Should I trust EstateGuru?
Is my money in safe hands?
Who are the people behind the most popular real estate crowdfunding in Europe?
Bankers or property developers?
I know that investors have difficult and tough questions to ask investment platform managers.
How do I know that? Well, because I am an investor!
I had the opportunity to interview Mihkel Stamm, Chief Operating Officer (COO) of EstateGuru, and I was not disappointed.
I asked him a series of questions.
He didn’t skip the difficult ones.
That’s how we started this powerful interview… read on…Watch the real estate deals on Estateguru
Main takeaways from the questions to Estateguru COO:
- The team makes a difference. All of them have experience in fin-tech and real estate. [Linkedin profiles below].
- Humble, proactive approach, not P2P superstars.
- Estateguru 2019 annual report will be released in June.
- 11.85% is the average return, not the best-case scenario [stats are public].
- The low default rate is not magic. Estateguru has established a procedure to recover late loans and to asses the deals [explained].
- The best way to avoid defaults? Do not give loans!
- EstateGuru stress tests: Even if 40% of projects default and property prices fall, investor stem may have a positive return [lab tested].
- Estateguru and COVID-19. They are not affected yet, and actually a crisis may offer a spike in opportunities [read why].
- Time to recover a defaulted loan may be 6 months [refer to their loan book].
- A better auto-invest will come [I am eager to test it].
Read the interview
Let’s go straight to the point, Mihkel…
What are the advantages for the EG investors?
- An interest rate between 8% and 12%
- All investments are secured by real estate
- Short term investments
- Transparent business model and transparent operations
- Diversification between different projects in more countries
- Early exit option [secondary market]
Why is your team the best team to do the job?
Our core team is a group of real estate & fintech experts with more than 50 years of combined experience in the sector.
We have built the team by hiring the best talent and experts in the field.
How do you prevent past issues to repeat at EG?
Our mentality has been that it is ok to make mistakes in Estateguru as long as we learn from them and avoid them in the future. Therefore, if we learn something new then we also always review our processes -- should we do something differently in the future? And make corrections.
Are you profitable? If yes, since when?
We were profitable in 2018.
In 2019 we partnered with one of the leading fintech VC-s in Europe and received an additional €1 million investment in the company. This money was used to expand both our operations and our team more aggressively so overall last year we ended making a small loss. In 2020 we have again stabilised and ended the first quarter in profit.
If you are interested in more than all our audited annual reports are here: https://estateguru.co/annual-reports/. 2019 report is currently in review by external auditors and we hope to publish them during June.
What returns do you offer On Estateguru? Is 12% yearly the real ROI?
The current historic return is 11.85% and is calculated from all returned loans.
It also includes the recovered loans where currently the return has been 10.24%.
All our statistics are public and once you are a registered investor you can also download the whole loan book to conduct your own checks.
This return might vary between the investors depending on their strategy, but on average it will remain the same. You could also say that, if you diversify your portfolio well, this is the rate you should expect.
How do you manage to have a low default rate?
EstateGuru’s risk team is constantly monitoring the market situation and making adjustments to the rules where needed.
Overall, we have a strong portfolio: low LTV, short maturity, diversified between different countries and 96% of the portfolio is backed by a first-rank mortgage -- meaning that if something happens we can start selling the assets and recover the money through the litigation process.
In recent years our debt department has gained vast experience in recovering problematic cases, worked out the processes in all the countries where we operate and we now have a solid track record of solving cases and intend to keep it that way.
Read more on the EstateGuru blog -- How EstateGuru manages loan defaults – the people, the background & case studies:
What are you doing to avoid defaults?
As said previously, we have a separate risk team works day-to-day on making loan decisions and getting the money back (in case of problematic loans). Making sure that default rates stay low is a multi step process.
First of all, having an excellent due diligence process and good credit scoring models to give out good loans in the first place, then monitoring the portfolio constantly, and when there are delays taking extra steps quickly to recoup investor funds.
To fully avoid defaults is not possible.
Even if you do everything you can (check the borrower background, evaluate the business plan, assess the company, etc) there are still unexpected things that might emerge and affect the project.
The only way to avoid defaults is not to give any loan.
However, you can minimize the default rate. In our business, good market practise is around 5%, which is what we aim for.
But our stress tests show that, even in the highly unlikely case of 40% defaults and a 40% of drop in collateral prices, our investors would still not suffer negative returns on their portfolios.
What strategy do you have in place to avoid EG being affected by a global economic downturn?
I would like to emphasize that the real estate markets where we operate are localised.
Our portfolio is backed mostly by residential real estate and not by the businesses sectors which are mostly affected by the crisis.
COVID-19 is thus far not having a significant effect on real estate development and construction work; these are local activities and do not require extensive travel. Moreover, as of now, banks have not tightened their lending criteria, hence the demand side of the real estate business has remained unaffected.
Furthermore, alternative property-backed financing is a much-needed tool for companies in these turbulent times as it provides the perfect solution for creating liquidity and executing business plans – this is more than anything a great opportunity for alternative lenders.
Current countermeasures put in place by governments should be sufficient to keep the economic consequences of COVID-19 confined to the travel and leisure industries.
As the situation changes every day, we are monitoring and analysing it daily and are ready to act accordingly. We do have the flexibility to react in a very fast manner, should it become necessary.
We don’t see big changes and actually expect an increase in market share for alternative lending.
The long-term outlook probably depends on how quickly the crises are solved and things get back to normality.
Here, I’m not ready to make assumptions yet. However, what I can say is that even if there’s a decrease in demand and prices of the real estate, at EstateGuru we have a buffer and our loans are short term.
Meaning that we can adjust to the market situation quite rapidly.
Therefore we really believe that our product -- real estate backed loans -- works well both in normal and turbulent times and should be part of everyone’s portfolio because it provides a good balance between risk and return.
You should consider it as an option either for protecting your savings or making long-term investments.
In case of default by any of your developers, how long will it take for an investor to recover their investment?
There are standardized options to liquidate properties and there are strategic decisions the EstateGuru team takes on a daily basis to ensure the successful repayment of problematic loans.
The team works on the basis of ensuring the fastest possible repayment at a return rate that is sufficient for our investors’ portfolio.
Once a loan goes into default, the solution can sometimes be time-consuming; however, the niche product of property-backed solutions with a first-rank mortgage gives investors a strong level of security.
The recovery process can take about 5-6 months, but it can also take up to 2-3 Years.
Here is the latest portfolio overview of the EstateGuru loan book.
Do you plan to give more assistance/indications to investors on how to pay tax on P2P in their respective countries?
As we are already Pan-European company and will be expanding to even more countries in upcoming years, we already have a lot of country specific compliance rules we need to follow and keep updated on.
Therefore, we can’t follow all the individual investment tax-related changes. It is up to every investor to make sure that they pay their taxes in their respective countries.
We try to make it as simple as possible for our users to get the needed data from the system. Luckily, there are many bloggers and sites that give instructions on how to do it properly. This makes our work easier.
Are new P2P regulations needed? What do you know about it and how will investors be affected?
We have supported it from the beginning.
That’s why we have also applied existing regulations that exist (in Lithuania, UK, Finland) and have given our own input to Pan-European regulation.
We believe that it is needed to build further trust and transparency in the sector but also to break the borders in the alternative lending sector between the European countries.
More here: https://blog.estateguru.co/present-and-future-of-crowdfunding/
What can we expect next? Will we have improvements? Loan ratings?
We are constantly improving the product in all the areas.
We already now have 90% of our processes digital and core processes automated. So we are now working on getting most of them automated.
This also includes improved credit scoring models but also means new products for investors.
We are also investing more into data science. In the short term, you could expect improvements in auto-invest, secondary market and reporting.
At the end of 2019, we launched a secondary market to enable more liquidity for our investors.
This year we are planning to develop our auto-invest feature to better match investors’ needs.
Estateguru COO linkedin profile
Thank you for your time, Mihkel Stamm and also thanks to Kadri Akk for making this possible.
I wish you good work.
Do you want to see the rest of the team?
Here they are in a team-building session on a private island in Estonia!
More questions to Estateguru?
If you have more questions please send it over to me or add it into the comment box below.
How do I invest on Estateguru?
I have updated an extensive Estateguru Review with my best setup, with or without auto-invest.