Adapting your investment strategy in a changing world

Today, almost a year and a half since the Covid-19 crisis began, we have been forced to adapt to new circumstances in every field of life.

As at any time, there are always winners in the economy and those who are forced to turn a new page and start over. There are even many companies that report record results from month to month. The real estate sector is one industry that finds itself on the winning side, yet professionals are not seeing any signs of overheating. EstateGuru is also moving in with a strong tailwind. We are just as successful as our users. By practising diligent care, the risk team has constantly contributed to ensuring that the platform’s risk-return ratio is well balanced and that the quality of loans issued, or credit control, does not decrease because of rapid growth.

Stable growth in the real estate sector can be expected as long as central banks are continuing their policy of printing money to stimulate the economy. Securities and real estate markets remain the first preferences for investors looking for a good return due to their risk-return ratio and liquidity.

While it is not possible to directly compare all asset classes, asset diversification is always crucial. Let’s look at direct investment in real estate versus crowdfunding platforms and stock market investment in a single stock versus a multi-share index fund.

Pros and cons of different strategies

Rental housing can be a great investment if you have the willingness to manage your own properties. And with mortgage rates hitting all-time lows in recent times, it could be a great time to finance the purchase of a new property, though the unstable economy may make it harder to actually run it, since tenants may be more likely to default due to unemployment.

To pursue this route, you’ll have to select the right property, finance it or buy it outright, maintain it and deal with tenants. You can do very well if you make smart purchases. However, you won’t enjoy the ease of buying and selling your assets in the stock market with a click or a tap on your internet-enabled device or selling your investment in real estate through a crowdfunding secondary market platform. Worse, you might have to endure the occasional 2 a.m. call about a broken pipe. 

However, with thorough analysis and previous experience, it is possible to find an excellent equity investment or an ideal real estate object. The downside is that by investing in only one object or company, you may have taken on too much risk and are very vulnerable if something unpredictable happens. For example, by buying only Apple stock, you may have made a great deal, but it is safer to invest in the S&P500 index – as the fund is based on about five hundred of the largest American companies, meaning it comprises many of the most successful companies in the world. Like nearly any fund, an S&P 500 index fund offers immediate diversification, allowing you to own a piece of all of those companies. The fund includes companies from every industry, making it more resilient than many other investments.

When it comes to real estate, yes, you can find a very nice apartment or house to earn a rental income, which gives you a good return. You may even find an excellent tenant, yet it may still happen that this “happiness” turns, and you are forced to deal with problems that you could not have foreseen. In terms of risk diversification, it is wiser to have a portfolio in which the real estate sector is nicely represented rather than investing in just one object.

Before making an investment, there are some aspects every investor should be aware of. In addition to the risks associated with the company, there are risks that are unpredictable in every investment, such as the general health of the sector in different phases of the economy. However, there is a lot of information when making an investment that saves a lot of nerves in the future and does not create unrealistic expectations. 

The benefits of investing via a platform

Unlike many similar platforms, EstateGuru’s first and biggest advantage is that all business loans are secured with collateral. Why is this important? Even the most experienced risk assessor cannot anticipate all the risks associated with a project, and we must also be prepared for the fact that some projects that get funded through the platform will not be successful. In this case, we can avoid capital loss by selling the collateral. In addition, in recent years our company has invested in its team and resources to keep the quality of the projects high. We know how to act in a worst-case scenario, and how to help borrowers when they are hit with difficulties. You can read exactly how the debt procedure works smoothly here.

We are often asked why people come to a platform with higher interest rates instead of getting financing from a bank. The main reason is very simple – banks’ risk appetite and regulations prevent fast procedures. Banks do not have the capacity to finance a project in a few days. Furthermore, due to the large number of investors on our platform, the borrower receives not only financing but also free marketing for their project. It has happened regularly that an investor who has contributed to a development project through a loan also buys, for example, an apartment from the development project in which they invested. As EstateGuru offers projects from eight different countries, it also gives the easiest access to ‘owning’ real estate abroad which otherwise is quite complicated.

Returning to the comparison started above, in addition to the risks and the attractive return forecast, we recommend paying attention to the investment costs. Participation in the securities market entails both transaction fees and account management fees, which all reduce the investor’s net return at the end of the day. Real estate acquired for investment purposes also incurs fixed costs. In the worst case, also a large expense in the form of a failed tenant.

The EstateGuru platform allows you to achieve good diversification and the safest possible investment in the sector with an initial contribution of just 50 euros at no extra cost. This is an amount almost anyone can afford. Another very important fact in favour of investing on the EstateGuru platform is that all the preliminary work, background and risk analysis of the loan and the borrower has already been done for the investor. Not all projects requesting funding will reach the platform. Notarial transactions are also made convenient for the investor. The loan is prepared with great care. The investor does not have to worry about mortgages or other contractual arrangements. If you want to make your life especially comfortable, you can set up Auto Invest under your EstateGuru account, which makes investments on behalf of the investor exactly according to the criteria you set. This way, in just a few months, you can get a reasonably diversified portfolio of real estate loans, which will make you extra money without much effort. The application is like the Growth Account offered by banks for securities. Unlike the securities portfolio, however, our Auto Invest does not have a transaction fee or fixed cost, which ensures that all income shown as interest in the loan description will be credited to your account in exactly this amount. In addition, by setting up Auto Invest, you can ensure that you do not miss a project that appears on the platform due to the high interest and speed of investors. However, if you prefer to get acquainted with the projects yourself and make choices yourself, manual investment in different projects will remain an option for you.

By Kairi Veere – Investor Relations Coordinator

All investments, including real estate, are speculative in nature and involve a substantial risk of loss. We encourage our investors to invest carefully. We also encourage investors to get personal advice from a professional investment advisor and to make independent investigations before acting on information that we publish.