In the age of low-interest rate loans, many investors are thinking about buying a real estate as an investment. Properties are popular types of investments due to various benefits. Not everyone, however, has enough capital to invest in the real estate market. Many banks require you to invest at least 20% to 30% of your own capital. In this article, we will show you how you can invest in real estate with almost no money.
In many European cities, the prices of real estate went up exponentially in the last few years. Thanks to the positive trends on the market, investors benefit from the increase in the value of their real estate properties.
Why should you invest in real estate in the first place?
- Older real estate properties that require renovation are often sold for an affordable price. The value of the property can be easily increased if the renovation does not require too much capital.
- Properties that are purchased with the goal of renting them out can be a good way to build a passive income stream. The return from a lease is usually higher than from traditional banking products such as savings accounts.
- Properties also offer protection against inflation. In most cases, the increase in the property’s value is higher than the average annual inflation rate or equal to the inflation rate.
- Real estate is also a suitable form of pension provision. Real estate investing is one of the most suitable investments, where investors benefit from the leverage effect. With little money, you can earn a solid return if you succeed to get additional financing.
There are multiple strategies that help you to invest in real estate with no money such as co-investing with a partner, a building contractor or getting a financing offer directly from the seller.
The risk of buying real estate with no money is naturally high. There aren’t many lenders that will offer you to finance 100% of your real estate project. Usually, you need to pay 20% to 30% of the real estate’s value from your own pocket.
25% of a real estate’s value that is valued at € 200.000 equals €50.000. Not every investor with an average income has this amount on their bank account. That, however, does not mean that one cannot benefit from the positive trends of the real estate market.
Investing in real estate with no money on crowdlending platforms
Private investors that participate in crowdlending invest in multiple real estate projects that help to finance apartments and homes in Europe. The acquisition costs of the real estate property are therefore financed by multiple investors. The lenders receive attractive returns of usually more than 12% per year.
The return on equity is obviously with crowdlending smaller as if you would use a construction loan and build the property yourself. The time and risks, as well as the amount of money invested, is however significantly smaller.
Crowdlending helps you eliminate the frustrating paperwork, time-consuming negotiations with lenders as well as the stress with the purchase of the real estate.
Crowdlending is, therefore, suitable for investors not only because you don’t need as much money to start investing but also because the time investment and the risk connected with investing in real estate is significantly smaller.
Many developers borrow money from private investors to finance, commercial properties, private homes and apartments. The financing is usually managed by crowdlending platforms such as EstateGuru.
EstateGuru takes over the credit check and as soon as the project fulfills the credit criteria it will get approved for financing. The minimal investment in one project is only €50. The fully secured loans (investors get 1st rank mortgage and personal surety as a collateral), listed on EstateGuru bring on average 11.48% (as of March 2021) yields for investors. This is, by all means, very attractive return if we take into consideration that many US and UK based crowdlending platforms offer no more than 7,0% yield.
How safe is investing in real estate with no money?
Investing in real estate while taking a loan comes with a high risk. A loss of income can significantly impact investors’ financial situation and can lead to default.
The capital commitment with crowdlending is fundamentally smaller and there is no need to take a loan. Crowdlending platforms such as EstateGuru allow their investors to diversify their investments across multiple projects in different countries to lower the risk of default and capital loss.
In comparison to other crowdlending platforms that solely finance unsecured loans, EstateGuru only lists secured loans backed by a mortgage and borrower’s personal suretyship. Additionally, the LTV (loan to value ratio) is on average 58% which means that in case the borrower isn’t able to repay the loan, EstateGuru can sell the collateral easily and pay back their investors.
EstateGuru has managed to collect all of the debt of borrowers in the past with no capital losses to investors which proves that the platform is able to protect investors’ money.
EstateGuru minimizes the default risk with securities. Investors that invest their money in unsecured loans do not benefit from this protection and they will probably loose all of their capital in case of bankruptcy of the borrowers.
What is the risk when investing in real estate with no money?
The risks connected to your investment in secured loans on EstateGuru are significantly lower.
Investors should typically be aware of the following main risks:
- Platform risk
- Credit risk
- Market risk
Obviously, investors are not able to control all of the risks connected with crowdlending in the real estate sector. Each platform, however, informs their investors about the possible risks as EstateGuru has done. If that’s not the case, you should rethink your investment strategy on this particular platform.
EstateGuru managed to gain the trust of 26.000 investors from all around the world since its inception in 2014. The crowdlending platform is regularly reviewed and rated by their investors. Investors highly recommend investing through EstateGuru platform. One of those investors is Jakub Krejci who invests on EstateGuru to generate passive income. Read more about his review on his blog kubasjourneys.com.
Transparent communication, user-friendly interface as well as high yields from investments are the reasons why crowdlending is gaining in popularity globally.
EstateGuru is the largest peer-to-peer lending platform in the real estate sector in Europe. Investing in secured real estate loans with high yields (ARP) are only a few reasons why you should consider to join EstateGuru.
