Investing in real estate through crowdfunding: this is how it works

Investing in real estate through crowdfunding: this is how it works

This is an article that was originally published in the Dutch newspaper ´de Telegraaf´.

Putting money in the bank is no longer profitable. So what do you do? Investing in stocks is currently risky and cryptos and NFTs may carry an even higher risk. If you want to have a chance of a good return in a short term, you can invest in real estate loans via crowdfunding from as little as €100.

Until recently, when people thought of crowdfunding, they mainly thought of investments that revolve around the goodwill factor, such as an art project, a charity or a start-up. Nowadays crowdfunding is also a way for the ´crowd´ - the public – to earn something themselves with money that is otherwise just laying there. Investors finance a loan by investing a (small) amount and thus share the risk, in exchange for an attractive return.

Within an hour real estate investor
The Dutch market for loans via crowdfunding has grown enormously in recent years. The real estate market is certainly interesting for a growing amount of crowdfunding platforms. Max Crowdfund is one of the serious platforms that focuses entirely on real estate; the management has many years of experience in the sector. Investors themselves therefore do not have to deal with buying and selling properties, something that is quite intensive if you want to do it right. Via the platform you are a real estate investor within an hour without touching a brick.

The renovation process is in hands of experienced project developers, who have underwent an extensive screening process at Max Crowdfund. You invest together with other investors in the real estate loan. The complete plan that accompanies the required investment is immediately visible, so you can make a well-considered decision. You do not need to have a large savings account, you can invest from €100. In return, you get ´a safe investment with which you can achieve a return of up to 12%, which you don´t easily find´, according to CEO Felix Berkhout.

Crowd supersedes banks

Previously, real estate loans were only provided by financial institutions. Crowdfunding has changed the market; the public is now the bank, according to Berkhout. But why would a property developer choose the crowd over the bank and why is he or she willing to pay a higher interest rate? ¨As a rule, a bank only finances 70% of the purchase of a property. Renovation costs must be financed by yourself. A project developer can refinance with a bank once the project is finished, but this means that he or she must first put a lot of equity into the project. This limits the number of projects he/she can do at the same time.¨

With bridging financing for about 90% of the purchase and renovation costs of a project, a project developer can therefore do more projects at the same time. Berkhout explains: ¨Currently, bridging financing is more expensive (usually about 1% per month), but if the project´s profit margins are high enough, it is better to raise ´expensive´ money and do more projects. Crowdfunding platforms can therefore offer loans with a relatively high interest rate.¨

Security and a good return
Max Crowdfund has received an exemption from the Dutch Authority Financial Markets (AFM). Existing crowdfunding parties in the Netherlands must have a license as of the 10th of November 2022, to be able to continue their crowdfunding services. The license application for this has been submitted by Max Crowdfund to the AFM. Berkhout: ¨that means even more rules for us as a platform, because we are actually becoming a financial institution. It also means more clarity and standardization for the investor.¨

And that, just like transparency, is important. ¨It is often still thought that a high return equals a high risk, but with bricks as collateral you can combine certainty and a good return. You should of course always look carefully at how the loan is covered. A first rank mortgage, additional real estate as a guarantee, an additional company guarantee and a personal guarantee are all ways to properly cover a loan. As long as the total amount of the loan is amply covered, e.g. 120%, the investment capital should also be covered. In that case, the securities can be seized in the event something goes wrong with the project or if the developer is no longer able to meet his/her obligations. Of course, this does not provide a 100% guarantee, because anything can happen during the term of the loan. We therefore always add these risks to the information about the real estate loan.¨

Real estate project in England

From the comfort of your couch

You can now invest in properties in the Netherlands, Belgium, Germany or the United Kingdom via the platform, but ultimately this should be possible in all 27 EU countries. A Max Crowdfund platform is also already live in New Zealand, with approval from local authorities. ¨For example, you can invest in a loan in Germany with a 12-month term and an annual interest rate of 11% or in loans in England with terms from 9 to 12 months with an annual interest rate of 10%. The offer changes continuously; the loans are sometimes fully subscribed within minutes.¨

¨Let´s be honest¨, Berkhout continues, ¨people look for alternatives to savings because of receiving little or no interest on their money. Thanks to crowdfunding, if you want to, you can start investing in real estate small and grow your money, right from the comfort of your home.¨

Do you already have a Max Crowdfund account?