With the correct approach to risk, investors on the Real Estate Investment platform, Estateguru, can earn 10% annual interest. Our Head of Group Marketing, Eglė Kučinskė, sat down recently with the leading Lithuanian business newspaper, Verslo žinios, to go over some of the numbers.
We took as a case study a portfolio made up of an initial investment of €5,000, spread among 20 loans (€250 for each real estate project). In 2022-2024, the average return on investment on the Estateguru platform reached 10%. The average loan duration was 12 months, with interest repaid every 3 months. Using these indicators, we calculated the following.
By reinvesting the returned principal and interest, such a portfolio of €5,000 can generate an annual income of €620 and reach a value of €9,450 in seven years. The latter figure is calculated on the basis of the probability of having recoverable loans in the portfolio and providing for the fact that some loans could be prolonged. By investing additional funds, the accumulated final amount would end up correspondingly higher.
What to consider when choosing projects on the Estateguru platform:
Estateguru’s Head of Group Marketing, Eglė Kučinskė, emphasizes that when choosing projects, it is important to properly break down the risks, and ensure that you diversify your investments accordingly.
“With Estateguru, it is possible to diversify your portfolio not only by asset type, but also by geography,” said Kučinskė. “On our platform, investments can be allocated according to the purpose of the real estate, the location, and across five European country markets.”
Through Estateguru, it is currently possible to invest in Lithuania, Latvia, Estonia, Finland and Portugal. According to Kučinskė, each investor is unique, as people’s needs and opportunities are different, but she recommends that all investors take into account the following factor when assessing potential investments:
Location: Each country or city has its own unique market and legislative conditions. The location affects the quality of the entire project and the collateral, especially its liquidity.
LTV: The LTV is a measure of the ratio of the loan amount to the value of the financed property. Projects with lower LTV ratios are generally considered safer investments, as this means that there is more equity capital in the pledged real estate compared to the debt. Consequently, there is greater protection against market fluctuations. Estateguru maintains an average historical LTV across over 6000 loans funded on the platform.
Loan Duration: It is also important to assess how long you can freeze your funds and choose projects that correspond to this period. The duration of the investments usually ranges from 6 to 24 months.
Borrower: The experience of the borrower is important: although past success does not guarantee future results, it is a strong indicator of the borrower’s capacity to implement a successful business plan and avoid mistakes. Experienced project developers are considered more reliable.
Assessed by Moody’s
All of these factors and many more are taken into account when Estateguru conducts an assessment of each investment project. Projects published on the platform are also evaluated using Moody’s Analytics system, with the Commercial Mortgage Metrics (CMM) model being applied.
The valuation takes into account the location, value, cash flow and type of pledged assets, loan terms (maturity, interest rate, etc.) and other credit data. The credit risk score calculated in this way is displayed next to each project. Projects with ratings A and B are considered to be of a lower risk compared to those that have been awarded a C rating. Aaa projects have the lowest degree of risk and C projects have the highest. Estateguru only published projects with a B rating or higher.
How to break down the risks
“When investing, it’s important to realise that higher interest rates typically mean more risk. Consequently, you should not choose only those projects with the highest interest rates for your investments,” noted Kučinskė.
Although it is possible in some cases to earn 0.5% higher interest on single investments of €1,000 and an additional 2% higher interest if you invest €50,000 in one project, investors should be wary of investing sums that are unable to bear losing. Rather, such sums should be spread across multiple projects, to mitigate risk.
Financed loans totaling more than €790 million.
Estateguru is one of the largest real estate financing and investment platforms. Its database includes more than 160,000 investors from more than 100 countries. Since its establishment in 2014, the platform has financed loans for more than €790 million, with more than €590 million returned to investors (including repayments, recoveries and interest paid).
In February of this year, €7.4 million was financed. The average loan-to-collateral value ratio is 62.14% and the historical return is 10.4%. Every investment opportunity is secured by real estate collateral. Currently, the platform’s available deposits amount to €505.3 million, of which 97.9% is secured by first-rate mortgages. Residential construction accounts for 55.9% of the collateral value, land plots and buildings under construction – 24.4%, and commercial property – 19.7% of the total collateral value.
