EstateGuru Review 2020 - 11.72% Returns On Loans Backed By Real Estate
What Is EstateGuru?
EstateGuru is a marketplace for short-term, real estate backed loans. It is one of the leading P2P platforms on which you can invest in, amongst others, development projects, business loans and bridge loans. You can start investing with as little as EUR 50 and returns for investors average around 12% on an annual basis.
One of the reasons property-backed lending is so popular, is that it uses real estate as collateral: the property can be sold when a borrower is incapable of paying back the loan. This is an advantage compared to other forms of lending, and definitely suits the needs of the more conservative investor.
Having its roots in Estonia (2014), EstateGuru has grown significantly. As of September 2020 it has funded over EUR 235 million in loans and has over 57.000 investors, making it one of the major players when it comes to P2P property-backed lending. Therefore, this platform is definitely an option when considering investing.
|Results EstateGuru||2019 Q2||2019 Q3||2019 Q1||2020 Q1||2020 Q2||Operating income (EUR)||650.504||712.961||774.036||937.356||731.341|
|Loan volume (EUR)||20.318.462||22.768.429||23.818.226||27.374.573||30.396.658|
|New registred investors||4.000||5.109||7.254||8.092||6.201|
Why Would Borrowers Use EstateGuru?
We get asked this a lot and let’s face it: one of the first questions that comes to mind is, why would an entrepeneur or property developer be prepared to pay 12% annually on a business loan? While the answer to that question might be different for every borrower, a few notable similarities can be distinguished:
- Whereas financing through banks could take a couple of months from the application to actually receiving the funds, when applying at EstateGuru this process takes 2 weeks at most. This is significantly faster.
- One cannot always foresee when a project will be finalized exactly. The main advantage of EstateGuru is that it accepts early repayments without penalties, which is considerably cheaper compared to having a fixed term loan.
- EstateGuru offers the option of flexible repayment schedules, meaning a borrower has multiple options to choose from: annuity payments, bullet, or full-bullet payments. Traditional financial institutions don’t offer these options.
- Lastly, due to the financial crisis of 2008 banks significantly reduced the risks they were willing to take, ultimately leading to a tightening of their lending criteria. Therefore, banks rejected many loan applications – whereas EstateGuru can still provide those loans to companies with a strong business plan and solid collateral.
Registering at EstateGuru
Signing up at EstateGuru is basically a breeze. Fill out the registration form, verify both your e-mail and identity (as shown below) and you are ready to invest. Support is widely available in 5 languages should you encounter any difficulties. Keep in mind that in order to be eligible for investing at EstateGuru you need to:
- be at least 18 years old;
- have a bank account in one of the EEA member states or in Switzerland (non-European residents can also get a European bank account and over 100 nationalities have been admitted on the EstateGuru platform);
- and pass the KYC (know-your-customer) checks in order to comply with anti-money laundering procedures.
You can choose whether you want to invest as a private investor or as a company. Two-factor authentication is optional, using the text service on your mobile phone.
The next step is to verify your identity. EstateGuru offers a manual option where you can upload the required documents yourself or you can use Veriff. In the latter case, your camera will be used to verify your ID, which is significantly faster.
In order to comply with anti-money laundering regulations, the KYC questions as shown below need to be answered.
When all this is set and done, depositing money into your account is the final step. EstateGuru needs at least one payment from your personal or business account in order to verify your IBAN. Once verified, you can use other payment methods (such as SEPA payments, LHV bank link, but also third party service providers such as Transferwise, Revolut, Lemonway, and Paysera). You don’t pay any fees when depositing and only EUR 1 when withdrawing money from the platform.
Investment Opportunities With EstateGuru
Now that you’ve registered, let’s explore the investment opportunities. The whole process of financing and investing is shown below.
There are multiple countries you can invest in: the three Baltic states, Finland, Portugal, Spain and, as of 2020, Germany. Although the majority of loans (around 65% at the time of writing) originates from Estonia, there are plenty of diversification options.
Additionally, there are three types of loans you can choose from, all secured by a mortgage, which can be purchased on either the primary or secondary market:
- Development loan: a loan used either to finance the development’s planning process or the development or construction of the property itself.
- Bridge loan: a short-term loan used to meet current obligations or to cover shortages in financing property.
- Business loan: a loan used to raise capital, for instance to realize a business expansion, to refinance outstanding obligations or to increase the operating capital.
Browsing these loans it shows that a significant part of them are stage loans. When a borrower applies for a loan, EstateGuru will only lend against the current value of the property and not against the future value. On a big project especially a borrower might face the issue of not getting the loan. So instead, the stage financing method is used. Splitting the project up in stages will enable the borrower to increase the collateral value of the property. After one phase has been completed, the next can start. All these loans are solely based on the current value of the object and with every stage a new validation report of the collateral is drawn up. This way, borrowers have access to funding where they otherwise wouldn’t, and investors have more control over a particular project phase.
The information provided on these projects is extensive. What you see below is a screenshot in log-off mode; when you sign in you get even more information, such as the appraisal report on what the property is valued for, the exact collateral for this particular loan and, where applicable, the borrower’s track record. This is invaluable information when deciding on how to invest.
Once you have decided on your best investment strategy, investing can be done either manually or by setting up the auto investment tool, which means loans are invested based on the parameters you’ve set yourself. There are a few imporatant things to take into consideration:
- First of all, there is a EUR 250 threshold to access all features of the auto investment tool whereas you can invest manually from EUR 50;
- Secondly, the information EstateGuru provides is extensive. If you want to carefully check your borrowers, you’ll have to invest manually;
- Thirdly, if you have larger sums of money to invest or if you have little time available, the auto invesment tool saves you a lot of work once you have set the parameters to your liking;
- Lastly, EstateGuru has a lot of loans on offer. If you want to invest manually and you are looking for specific loans in high demand, you run the risk of missing out on an investment oppurtunity to invest. With the auto invest tool this is usually not a problem.
Risk Analysis When Investing With EstateGuru
You’d rather avoid the situation where a borrower cannot pay back the loan, but what happens when things turn sour? Although the loans on EstateGuru are backed by property and almost all of them have a first ranked mortgage, peer-to-peer lending is still not without risk and defaults are an inevitable part of doing business.
However, EstateGuru mitigates risks in a number of ways:
- Conducting thorough due diligence in order to reduce the risk of non-paying borrowers. As a result, EstateGuru only approves 10% of the applications it receives;
- All the loans are backed with a mortgage, registered on behalf of a separate Security Agent with the sole purpose of holding securities for the benefit of investors. The funds will only be released when the agreement is deposited in the notary register;
- The mortgage will be held until the loan is paid in full. If the borrower doesn’t meet its obligations, EstateGuru will first try to get a solution beneficial to both parties, for instance a repayment break or extension of the loan. Otherwise the agreement allows for enforcement proceedings which will usually lead to an auction of the real estate. Because of the fact that almost all mortgages are first ranked with EstateGuru, in case of default the investors are the first to be paid.
At the time of writing (September 2020), 5.2% of loans defaulted (out of a total of 1.697) all of which have been recovered. In other words: investors didn’t suffer any loss of capital.
How Is EstateGuru Dealing With The COVID-19 Virus?
Another factor when making risk calculations these days is the COVID-19 virus. It has a major impact on the economy and P2P investing is no exception. In general, investors tend to secure their investments, where some may withdraw (parts of) their funds. We asked Bert Reila of EstateGuru what their view is with regard to the current COVID-19 situation, as the amount of delayed loans may increase because borrowers are allowed to pay later or have difficulties paying at all. This is what EstateGuru had to say in response:
EstateGuru has always taken conservative risks while funding projects – our average LTV (Loan to Value) is only 58% and in the majority of the cases we have taken personal guarantees of the borrower representatives on top of the real estate collateral. We are adapting to the changing environment and lowering the risk levels where needed. The default rate and rate of late loans will temporarily rise to some extent, BUT we are putting extra effort and extra manpower to the loan recoveries in order to keep the investments safe. Our historical track record of capital loss is 0% and investors have earned an average over 10% return from recovered loans. Our stress tests show that investors with diversified portfolios will not lose their capital even if the defaults rise to 30% (currently 5,7%) and the real estate prices drop by 40%. We’d also like to stress that:
- We have remained conservative;
- Property values have always been based on “as is” values;
- We finance against first rank mortgages with very few exceptions;
- Concentrating on strong borrowers and liquid collaterals;
- Concentrating on metropolitan and growth areas;
- Due diligence with more negative stress tests in every case;
- We are preferring residential real estate and liquid commercial real estate;
- Land developments are exceptions;
- LTV’s [Loan To Values] take into account the crisis and are with an extra buffer.
In sum, COVID-19 not only has a major impact on investors but on P2P platforms as well. Some borrowers may have difficulties repaying loans or they may even default. Therefore, for investors it is a comforting thought that EstateGuru has a rather conservative approach, collateral with a relatively low Loan To Value (LTV) rate, has a solid trackrecord, a profitable business model and will seek extra equity in the near future.
More on COVID-19 and EstateGuru’s outlook for 2020 can be found here.
EstateGuru Premium is a membership available for all investors whose investments exceed €100,000. Usually, this is for the professional investors who have other needs in this regard.
The advantages coming with the Premium package are:
- The option to indicate your interest prior to the publishing of loans;
- Bonus offers when making larger investments;
- No fees on Trustly deposits;
- You’ll be invited to EstateGuru events, like its annual seminar;
- You will get a personal account manager.
Lastly, being a Premium member means that you get access to specific projects before they go live on the platform. Thereby, once it goes live, it already has precommitments. This means that the loan’s syndication period will be shorter. This way, the whole process of getting a loan funded goes much faster which is beneficial for all parties involved. The sooner loans are funded, the faster a borrower can start its project and the investor can earn money. However, EstateGuru will always ensure that a percentage of a specific investment is left for the platform’s retail investors.
EstateGuru's Equity Campaign And Further Outlook For 2020
EstateGuru aims for an annual funding volume of EUR 5 billion in 2025. In order to do so, it recently launched an equity campaign. Funds will be used for expansion and further development of the EstateGuru businesses. This equity campaign is the first of a larger A-round, estimated to deliver EUR 5 million.
One part of the funds will be used for geographic expansion. One of the markets EstateGuru will enter is the United Kingdom, where a major part of Europe’s P2P investments are being made. The second part will be used to attract institutional investors and more specifically to serve their needs and requirements. The remainder will be used to advance EstateGuru’s technological capabilities, including further digitalization and investment automation.
It speaks for EstateGuru that they have a well thought-out plan for the foreseeable future and that they are getting ready to attract more institutional investors. The latter have high standards for investing, which will enhance the professionalism of and therefore trust in EstateGuru even more.
Frequently Asked Questions
EstateGuru is not regulated, nor are your investments covered by the Financial Services Compensation Scheme. However, all the loans offered by EstateGuru are backed by real estate. The defaults in the past did not result in any loss of capital for investors.
Yes, the interest rate paid by the borrower is fixed throughout the loan period. Keep in mind that the payment frequency and interest rate can vary depending on the loan that you have chosen.
When you have registered and once you are logged in, full information about the borrower, the loan and its collateral is available.
EstateGuru charges 3-4% of the total loan amount where funding was successful. Additionally, an administrative fee of 0-2% needs to be paid by the borrower annually. In case of delays in the payment of the loan, penalties apply.
Yes, EstateGuru has a secondary market if you want to sell your loans. If you sell your loans you will be charged a 2% fee.
Investors from over 100 countries invest with EstateGuru.
You have to be:
- at least 18 years old;
- have a bank account in one of the EEA member states or in Switzerland (non-European residents can also get a European bank account);
- you have to comply with anti-money laundering procedures by filling out some questions about the where abouts of your money.
Overall Conclusion On EstateGuru
Estateguru is a well established investment platform, therefore we rate them 4.8/5. Moreover, it still has plenty of growth potential:
- Loans backed by real estate are a solid and well proven method to provide for collateral. EstateGuru has an excellent trackrecord in lending as well in recovering the small amount of loans that have defaulted so far;
- The number of loans to invest in is impressive, and it is promising to see that EstateGuru is entering other markets other than the Baltic states (which is their home base);
- The annual interest rates of 11-14% are competitive and guarantees a stable cashflow once you start investing;
- Customer service is extensive and the website is available in 5 languages;
- EstateGuru is very transparant: it provides all the information you need to decide upon an investment, and it consistently publishes audited annual reports of its own organization. In doing so, it sets an example for other P2P platforms.
Summarizing, EstateGuru is one of the best P2P platforms we’ve come across. The website is very easy to use and the actual investing doesn’t take up much of your time once you’ve gotten used to it. Therefore, if you want to start investing you can hardly get around EstateGuru and it is clearly a platform to include in your investment portfolio.
Summary & Overall Rating
You’ll find a short recap of EstateGuru below.
- Impressive track record with no loss of money for investors
- Loans backed by real estate
- Annual interest rates up to 14%
- Very easy to use website
- Transparancy is an example for other P2P lending sites
- 2% fee for early withdrawals
- No monthly payouts, reducing cash flow
- FAQ section could use an update