BrikkApp recently met with Claus Lehmann, German investor and longtime p2p blogger, to discuss his experiences with real estate crowdfunding investments. Since 2007, Claus has been investing on p2p lending platforms that focus on consumer loans. Starting in 2014, he added the first real estate loans to his portfolio, and over the next few years continued to invest through a number of different platforms. Thanks to this vast experience in the property crowdfunding world, we knew Claus would be able to shed light on a number of interesting topics related to this rapidly growing industry.
Thank you for taking the time, Claus. Tell us a little about your blog and its history - how long have you been operating it and why did you decide to write about p2p/crowdfunding?
I first became aware of the concept of p2p lending in the spring of 2006 when I first saw Prosper (an American platform). Though it was not possible to invest for non-Americans, I was intrigued and researched the benefits for borrowers and lenders. I thought the media would love it because of the marketing appeal; It made boring finance into a story that could be told.
At that time Prosper did not have any meaningful loan statistics for investors, so I started to gather and compile data and publish them for investor use (that domain is no longer online).
I was convinced that the concept of p2p lending would also establish itself in Europe and that investors would seek information and news about it. Therefore I started p2p-Banking.com and p2p-Kredite.com in 2007. The former is in English and has an international audience, while the latter is in German and appeals to retail investors in Germany, Austria, Switzerland and Luxembourg. It also features a p2p lending forum where more than 3000 investors are sharing experiences, opinions, strategies, and news.
You have been a part of the industry for over 10 years now. In your opinion, what have been the most significant developments in the p2p industry?
There are several developments worth mentioning: better risk gradings, automation (auto-invest tools), and the possibility of more liquidity for an otherwise mainly illiquid asset through the introduction of secondary markets.
Does a platform having a secondary market matter to you? Do you think it matters to investors in general?
I prefer platforms with a secondary market, and according to sentiments voiced in my forum, most investors do as well. The possibility of exiting an investment early is good to have, even though it might not be used in practice. However it is important to consider that liquidity is not guaranteed but dependent on market demand, and that there will be times where there is insufficient buyer demand.
Overall how has your experience been as an investor in real estate crowdfunding? Which platforms did you use in the beginning? Could you estimate your average yield from all of your projects invested in? Have you had any losses?
Overall, I am very satisfied with my results which are in the range of 13-15% p.a.. I don’t believe this is representative of the general population of people investing in p2p lending though, as I had some phases where I heavily concentrated on trading on the secondary markets of Bondora and later Mintos which generated very high yields for me. I did have some losses (e.g. on MyC4 and Moneything), but they were minor.
Now the first platforms I utilized were EstateGuru and Saving Stream, as their loans offered first rank mortgages as security. Luckily I exited my investments from Saving Stream (then Lendy) in 2018 before the platform failed. And for the record, EstateGuru is currently still an active platform.
Within the current real estate crowdfunding landscape, I would estimate that an average yield between 6-8% p.a. is readily achievable.
How do you identify “bad” investments? Are there any tell-tale signs? Have you seen any platforms under-performing in your time as a blogger?
It is important to realize that this is a high risk investment. There are multiple risks aside from the obvious loan default. There can be platform failure, loan fraud, security risks, currency risk, etc.
New investors might think that platform failures are rare, but alas I have recorded over 40 platforms that are no longer in business. Investors should realize that many platforms are operated by small startups, which can have a high failure rate.
With platforms offering direct loans, it is sometimes possible to download the loan books and monitor the default levels. If they rise above the expected levels, that can be an early tell-tale sign. However with many failed platforms (especially due to fraud), there was usually no early warning, and/or the time span to react was rather short. That is why it is important to diversify with these kinds of investments.
What are some of the main challenges that the industry faces? What do you think about the differing regulations across EU countries? Do you believe that the European Crowdfunding Regulation might help?
The European Crowdfunding Regulation is certainly a step in the right direction. At the same time though, how much it will change/help remains to be seen. For example the UK market did have tailored regulation (FCA regulation 2015), but many UK investors seem disillusioned about any benefits that regulation provided for them.
What is your outlook on the property crowdfunding market for 2021 and beyond?
One major factor is the economic environment. If the pandemic can be overcome then there is potential for economic growth and renewed investor demand across the market. And secondly, property markets develop in cyclic phases. The prospects for regional markets may differ, depending on which state of the cycle they are currently in. This is another instance where diversification is advisable.
Thank you again for sharing your time and experience with us, Claus. Our readers will undoubtedly benefit greatly with these insights from such a savvy, experienced investor.
To learn more about real estate crowdfunding, download your free eBook today and receive the tips, insights, and market trends that can help you make the most out of your investments.