When we refer to this new term, real estate crowdlending, we're talking about a trend in the investment sector. Through it, any individual can access real estate with a minimal financial contribution. This is achieved through a series of real estate projects launched by certain platforms responsible for implementing them. Essentially, it's about investing in the real estate sector, but without resorting to financial markets, and certainly not through the buying and selling of shares in this professional segment on the stock exchange. In any case, it's an innovative concept that can provide a return of around 15%.
This investment is being driven by the current strength of the construction sector in Spain, as evidenced by the latest data from the industry. Indeed, the number of sales transactions has increased in recent months, with greater activity in the market and a rise in property prices, both for new builds and rental properties.
"Capital cities and large urban areas" led the growth in housing prices in Spain in 2017, with a year-on-year increase of 7,5% in December, compared to the national average of 4,5%, according to the monthly IMIE General and Major Markets statistics compiled by the real estate valuation and advisory firm Tinsa. The average property value remains at levels seen in November 2013 , with a cumulative decrease of 38,6% since 2007. This confirms that it is a good time to return to real estate as an investment alternative.
Real estate crowdlending, what is it?
This new investment system is driven by user interest in the real estate sector. It operates through a two-pronged strategy by the two parties involved. On the one hand, there are the platforms that have access to financing for these real estate projects without having to resort to traditional lenders. They will achieve greater savings by paying less interest on the liquidity they allocate to these projects. As a result of this trend, they are able to invest in multiple projects of this type.
On the other hand, there are small investors who can earn higher returns on their savings than those offered by various financial products. Profit margins are typically between 2,50% and 14% . In any case, this represents a higher interest rate than that offered by traditional banking models (fixed-term deposits, high-yield savings accounts, bank promissory notes, etc.). In all cases, returns do not exceed 1%, a consequence of the European Central Bank's (ECB) policy of lowering interest rates.
With margins higher than equities
Real estate crowdlending also outperforms the returns currently generated by fixed income . It's worth noting that this investment is not currently performing at its best due to market instability. Furthermore, it can also improve upon the performance of equities in many cases. In this regard, it's important to remember that the benchmark Spanish stock index, the Ibex 35, appreciated by 8% last year, while most European benchmarks rose by around 13%. In this sense, real estate crowdlending can even surpass these margins.
However, the return on this new investment depends on the property's price at any given time. It is therefore a seasonal return, as it will not always be the same year after year. That is, during periods of construction boom, it can lead to peak returns. Conversely, during recessions, its interest rate can fall to its lowest levels, around 1% or 2%. In this sense, choosing the right time to invest in these real estate projects is crucial, as it can generate a significant difference in profitability.
How are investments formalized?
If you're interested in investing your money in these types of real estate platforms, you'll need to understand the marketing process. First of all, real estate platforms that handle crowdlending advertise their projects through their websites. These websites detail all the characteristics of each project , from its specific features to the potential return, as well as the project's duration.
Once a project appeals to you, all you have to do is invest in it. You'll have a set investment period, and at the end of that period, you'll recover your investment plus the corresponding interest. There are no fees or other expenses related to its management or maintenance. In any case, the project's funding may already be covered through contributions from other small and medium-sized investors in the same situation.
Information transparency
One of the biggest concerns for potential investors regarding this unique investment is whether this system for generating returns on savings is completely secure. To ensure this, you have no choice but to obtain this information through the Spanish National Securities Market Commission (CNMV). These collaborative platforms are required to submit all their information to the Spanish regulatory body. Therefore, you should only trade with companies that are properly registered. If they are not, it's best to abandon your intention to invest in these real estate projects.
On the other hand, it's true that these platforms don't currently have a strong presence in the existing real estate crowdlending market. But at least they're available to meet this specific need that you might have at any point in your life. They're primarily focused on the nation's major cities, such as Madrid and Barcelona, ​​more so than others. Because it's precisely in these locations where the projects are being developed, and from now on you'll be just another investor.
Performance in operations
In any case, what will interest you most is the potential return you can earn through these real estate transactions. They operate within a very flexible range, reaching up to 15% . This is a more than compelling reason for you to accept one of these proposals offered by collaborative platforms. However, you should also consider the timeframe of the transaction. Indeed, it could take anywhere from a few months to several years to receive your well-deserved reward.
This interest will be paid when your chosen project matures . As you'll see, the returns aren't the same for each project. Instead, they offer different yields depending on their characteristics. One of the most important factors is the property's location, as this will determine whether it offers a higher or lower return.
Amounts to disburse
One defining characteristic of real estate crowdlending is that you can invest from as little as €50 . This makes it accessible to all household budgets and is the main difference compared to more conventional financial products. As a result of this small investment, you won't need to make a significant financial effort to invest in these projects. However, there is a maximum limit that you cannot exceed at any time: around €10.000 per project you are awarded. This is perhaps one of the biggest drawbacks to accepting its terms: very limited amounts in all cases.
While on the other hand, you can choose between different kinds of real estate projects. Both in what refers to the acquisitions of real estate, as well as the rental modality. Depending on your preferences in this important sector of the Spanish economy. In any case, your financial contributions must come from your usual bank account. As well as the refunds that you will receive at the expiration of the terms. On the other hand, they will be delimited before you sign the operation with the collaborative platform.
Risks of operations
One aspect you should keep in mind from this point forward is that these transactions are not without risk. In this regard, one of the most significant risks is that there is no fixed interest rate, nor can it be guaranteed from the outset. On the contrary, these are commercial transactions governed by market forces. Interest rates can fluctuate considerably depending on when you make the transaction. Timing is key to protecting your interests, as the difference can exceed 20%. Therefore, it is advisable to choose the most opportune moment to formalize this investment.