The Baltic countries Latvia and Estonia, have seen steady growth despite facing geopolitical challenges and high inflation. As the region moves forward into 2024, market participants remain cautious, resulting in slower construction volumes and general sluggish market activity. However, the Baltic capitals, insulated by low household debt and population growth, maintain a positive outlook for the future.

Estonia: Economic Recovery

Estonia faced a 1.3% economic shrinkage in 2022 but is projected to experience steady growth in 2023. The office space market saw new projects and expects further expansion in the coming years. Retail projects were limited in 2022, while the industrial sector witnessed growth due to increased e-commerce activities. Residential properties in Tallinn experienced significant price increases, driven by various factors. Meanwhile, the rental market saw a decrease in supply and increased prices, partly influenced by the refugee influx from Ukraine. But the rental prices have not increased much compared to the property prices, reducing the average rental yield from ~6% to 4-5%.

In 2022, the apartment market in Tallinn experienced contrasting trends. While the number of apartment deals decreased by 11%, indicating a decline in activity, the total financial volume increased by 8%, suggesting that higher-priced transactions contributed to the overall financial growth. On average, 190 new apartments were sold each month, accounting for 24% of all apartment transactions in Tallinn. This signifies that despite the decrease in deals, new apartments remained in demand.

In 2023, the housing market was expected to be impacted by rising interest rates, which could have implications for buyer affordability and market dynamics. However, despite the decline in activity, the average transaction price has continued to grow. In 2023 Q2 there were 2459 residential real estate transactions in Tallinn, with an average price of 3136 euros per m2. Compared to the Q1 of 2023 the average price increased 6,7%.

The majority of real estate deals take place in Tallinn and within a 25 km radius outside the city, particularly in districts such as Rae, Saku, Saue, Harku, and Viimsi. These districts have higher average prices, and there is an observable price increase based on location, especially in well-established private residential boroughs like Nõmme, Kakumäe, Pirita, and the districts bordering Tallinn. Over the past year, the popularity of Kiili and Saku districts has also increased, indicating shifting preferences and emerging opportunities in these areas.

The rapid slowdown in inflation is expected to bring relief to households in Estonia. When compared to other Baltic countries, Finland, Sweden, and Germany, consumer expectations in Estonia are relatively low. The impact of inflation on household deposits and consumption has decreased, as household deposits fell from their high levels in the middle of last year. While rising interest rates may have a short-term impact on households, the slowdown in inflation provides some relief. Euribor is expected to peak later this year, but the decrease will be gradual.

Despite the prolonged recession, the real wage in Estonia has started to grow in the spring of 2023. Strong wage growth is contributing to an increase in real wages, which positively affects consumption. The average gross salary reached 1981 euros in 2023 June, which is a new record high.

However, it is expected to take until next year for the real wage to fully recover from its previous decline. The labor market in Estonia has remained relatively stable, with high employment and moderate unemployment rates. Rising real wages, combined with favorable employment conditions, are expected to support household consumption. However, the growth of consumption will depend on the improvement of household confidence. While tax increases planned for next year may boost private consumption towards the end of this year, overall consumption this year is expected to decline. In 2024, private consumption is projected to increase, but its growth will remain below the long-term average.

Latvia: Navigating Challenges

Latvia initially had a positive outlook after the Covid-19 pandemic, but the forecasts now predict a shallow recession. Retail turnover increased, yet real net wages decreased. The office space market is expected to grow and stabilize rent prices, with companies favoring smaller, energy-efficient spaces due to the prevalence of hybrid work models. The residential and land markets experienced mixed results, with demand and prices fluctuating throughout the year, influenced by speculation and cautious consumer behavior.

The real estate market in Riga faced a shift in apartment prices during 2022. As demand for apartments decreased in the second half of the year, sale prices experienced a slight decline. However, overall apartment prices still managed to increase by 4.5% throughout the year. Prices for new apartments in the city center were higher, ranging from €2,900 to €4,300 per sqm by the end of 2022, while luxury projects and locations reached prices as high as €7,000 per sqm. Suburban new apartments were selling for €2,100 to €3,500 per sqm.

The real estate market in Riga faced challenges in 2022 for both developers and buyers. Various global events, such as the Russia-Ukraine war, had severe impacts on the market. The war initially caused a halving of real estate advertisement searches, but customers returned with renewed interest in the spring. Construction prices became unpredictable due to the war, and compact apartments with functional layouts gained emphasis. However, a shock occurred in the fall of 2022 when the Central European Bank raised interest rates, resulting in a slowdown in sales. Despite rising prices and interest rates, there is still interest in new projects, particularly energy-efficient housing.

The number of apartment sales transactions in Riga in 2022 saw a decline of approximately 4% compared to 2021. The war and its consequences, including unpredictable construction prices and inflation, affected demand. The beginning of 2022 showed a stable sales volume, and demand even increased during the summer. However, the sales slowdown occurred in the third quarter due to rising inflation, increased prices of construction materials, reduced availability of materials, and the European Central Bank’s interest rate hike. Many buyers were unable to afford loans, leading to a decrease in demand. The market saw an increase in series-type apartments as owners sold old units to purchase apartments from new developments.

In 2023, Latvian wages experienced growth in line with inflation, indicating an improvement in purchasing power. However, private consumption faced challenges due to the high cost of living. While purchasing power has been gradually increasing since the middle of the year, a full recovery is expected to take some time.

The second half of 2023 is expected to bring a return to growth in the purchasing power of workers in Latvia. According to Swedbank customer data, nominal wages in June were already increasing at a faster rate than inflation. Although the high overall price level may continue to deter some consumers, the resumption of real wage growth, coupled with improved consumer sentiment, is anticipated to support private consumption in the future. Additionally, investment linked to EU funds is expected to provide a boost to the economy.

Conclusions

Despite challenges and caution from market participants, the Baltic countries continue to show resilience and adaptability in their real estate markets. With a focus on prudent decision-making and a positive long-term outlook, these countries aim to navigate and overcome economic and geopolitical uncertainties, ensuring sustainable growth in the real estate sector.

Estonia and Latvia are the local markets of Reinvest24, where we have the most experience and knowledge, resulting in a perfect track record for our real estate projects in this area. We have currently several ongoing real estate projects in those markets, and we are confident that we will complete them successfully and earn our investors above the market returns.

The post Estonian and Latvian Market Overview 2023 appeared first on .

When you’re making a smart investment, you’re taking a lot of things into account. The risks, the percentage… but time – time is often overlooked yet it is one of the most valuable assets a smart investor has. It’s a common mistake, both for beginners and financial gurus, to disregard time during their calculations and focus on percentages.

Time is the most important factor in the investment equation.

Here’s how to invest money and make time work for you – consider your repayment schedules. Distributing your financial flow over various periods of time will give you different results – each is awesome in its own way. Our team of devoted professionals here at Reinvest24 know the difference – and the value of each of the repayment types. We will now give you a profile on all three types of repayment schedules – pick one that works for you and your promising investment.

There are 3 types of repayment schedules: bullet, full bullet and annuity

No repayment schedule is better than the other – it depends on your goals, on your needs, on the character of your investment. Let’s go through all of them step by step and highlight the benefits of each repayment schedule.

Here’s a clear display of the repayment schedules’ key features. A quick comparison shows that each has its perks – you just have to choose the one that makes the most sense for you.

3 types of repayment schedules & their perks

Now, let’s take a closer look at each of those 3 repayment schedules – and we will help you make an informed choice and invest money the smart way.

By the way, you can choose to invest with either the bullet or the full-bullet reinvestment schedule right here, on Reinvest24 – but let’s go through the specs first. 

1. Bullet repayment schedule – great for XIRR

The most common repayment schedule – Bullet – is all about time frames. With Bullet, you can set to receive your regular interest payments monthly, half-annually or annually, and then on the maturity date, you get a whole chunk of the principal back.

The gist is that Bullet ensures you have a stable passive income stream, with principal coming at the end of the term. 

Bullet is – little payments regularly, a big finale and a chance for more.

Why choose this repayment schedule? It’s rational and it has a solid perspective – you can reinvest received profits and get additional profit. This tactic positively influences your XIRR. For example, investing in a 15% loan with monthly payouts results in 16.03% XIRR. We also touched on this topic in our recent blog post, explaining with a real example How reinvesting can increase your returns even more.

The Bullet makes the most sense if you invest in small businesses – while you get a money flow from the start, the business still gets an opportunity to accumulate income and grow.

2. Full-Bullet repayment schedule – one-time BANG

The Full-Bullet repayment schedule – a classic “all in- big win”-is similar to bank term deposits. Here, you lock away the investment until the final date of the project. The interest for the entire period will be paid out on the maturity date together with the loan principal. The Full-Bullet is, essentially, a big, juicy, opportunity-making snowball of interest and principal payout. 

Full-Bullet is – little payments that add up with the big finale.

Why does this repayment schedule make sense? Obviously, it is a good discipline tool if you want to save money for long-awaited purchases or generate more capital for the next project. The received interest will accumulate, you won’t have access to it while the loan matures, and your patience will pay off on the maturity date.

The Full-Bullet schedule is most suited for development projects, aka building and construction, as they don’t generate any cash flow until the real estate development company has submitted the finished work. And once they do – you get your big win.

Like with any of the major properties we have here in Reinvest24 – you can choose a project, invest while it’s getting built and then – BLAM – right on the deadline, you get your big fat check. 

3. Annuity repayment schedule – STAT profits

With Bullet and Full-Bullet repayments, the principal is returned back to the investor when the maturity date comes. The interest is calculated based on the total loan amount. 

That’s the two reinvestment schedules we have at Reinvest24 – but some we’re planning on getting the third one. The Annuity.

With Annuity (also known as an amortizing loan), you get the principal back in regular payments, stretched over the period of the loan. In this scenario, the interest is calculated from residual loan amount (total loan amount less principal repayments, according to the schedule). 

Annuity is the epitome of even distribution, especially when you need a stable income, and are not interested in waiting.

Annuity is – larger regular payments with no big finale. 

Why Annuity can be the best repayment schedule? It guarantees a higher monthly cash-flow, although the total of the fund you get will be less than with the first two types of schedules. But the waiting tactic that the first two imply is also their weakness, as with Annuity, your funds become available much sooner, giving you a possibility to reinvest.

Amortizing loans make perfect sense if you’re planning on maintaining several projects and investing simultaneously. If at least one of your ongoing investments is on the Annuity schedule, you will always have a financial safety pillow.

How to choose the repayment schedule that is BEST?

So, we’ve been through all three repayment schedules and their best assets, and it’s time to pick one that makes sense for your financial flow. How to do it? Ask oneself 1 simple question – How long can you wait for your money? And yet again – time becomes a key factor in the process of decision-making. 

If you want an income now, but you’re also ready to evenly redistribute – choose the BULLET. You will get a stable passive flow and a big value at the end of the term.

If you want to wait for a bigger snatch and reinvest – choose the FULL-BULLET. You will have a dry period, but the reward one the maturity date will be sufficient.

If you want a stable cash flow and return your fund asap – choose the ANNUITY. The funds will be flowing in regularly, although you won’t get more than you invest. 

Evaluate your prospects, and you’ll see that one repayment schedule really makes the most sense for your situation – with all the info we provided you with, it should be clear as day. Keep in mind that time is your most resourceful tool – and invest confidently with Reinvest24. 

The post 3 types of repayment schedules and which is best for you appeared first on .

The main purpose of this article is to increase the level of knowledge among investors and save some investors from bad investments. Check out also articles about this topic from experienced P2P investors in the section “Useful reading before choosing P2P platform”. In this article, You will learn what to evaluate in order to avoid being financially scammed.

We are open for suggestions and modifications of the content of this article. If you have any – drop us an email to support@reinvest24.com and we’ll add more info or links to it.

We’ve been looking at the p2p market for a while now and we are often surprised by the lack of analysis and research investors do before making their investments. Often it looks like betting, not like investing. With the increasing amount of platforms going down or raising flags, we decided to write this guide.

Just remember, this is not a guarantee for success, but it will save you from +90% bad investments. 

So, first things first:

1. Platform

Make sure the platform is technically decent and is working well. It may seem to be an open-ended recommendation, but the main point is – if the project is good, it won’t be using white-lable solutions, design templates and cheesy technical solutions. We’ve seen some p2p lending platforms “for sale” on the market, that you can buy for several tens of thousands, that have basic functionality. The company that doesn’t think about it’s technical side is deemed to fail in the long term. Most of the advantages that companies get nowadays are one or the other way related to efficient technical solutions. 

The platform should follow some basic security hygiene as SSL encryption, KYC for its investors, basic AML instructions.

Check:

• Usage of common design templates – red flag
• Bad language on the platform – red flag
• The platform looks like something is ‘copy-pasted’ – red flag

2. Product

Make sure you understand what you invest into. We wrote a big article about differences between loans and equity investments. Remember, loan is a one way road, if it goes bad – it can’t get good later, equity – can. If it’s whiskey or wine you are investing into, make sure you understand the risks related to your investment. 30% risk means you lose 100% of your money in 30% of the cases.

3. Communication

This is subjective, but important. If the company reacts to your requests promptly – it’s a good sign, but it’s not a guarantee. If the company doesn’t reply to your messages – surely it’s a bad sign. 

Remember this: if the company is a scam, it will communicate “all is well” until it’s obvious for everybody it’s not. What would you do in their shoes? Being a CEO of a scamming company would you release a message saying “yes, guys, it’s a scam, we have no money on our accounts” and at what stage? For the better understanding, we suggest you to watch the movie “The Inventor: Out for blood in Silicon Valley” 

4. The company

The first question of the newcomer is usually, “who is the owner of the company”. The owner of the company is not relevant in this case, the owner gets benefits, only when the company is in profit and pays dividends. 

Look at the management team, it’s much more important: 

• What background do they have
• What management skills do they possess
• Will they be able to bring valuable experience?
• Do they have a Linkedin profile and what does it say

Use your common sense. We do believe in miracles, but prefer to base our decisions on statistics. What are the chances that a 24 year old person with a sports background will be successful in managing a team of 20-40 people and bringing the company to success?

Look at other signs, too:

• Company registration address – If it’s registered at some apartment – most likely it’s a red flag
• Company board – this is more relevant than the owners, these are people, who actually legally are making the decisions.
• Legislation, under which the company is registered – The company is registered on some islands, but operating from “Krakozhia” – definitely a red flag. Most of the countries require the management of the company to be physically presented at the HQ of the company, in case of licensed operations. The company incorporation under other than HQ location legislation has to have some very serious reasons. All-in-all it will make it very difficult for investors to get something back from such a company if anything at all. Governments don’t like working with each other much.
• Annual reports presented to registry. At the very least, the company has to have their documents in order and report to the state as required. If a company doesn’t present it’s reports to the state – it’s definitely a red flag.
• Check if it has tax payment issues – if it does – it’s a red flag.

Keep in mind that if you want quality research – use trusted sources. There are a whole bunch of ‘services’ that tend to give you some kind of ‘rating’ for the company – it’s usually meaningless. Do your own conclusions.

We gathered some links that may help you at the bottom of this article.

5. Buy back guarantee

Most reviews present it as a ‘huge plus’ to the platform. Remember “Buyback guarantee is only as good as a company itself”. The situation when the company fails or has payment issues is the only case, you’ll need this “Buyback guarantee” and in this case this guarantee will be meaningless and give you nothing. Most likely it is a marketing trick to make the company look good. It might make sense in case of Mintos, when the platform gives a guarantee for its Loan Originator, because the platform is big enough.

Usually, LO gives “Buyback” for a certain loan. If the platform gives the “Buyback” guarantee for LO, it doesn’t make any sense if there are no tricks involved as risks become too significant.

Always read the “small text”, most of such guarantees have special cases, when guarantee is actually not a guarantee, but just a visibility, a creative marketing.

In an ideal world, providing a “Buyback guarantee” would require the company to have a relevant amount of funds to held in a separate account as insurance to be able to fulfil this guarantee, the same way as “Letter of Credit” from any bank works. From the platform’s point of view, it doesn’t have business sense, as these funds have to be loaned to earn profit promised to you.

6. Collateral

It is one of the most important things to turn your attention to. It proves if your investment is backed with something or it’s not.

For loan financing, look at LTV (Loan To Value). The loans with LTVs higher than 70% are considered to be risky. The LTV idea of 70% is that you lend 700’000 EUR and the collateral value is 1’000’000 EUR, which is OK in most cases, but dig deeper. What is this collateral, how is it evaluated, what’s it’s real value?

We’ve seen a lot of cases, when LTV is being calculated from the future value of the project – definitely a huge red flag.

Now ask yourself, if the collateral is just a business guarantee or an asset, e.g. land plot in an illiquid location, what’s it worth in a ‘pandemic’ situation? Even if this asset was valued at 1 mln EUR at some point, what would be it’s realistic price and period of its realisation? And remember: it’s a collateral, you don’t own it, it can only be sold to cover a debt (or part of it).

It’s important to understand – who is beneficiary of the collateral. Is it your name in the registry (or your representative) or the same company (or the platform), that provides you with this collateral? If the company has scamming issues, the very same collateral will be used to cover all expenses and debts due at that moment. Who will be making decisions about what debt to cover first, the same company board members?

To check:

• In case of a mortgage – it should be registered in the land registry
• If it’s some other guarantee – ask for documents, use your common sense. If it’s a guarantee from some business in different legislation – make sure it has several years of successful, profitable operation and is a decent business overall. Nowadays it’s too easy to open or buy a company, give it a cheesy name “DeutscheSecurity Guarantee Fund” and make collateral look good.

When you invest into equity, collateral serves the same function, but there is a big difference in its operations: 

• If it’s a collateral to serve as a guarantee for equity – you have a right (or equivalent) to equity, which is secured by collateral. Meaning a whole different world:
  • Equity can decrease in price, but it can recover later (unlike debt)
  • Equity can stop earning income, but you won’t lose your investment, it’s just a temporary situation.
  • Sometimes it makes sense not to sell the collateral, e.g. when the market is panicking it makes sense to wait until the market stabilizes and perform the sell then, rather than losing money on the falling market.
• Alternatively if it’s a collateral to serve as a guarantee for debt, in case of debt non-performance the only option is to sell this collateral and cover the outstanding debt (or part of it)

7. LOs vs SPVs

Make sure you understand that there is a big difference between those two:

LO (Loan Originator) – is a foreign company, that brings Platform leads that Platform gives money to. As a rule of thumb, LO takes some % from the revenue for the leads they provide. As the evolution of this kind of companies – the bigger and better LOs can offer some services on top like “guarantees”, due diligence etc. We are not saying that all LOs are bad. Dig deeper. Check if the company is on the market for a long time and it has procedures for screening applicants and reducing loan risks.

We can divide the operations of The LO operations in 2 principle parts:

• The platform gives a loan directly from investor to the loaner. This way LO doesn’t bear any loan-related risks and doesn’t have the financial motivation to do proper due diligence. It’s getting % of revenue in any case. Proper due diligence is an expensive process.
• The platform gives loan to LO and LO deals with its creditors. This takes us again to the beginning of this article as LO is another separate company.

Check:

• The management of the LO
• The history of its operations. If it’s a fresh company – it’s a huge red flag
• It’s relation to the platform. If it is related, the platform will always favour ‘own companies’ and in the long term, it might create ‘one-sided’ representation of LOs on the platform. Same board members in LOs and Platform – is a red flag.
• If several LOs have the same management – huge red flag. Such LOs either have to have very distinctive business fields or it doesn’t make sense for the same people to run several companies operating in the same area that take loans from the same place.
• What is the product LO is offering and what are this product risks? 12% (plus fees of LO and platform) is a high loan rate. Normally, people or companies that are in the good financial state would not take a loan with such a rate. This way you understand what product you invest into actually means and what risks you have to bear. If somebody is taking that loan – there have to be reasons for that:
  • No access to cheaper loans
  • Bad or little collateral
  • Bad credit history

Take that into account as well, when doing your evaluation.

SPV (Special Purpose Vehicle) – is a company that one creates with a special reason to fulfil some function. The main purpose of SPV is to mitigate risks that might arise from the activities performed by the SPV (read our article about how your investment is secured). This company usually receives funding from the platform, and it is related to the platform and using received money for performing the specified activities, be it development works or some acquisition or operations of the property.

In this case most important checkpoints would be:

• Make sure SPV is related to the platform, because otherwise it’s not an SPV, it’s just another not related company
• Same or crossing management – is a sign of relation of one to another
• Platforms usually create SPVs for acquiring or developing properties – check that acquired property or business belongs to this SPV and relevant registries have the mark about it.
• Check collateral (read the chapter about Collaterals above)

The million dollar question: Is one bad LO/SPV enough for the platform to go down?

Amount of LOs is usually limited and that’s the reason why there is normally a lot more money given to one LO than to one SPV, which is usually limited by the size of the project.

When one LO goes bad, it means for the platform either that all investors who invested into that LO lose 100% of their money or the platform has to cover this loss from its own assets. There are some in-between scenarios when part of the LO assets recovers, but it’s usually a long process (1-2 years) and the price for those activities during this period of 2 years will be deducted first from the assets recovered. If LO is in another legislation – it might take even longer.

However, even with one bad LO a platform will have to make a series of ‘difficult decisions’ and definitely will get a lot of headaches.

When SPV goes bad – means the project SPV was performing went bad. If it had collateral – it still has value. This means You are still able to recover most of the investments from this bad SPV. Such a process will probably take up to 6 months, but the main reason why it’s faster and easier – the assets belong to this SPV and it’s a matter of selling them on the market. In the case with LO – collateral belongs to somebody else and first, it needs to be taken under control and only then sold. In a situation, which involves different countries, this process can become very complicated and long-lasting.

8. Banks/ Payment systems

As per payment institutions, the government regulates them in most countries and they have to perform AML activities on its clients. If the platform doesn’t have a bank in the same jurisdiction, where it’s operating – it creates a lot of uncomfortable questions.

Check:

• The platform doesn’t use domestic banks – red flag. Definitely ask those questions and the answers have to be really good.
• The platform changes banks and accounts often – red flag. Meaning something is wrong with the way it operates.
• The platform bank account is in some ‘shady’ jurisdiction: offshore, Cyprus – red flag.

Finally, checking all the points above will not give you a 100% guarantee for the safety of your investments, but it will eliminate most of the scam cases you can become a part of.

Here are some links to make research easier:

List of Worldwide Company registers;

Baltic company registries:
Estonia
Latvia
Lithuania or alternative

Tax departments:
Estonia
Latvia
Lithuania

Real-estate registries:
Estonia
Latvia
Lithuania

And we really hope, that you won’t need links below:

State Police:
Estonia
Latvia
Lithuania

Consumer protection services:
Estonia
Latvia
Lithuania

Financial inspection:
Estonia
Latvia
Lithuania

The post How to make sure you are not being scammed? appeared first on .

By simply entering ‘real estate crowdfunding’ into Google, you will find millions of results. What you won’t find so easily is a clear, straightforward explanation as to what type of real estate crowdfunding each individual real estate investment platform offers. The main difference is that most platforms mediate real estate backed loans, whereas only a few offer real estate equity. So, let’s explore the main differences between crowdfunding loans vs real estate equity.

Loans vs real estate equity

The majority of real estate investment platforms are in the business of mediating loans. This means that your investment (the money you invest) gets put into a company, rather than the property that company is investing in. Other unique platforms, like Reinvest24, however, provide real estate equity, which is the similar to owning a percentage of the property you invest in. The latter will provide you with much more sustainable, high-yielding results, such as a monthly cash flow from rent.

Exploring the good and the bad of loan financing

Real estate backed loans, also known as real estate debts investments, are investments into, well, debts. Your money is destined towards a loan, taken by a company, to make an investment in a real estate project. When investing into loans, you’re essentially acting as the lender. Since these are usually short-term investments, you have various pros and cons. The main pro includes a shorter hold period, which means you’ll know exactly when you’re going to receive your returns and how much. The main con, however, is that you’re investing in somebodies efforts to earn profit rather than the potential value of a property. 

Pros

• Easier to find clients, who want a loan (more projects, more often)
• Shorter hold period (fixed investment periods)

Cons

• Developments depend and rely on other projects (if one project fails, it can jeopardise the others)
• Fixed investment periods (your investment period is capped) 
• Higher risks (what will happen when crises hits the market, or loan taker defaults) 
• Return relies on the company/loan taker (rather than the value of the property)

Investing in real estate with real estate equity

Investing in real estate equity, which is what Reinvest24 offers, provides the same benefits of owning a property. In this case, you’re acting as a shareholder, receiving both short-term and long-term profits, especially when dealing with rental properties. For example, you will enjoy monthly returns from rent, as well as any rewards received from capital growth when eventually exiting your investment.

The biggest pro would include not having a limit on your return, which means more money in the long run. The biggest con, when it comes to real estate equity is that it’s a long-term investment, which means it takes time and patience to obtain greater returns. 

Pros

• Same benefits as owning a percentage of the real estate (you own shares in the property)
• Passive monthly income (short-term profits from rental yield)
• Lower risk
• Access to exclusive property deals (you own part of a property you otherwise couldn’t invest in)

Cons

• Limited selection of properties (time-intensive investment which means less projects)
• Long-term investments (higher returns are obtained during longer periods)
• Property management (resource intensive, although Reinvest24 takes care of it)
• Slower payout (selling shares and receiving profits from capital growth can take time)

Which type of investment is riskier? 

When comparing the risks, investments into loans mean that the development stages depend on a number of things. You need to take into consideration the financing, the loan taker’s (and such platform’s) other projects and all the due diligence that goes into making a geared investment through a crowdfunding platform.

When it comes to collateral, crowdfunding platforms that mediate real estate backed loans don’t always offer the property as guarantee and even if they do, the value is often a future estimation of it’s price. This means, if the loan defaults, the actual amount of monies recovered will depend on the progress of development works.

Recent announces of default of rather big lending companies on the market confirms, that the declared value of collateral is almost always lower than the actual loan. If it would be the other way around, then the loan taker could easily finance himself via bank loans and on better terms in most cases.

On the other hand, crowdfunding platforms that offer real estate equity always back your investment with the same property you are investing in as collateral. In Reinvest24 we always evaluate all potential risks of each property.

Investing in properties is safer than financing loans

When you invest in rental properties with real estate equity, you benefit from rental yield on a monthly basis. This source of passive income is key to creating long-term wealth as it will withstand market fluctuations, ensuring a better cash flow. For example, at the peak of the last housing crisis in 2008-2009, the real estate prices in Estonia dropped up to 50-60%. Meanwhile, rental prices remained more stable, dropping only around 10-15%.

The fact is people still need somewhere to live, regardless of the economy. So, even if banks aren’t granting loans and there’s a decrease in real estate buyers, there will still be a solid rental market with tenants needing a place to call home. Rental income will ensure you endure and survive a market downturn, at least until real estate prices get back on track. Overall, the long-term price growth of properties for the past 15 years has been above 300% (housing crises period included). 

Properties provides cash flow and long-term wealth 

Even if there’s another housing crisis, investing in rental properties will still generate a healthy monthly cash flow while you wait for things to recover. And eventually, the real estate market always does. So, in terms of long-term returns on periods over 10 years, the market growth is still estimated to be at least 6% per year on average. This estimate includes the next real estate market correction period. When your long-term real estate investment provides rental yield, combined with capital growth, you are bound to receive great returns, with relatively low risks.

In comparison, when investing in loans, the next market correction or housing crises will leave the developers who are taking the loans in a sticky situation with interest rates over 10% and platform fees over 4%, and no rental yield to reward investors. If the developers are unable to sell their real estate, while paying an expensive mortgage with high interest, your returns are in jeopardy. Hence, the potentially high rewards come with high risks.

Get rich quick or get rich for life?

In terms of liquidity, investments into real estate equity can provide you with both long-term and short-term returns (especially when dealing with rental properties). You’ll even enjoy monthly rental income when the market is down. However, compared with investments into loans, it may take more time to enjoy your profits, as your returns will come from long-term periods, which is more sustainable if you’re looking for long-term wealth. In comparison, investments into loans are generally faster since they are short-term investments with fixed periods.

Should I invest in loans or real estate equity?

In conclusion, investing in rental properties will grant you a monthly cash flow to withstand any storm, and the real estate market eventually always recovers. However, when it comes to real estate loans, the investment can become a risk. Many loan takers and developers will never recover from a market correction, especially when using expensive high-interest loans for fast real estate developments. Investing into the loan deal can hold a huge risk when the market is not stable.

If you would like to invest in real estate through a crowdfunding platform that provides real estate equity, take a look at Reinvest24. We are a unique real estate investment platform based in Estonia. Our properties have been providing a total combined return of 14.6% per year, with encouraging projections for 2019. If you would like to start receiving monthly passive income, invest in real estate today, starting from 100 euros. Discover our high-yielding rental properties.

The post The differences between investing in loans and real estate equity appeared first on .