For a long time they were reserved for institutional investors, but alternative investments are now also playing a growing role in private portfolios. Particularly popular: property crowdfunding. For the best risk-return ratio, investors should pay attention to the details.
Due to the persistently low interest rates and the volatility of the markets in light of the global health crisis, more and more investors are looking for alternative investment opportunities to diversify their portfolio. Institutional investors have a wide range of tools at their disposal, from hedge funds and private equity to infrastructure and real estate investments. Private investors are also increasingly asking for alternative forms of investment, with a particular focus on real estate. In contrast to the financial professionals, however, most private investors lack the financial resources and the necessary specialist knowledge to build a comprehensive real estate portfolio.
Crowdfunding via digital platforms is therefore an uncomplicated alternative to purchasing real estate directly. EstateGuru, for example, offers investors access to selected real estate projects in eight European countries (Germany, Estonia, Finland, Latvia, Lithuania, Spain, Portugal and Sweden). With more than 70,000 investors and over 2,000 financed projects, the company, which was founded in Estonia in 2013, is a leading European marketplace for short-term, property-secured loans. EstateGuru has been on site in Germany with a Berlin office since 2020.
Low capital expenditure, high diversification
Real estate investments via crowdfunding platforms are enjoying increasing popularity among German investors. According to Statista, the financing volume on the crowdinvesting market for real estate already amounted to around 210.7 million euros in 2018. Ascending trend. The following advantages are particularly impressive:
- Low minimum investment amounts: While direct investments in real estate require high six- or even seven-digit sums, investments via crowdfunding are possible from as little as 50 euros.
- High diversification: The low minimum investment amounts enable investors to invest in many different projects with relatively little capital. However, it is not just the number of projects in the portfolio that is important for diversification. Investors should also pay attention to geographic spread in order to avoid regional cluster risks.
- More control: With classic fund investments, investors have no say and have to trust the decisions of the management. Alternative investments via digital platforms, however, allow you to make your own investment decisions. Detailed information is provided for all projects, for example the location of the property and the achievable income. Investors can individually choose in which projects they invest and thus retain control over their capital investments.
Decisive detail: senior secured loan or subordinated loan?
Alternative real estate investments offer an attractive risk-return ratio and can bring investors double-digit income. In terms of risk, however, investors should pay attention to one crucial detail when selecting a project: are they investing in a senior secured loan or a subordinated loan?
Most real estate crowdfunding platforms offer investments in subordinated loans. However, these have a decisive disadvantage: If the worst case occurs and the borrower becomes insolvent, subordinated loans are serviced last. In other words: The creditors of the loan, i.e. the investors, only get their money back as soon as all other outstanding debts have been paid – provided that capital is still available at this point in time.
In order to minimize the risk for investors, almost all loans at EstateGuru are secured with a first-class mortgage. In practice, this means that if a borrower defaults, EstateGuru investors will be the first to have a right to get their capital back from the sale of the collateral.
Find out more in the EstateGuru webinar
The security aspect shows that real estate investments in the form of crowdfunding offer convincing advantages. In order to be able to use this optimally, however, investors have to keep a few things in mind.
Investors who want to dig deeper can now register for the free EstateGuru webinar on February 18th or March 17th. Nicola Picone (Managing Director, EstateGuru Germany) and Kadri Akk (Community Manager – Germany) will give an introduction to the world of alternative real estate investments. Learn more about EstateGuru, how to use the platform and get to know the borrowers behind the projects.
Contact us here for the free webinars on February 18 and March 17, 2021.
The EstateGuru team looks forward to seeing you!
Source: BÖRSE ONLINE
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