son los reyes.

I’ve also read reports from architects saying that the project plans and actual photos of the project did not match at all, but I have been unable to confirm that myself.

As of June 2020 there are several Telegram groups you can join, where the discussion centers around whether Housers is a scam or not, and legal proceedings against them.

Here’s a list of all the Housers Telegram groups I know about:

• https://t.me/housers_foro
• https://t.me/HousersCom

Returns

Most of the money I invested in this platform is still tied up as several development loans have failed to be repaid in time due to various reasons. The developers have not shown any remorse for the delays caused to investors, and as things stand it is quite uncertain whether we will ever get our money back.

I have had some projects exit successfully, but most of my money is still stuck in there, so at the moment, things are looking very grim. The biggest issues seem to be the development loans, with a significant percentage of them being restructured with uncertain outcomes.

Fishy Happenings

Things have been looking very suspicious lately with Housers, with many investors outright calling the platform a scam. It certainly is looking like Housers is becoming so.

Consider the project Puerto de la Torre IV.

The project was meant to close the financing phase on 28/05/20. Last time I checked it was well below 90% of funds needed to close the phase.

At 0:10 on 29/05/20, the project was showing in the list of Non-Financed projects, as expected.

At 09:00 on the same day, the project appeared in the Financed projects list. It appears that someone from Housers manually moved the project.

Housers thus appear to be breaking the law article 68.2 de la Ley 5/2015 de Fomento de la financiación empresarial. The law requires at least 90% financing of such projects, which was clearly not achieved in this case.

I have contacted Housers for an explanation and they replies saying that the 90% applies to the financing of the projects but since there were several phases, they can include the other previous phases in the computation. They are probably right, but it is still misleading to the investor.

There are also developers that have obviously abused the fact that they could easily raise money via Housers, and they have several projects that are delayed for many months with no intention to pay back the investors. ByNok is one of the most shameful developers in this regard. They are supposed to be a luxury developer but their lack of professionalism is incredible.

Here’s another incredible thing that happened in June 2020. It concerns the project Bellevue Green.

In this case, the project developer, Puebloliving, is claiming that the loan was for 24 months and not for 12 months, as it appeared on the website and in the contract signed by all investors. The owner of this company, Morten Ostberg, is claiming that in initial emails with Housers they had discussed 24 months as the timeline. It seems like another obvious scam to me, and another shameless developer trying to defraud investors.

Conclusions

I was really excited about Housers in the early years of the platform, but I cannot honestly recommend it anymore, even though for my own money-preservation reasons I would like it to succeed long-term.

Housers seem to only care about the fact that they get their commission of 8-10 % on the capital raised, and whether the loans ever get repaid is the investors’ problem, they have no skin in the game and hence don’t care. They have the incentive to just keep adding projects to the platform without doing any fact-checking, and this doesn’t augur well for the future.

Housers have also been sanctioned in September 2019 by the CNMV in Spain. A group of investors who have lost their money with Housers has also been formed, and you can join it here. Possibly there will be the chance to get legal recourse at some point.

The platform is already under police investigations in Spain according to the CEO of ByNok, one of the project promoters on Housers, although this is not yet a well-known fact.

There was some news that an individual investor won a case against them, although I don’t have the details on that unfortunately.

The platform has a lot of Spanish investors, so it is not as well known outside Spain, but the Spanish investors and FIRE enthusiasts are livid about the platform.

In order to get back on track, if at all possible, Housers need to get their customer service team back in place, do better due diligence on new projects, and offer better communication about existing projects, especially those with an uncertain future due to severe delays.

At this point, after having spoken with many other investors in the same situation, and given their terrible customer service, continuous promotion of flaky projects, and ridiculous replies to people who reach out to them publicly on social media or on Trustpilot, I have to conclude that this platform is pretty close to being labeled a scam.

There are several other bloggers who have raised the issue of Housers being one of the worst platforms in terms of transparency, and they are also very disappointed with Housers. If you’ve also lost money with Housers, I urge you to have your word online, through your social media accounts or through a platform like Trustpilot. I’m well aware of the fact that it would be beneficial for me as an investor to say good things about Housers, but that’s not the purpose of why I write here. Housers are running a despicable business model and they don’t care one bit about investors on the platform. So I want people who are considering investing in this platform to know the truth.

The lessons I draw for myself from this debacle is that I should be more skeptical about online platforms and give them a few years to have a track record in place before investing heavily. In the case of Housers, I invested too much and too soon into projects that I didn’t have the means to properly evaluate.

As I’ve mentioned before, over the past five years I’ve taken some extra risks in my investments as I was investing in many different asset classes at the same time without being an expert in any of those classes. However, I am a firm believer in the idea that you learn things much better and in a deeper way when you have real skin in the game. Yes, these lessons might be expensive, but as a young investor with hopefully several decades ahead these losses can be recouped and the valuable lessons learned now will serve to guide my way towards a better investment strategy in the coming years.

If you’re still feeling positive about Housers, invest at your own risk, and I would strongly suggest staying away from development loans as those have been the source of the biggest problems so far.

Spanish property (and other countries too) is most certainly heading for tough times after the COVID-19 crisis, so I would bide my time before making real estate investments in this country unless there is a better sense of direction from the market. The government and overall political situation in Spain is a circus of incompetence of all sorts at the moment as well, and that’s yet another reason not to continue investing our hard-earned money.

You can find some projects in Spain on the Reinvest24 and Brickstarter platforms.

Have you invested with Housers?

Do you have any questions about Housers or property crowdfunding? Let me know in the comments section and I’ll do my best to answer from my experience.

Click here to check out the Housers website

Spain always has a healthy property market, despite some ups and downs. It’s probably the best place to live in Europe if you value quality of life, and there is a healthy influx of expats who want to own good properties in the peninsula.

Real Estate crowdfunding platforms, therefore, fit perfectly in the scenario that is developing. They allow small investors to participate in the real estate market by pooling investors’ money to purchase property that is later resold or rented out.

In 2008 Spanish real estate took a big hit in the well-publicized crisis, wiping out many people’s investments when the bubble burst and decimated the value of properties countrywide. Some areas were worse hit than others, but prices were down throughout the country.

Since 2016 we are seeing strong signs of recovery, and the purchase prices of properties in the big and affluent cities (Madrid, Barcelona, Valencia, Palma de Mallorca) have now reached pre-crisis prices. Rents are also strongly climbing, making it altogether a great time for real estate investment. Of course, we need to be careful to avoid another bubble, but that’s another discussion altogether.

Crowdfunding in property involves a number of investors pooling their money together to purchase a property. The crowdfunding platform usually manages the refurbishment and eventual rental of the property and takes a cut for this work. There is also a target date for the resale of the property. As investors, we are therefore looking for rental income as well as a profit on the growth of the value of the property.

Here are my top favorite platforms that operate in Spain:

• Reinvest24
• Brickstarter

I am using practically all the major Spanish real estate crowdfunding platforms as they’re all a bit different from each other. In general, it’s also a good idea to diversify across multiple platforms to protect against platforms going out of business, although that has a low probability. What’s more probable is that a platform gets greedy and forgets to do proper due diligence on new projects, as happened with Housers, which had started off well but ultimately became a marketing machine sucking in the money of new investors with zero knowledge of the property market.

From the tax perspective, earnings are based on the Savings tax bands in Spain:

• 19% for €0 – €6,000
• 21% for €6,001 – €50,000
• 23% for €50,001+

As a beginner investor, you will most likely fall into the 19% tax bracket, and the property platforms will automatically deduct the tax from your returns. This is called a retención in Spanish. You will still need to declare these profits in your annual tax return (IRPF). The platforms mentioned in this article all provide documentation showing what you earnt and what retentions they made.

Both new and pre-owned properties are liable to another tax called Actos Jurídicos Documentados (AJD) (Stamp Duty), which represents 1% of the deed price of the sale, plus another 1% of the mortgage. You will have to keep these in mind as well as possible cuts on your final return.

Let’s move on to exploring these platforms then. [Read more…]