Entertainment Real estate crowdfunding: rates are rising, so is the risk

21:15  23 october  2020
21:15  23 october  2020 Source:   gaming.gentside.com

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Also, real estate crowdfunding can help investors reduce the risk that's associated with an equity portfolio. In other words, real estate crowdfunding helps investors to diversify the risk in their investment portfolios by not having all of Below are the SEC's investment limits. Less than 7,000.

Investing through equity crowdfunding carries risks such as risk of failure, fraud, and doubtful returns. But it also offers a number of rewards. Small and medium-sized businesses (SMEs), the linchpin of the North American economy, are the biggest beneficiaries of the equity crowdfunding megatrend.

Crowdfunding immobilier : les taux augmentent, le risque aussi © Morsa Images / Getty Images Real estate crowdfunding: rates are rising, so is the risk Real estate crowdfunding took off again in the third quarter. Interest rates are rising, as is the term of some loans. Proof that investors are not immune to disappointment.

After a break at the start of spring, with the economy coming to a halt, real estate crowdfunding resumed its march forward in 2020 . At the end of September, investors had financed real estate development projects and property dealers to the tune of 300 million euros, including 115 million for the third quarter alone, according to Jérémie Benmoussa. The co-founder of the Fundimmo platform, also president of the association Financement participatif France (FPF), anticipates "a collection of 500 million euros in 2020, or 40% more than in 2019". The trend is clear: crowdfunders are more than ever interested in the marvelous returns of crowdfunding real estate, an investment that consists of lending money to a developer or a property dealer through an online platform. , the professional repaying capital and interest at the end of the operation.

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Explore real estate crowdfunding : If you’re looking to buy property as an investment or reinvest your house sale proceeds, take a look at Fundrise, one of the largest real estate crowdfunding platforms today. They allow everyone to invest in mid-market commercial real estate deals across the country

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The mechanism has been proven: in 2019, the average return served to investors was 9.2% . And it should rise further in 2020 according to Jérémie Benmoussa, who expects "an average rate that will exceed 9.5%". Such an increase is explained by the lengthening of the duration of construction sites and the marketing of housing, real estate developers seeing their own funds blocked on these operations. A "cash" that they absolutely need to launch other projects. Professionals therefore agree to pay more to get up as quickly as possible ... while trying to increase repayment terms. “Investors want short-term visibility: they find the timeframe too long when it exceeds 24 months. On the other hand, the promoters want repayments over more than 30 months, ”explains Jérémie Benmoussa. If the co-founder of Fundimmo affirms “wanting to satisfy both”, he does not hide favoring short-term projects and more easily turn to operations of goods dealers, less time-consuming.

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If interest rates on loans rise to a rate greater than those of the mortgage, borrowers can create value and put Rationale for Defeasance. Variable- rate commercial real estate loans are an appropriate method Contraction risk is the risk that borrowers will increase the rate at which they pay back the

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Increasing delays

If the lender is the sole master in choosing a project according to its characteristics, and in particular the duration of its investment, the situation is different for some operations. The statistics on extensions of past loans attest to this. “On the 5 largest real estate crowdfunding platforms, 10% of the portfolio is extended for 6 months”, recognizes Jérémie Benmoussa. These contractual postponements, which stood at just over 6% in 2019, concern, according to the president of FPF, delays “under control”, as for construction or promotion purposes. Note that if during this period, the investor is not the loser since his interest continues to run, his money remains blocked longer.

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More worryingly, 5% of projects financed on the platforms are over 6 months late. And if no default is to be reported in 2020 on the 26 platforms registered with the Autorité des marchés financiers (AMF) or the Prudential Control and Resolution Authority (ACPR), Jérémie Benmoussa points to a risk of seeing some case to emerge in the coming months or years: “The loan guaranteed by the State (PGE) allowed to shift the financial problems of some promoters. So there will be defaults, which should eventually stabilize around 3%, compared to less than 1% today. " Promoters struggling to repay their EMPs could thus be unable to honor their commitments to lenders. A risk that would also be accentuated if a drop in real estate prices were to materialize in the coming months ...

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Good reflexes to adopt

How to protect oneself, in these sometimes uncertain conditions, from any danger? If zero risk does not exist, the first reflex to adopt is to check that the platform on which you plan to invest is registered with the Organization for the single register of intermediaries in insurance, banking and finance (Orias) or with the Register of financial agents (Regafi). As with any investment, diversification is the key: vary the target real estate markets, both in terms of operations (property dealers, development) and geographic distribution (Ile-de-France, region) and take the time to analyze each project. Some platforms, such as Fundimmo, allow the investor to know the details of the operations 3 to 4 days before the launch of the financing, a very useful time to act with all the cards in hand. Consulting the performance indicators of the platforms is also very useful. Updated at least once a month for members of Crowdfunding France, they make it possible to inquire about the amounts collected, the number of projects financed and reimbursed, the late and default rates… “The total of the amounts reimbursed by compared to the amounts collected must reach at least 30% ”, advises Jérémie Benmoussa.

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APR, TAEA, usury rate ... What are we talking about in terms of mortgage? .
In times of declining lending rates, all lights seem green to start buying real estate. That said, it is not always easy to distinguish between APR and TAEA © IStock / City Presse SILVER - In times of declining lending rates, all the lights seem green to start buying real estate.

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