“Do your own due diligence”. That’s a quote from Eric Noormets, the debt manager at EstateGuru.

Always be aware of where you invest your money! And that’s what I aim to do as well when it comes to P2P lending.

During my trip to Tallinn, I visited EstateGuru, the leading marketplace for short-term property-backed loans which I am invested in.

I had the chance to talk to some of EstateGuru’s employees and get to know the processes of the P2P lending platform.

We talked about the risk assessment of the real estate projects listed on the platform and future plans for EstateGuru. We have also visited some of the projects that were funded by investors. Learn about the risks connected to P2P lending here.

 

Main takeaways from the interview

  • Everyone with a bank account in the EEA (European Economic Area) can invest. Investors from the UK and USA use services such as Paysera, Transferwise or Revolut to invest on EstateGuru.
  • There are no fees for investors.
  • EstateGuru is using similar risk models to banks in order to evaluate real estate projects.
  • Banks often decline real estate developers due to short-term projects or the age of their companies.
  • EstateGuru takes a wider look into the background of the borrower.
  • All real estate projects are mortgage-backed, meaning your investment is secured by physical assets.
  • Most projects have an LTV (loan to value) around 65%.
  • EstateGuru has an automated and manual process to notify the borrower about their payment schedule.
  • The process of debt collections varies depending on the country. In Estonia, the platform can simply terminate the loan agreement with the borrower and forward the claim to a bailiff. In Latvia, EstateGuru must first ask for permission from the court to sell the collateral asset, which extends the process.
  • Thanks to the unified EU legislation there aren’t any big surprises when it comes to debt collection in different countries.
  • EstateGuru isn’t funding any projects with a higher LTV than 75%.
  • The volatility of real estate prices in the Baltics during a recession is quite high. Short-term investors who exit the market fast usually lose money.
  • The real estate market in Estonia stabilized during the last recession rather fast.
  • Each project has a buffer that takes care of a recession to a certain extent.
  • If a project changes its status from late to default it means that the case has been forwarded to the state authority for debt collection (bailiff).
  • The borrower usually gets 30 days period to pay the debt voluntarily.
  • If the borrower fails to pay, the bailiff puts the collateral assets for an auction.
  • EstateGuru has not lost any of investor’s money.
  • Do your own research when investing in property-backed loans.
  • The secondary market should be launched by the end of the summer.
  • EstateGuru will soon be translated into Finnish and Spanish language.

Visiting projects financed by investors on EstateGuru

Apart from the interview I also had the opportunity to visit some of the projects financed through EstateGuru.

 

Apartment building in Maardu, Estonia

The first visit was a construction site in the area called Maardu, 25 minutes from downtown Tallinn. When the project is completed, the apartment building will have 21 apartments and one commercial space. You can find more about the project on the developer’s website.

  • Development loan
  • Loan amount 110.000,- EUR
  • Loan period 12 months
  • LTV 55%
  • The interest rate for investors 10,5%
estateguru-project-maardu
EstateGuru Project in Maardu

This development loan of 110.000,- EUR was funded by 886 investors in mid-july 2019. The loan period is 12 months with an interest of 10.50% p.a. and LTV of 55%. The loan is secured by a first-rank mortgage and the collateral is valued at 200.000,- EUR.

Find more information about this project here.

 

Family homes in Kaljula

The second project we visited was in Kaljula. In this case, the loan was used to construct family homes. The LTV for this project is around 50% and as many other projects, this one is also funded in stages. The currently active development loan should be repaid by the end of 2019. You can find more information about this development project here.

  • Development loan
  • Loan amount 74.000,- EUR
  • Loan period 12 months
  • LTV 50%
  • The interest rate for investors 9,5%
estateguru-project-Kaljula
EstateGuru Project in Kaljula

Fun fact: Many homes in Estonia have a sauna, that’s the case with this one as well. Would you prefer to have a sauna at home? Let me know in the comments below.

 

Ringikodu apartment building

The last project we visited was at Ringikodu in Maardu. The loan to value ratio, in this case, was only 25% and the borrower managed to repay the loan before the end of the loan period. Investors earned 11% p.a. yield on this project. You can find more information about the apartment building on the developer’s site or in the project description on EstateGuru.

  • Development loan
  • Loan amount 250.000,- EUR
  • Loan period 12 months
  • LTV 25%
  • Interest rate for investors 11% p.a.
estateguru-project-ringikodu
EstateGuru Project in Ringikodu

The project tour was led by Tauri Tiik, who is the loan manager at EstateGuru. During the car ride, we have had an interesting discussion about real estate investing in the Baltics.

Two are two keypoints to keep in mind: the profitability as well as some information about the drop in value during a recession (just another perspective on the topics discussed during the interview).

 

Why would someone take a loan from EstateGuru?

Investors might often question the high interests that the borrower needs to pay to EstateGuru. What many of us, however, don’t realize is that some of the real estates financed through the platform are sold with huge margins of 100% or 200%.

Even though the interest of the loans financed by EstateGuru is higher as compared to bank loans, with margins as mentioned above, it does really matter to pay 5% or 10% more of interest. EstateGuru offers fast and flexible financing which makes it attractive for many real estate developers.

 

How did the recession impact the real estate market in the Baltics?

During the last recession, the value of the real estate in the Baltics dropped. But it did not drop equally in all regions. In the more populated areas in and around Tallinn, the drop in value wasn’t as significant as in more rural areas.

This is something that investors can use when doing their diligence before investing in property-backed real estate loans. Depending on the LTV, the value of properties on the countryside might be more volatile as in the cosmopolitan areas.

 

Would I invest more in EstateGuru?

The visit of EstateGuru was of great value to me as an investor. Often you don’t understand how the platform operates and having a one to one interview with some of the people running the company could answer many open questions.

If my goal would be to increase my portfolio size in P2P lending and lock my capital for at least one year I would not hesitate to put more funds on EstateGuru. The platform offers solid investment opportunities, backed by the physical real-estate value. This is also the main differentiator in comparison to many other P2P lending platforms.

Anyone with a bank account within the European Economic Area can invest on EstateGuru and earn on average more than 12% yield every year. In case you are based outside of Europe, you can use money transfer services and digital banks such as Transferwise, Revolut or Pioneer.

If you have spare money in your bank account that you don’t need within the next year, you can increase its value by investing on EstateGuru.

 

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