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Our pick of the best P2P loans

 This post is part of a regular series where we highlight what we think are some of the best P2P loans available in the UK and Europe. These loans may sell out very quickly. Even if they do, it is likely that similar opportunities are available on each platform.

Our goal is to help highlight the types of opportunities that are available on various platforms, and which types of loans offer the best balance of risk and reward.

Description
Why we like it
Link
Interest rate: 17%LTV: 62%Term: 10 months1st lien mortgageRIGA, latvia

Wow. 17% interest is the highest interest rate we have seen this year on a secured property loan in Europe. This is also the biggest loan that BulkEstate has had on its platform so far. This looks like an interesting deal. It is secured on real estate in a central location in Riga, Latvia. The borrower plans to do some light renovations and then sell the apartments individually. This is a relatively low risk type of development, and the renovation works will add value to the collateral. The  low LTV of only 62%, and first lien ranking of the loan further reduces the risk. 

Loan Marijas

Interest rate: 10%LTV: 19%Term: 46 months1st lien mortgageProvdiv, BulgariaBuyback guarantee
 
 

This mortgage loan is available on Viventor. It is the first time we have included a Viventor loan  in our ‘loans we love’ series. We think this loan in particular is interesting because it offers both a very low LTV of 19%, and a ‘buyback guarantee’ from the lender Lenno. It’s quite unusual for investors to benefit from a buyback guarantee on a secured loan like this. Lenno received one of the highest scores in our recent Viventor lender ratings. One final positive characteristic of this loan is the payment history of the borrower. The loan was originated 15 months ago and in that time they have made all their monthly payments and paid down the loan principal by more than 20%.

Loan 245238

Interest rate: 15-17%Unsecured‘B’ Grade loansTerm: 48-60 monthsLithuania

Finbee is a small P2P investment site based in Lithuania. It has been growing however and have received some good reports from investors. The key thing about Finbee is that unlike many P2P investment sites, the loans come without a buyback guarantee. That tends to mean returns can be higher, but there is more potential risk. That makes it important to diversify, and to expect some loans to go bad. We have obtained from Finbee management some data on historic default rates (90+ days in arrears) by year and by risk grade (available here). To us, the B grade consumer loans look particularly interesting based on this data. They have had consistent default rates of around 2-3%. Interest rates of 15-17% can be found, which looks attractive compared to the default rate history of these loans.

Loan 'Ausra83'

Interest rate: 12.5% Term: 3 monthsPersonal loanIndonesia

Many of our readers have an account with European site Mintos, and we constantly look for loans that offer a good balance between lender quality and return. Kredit Pintar is the most recent lender to join Mintos. It is based in Indonesia, and is strongly profitable. It has also been backed by several leading investors and has a very strong balance sheet currently.  It received an initial score of 66 in our Mintos lender ratings. Loans like this can be fund on the primary market currently at a yield of 12.5%, which we think is a good return for the risk. These loans also provide some geographical diversification, as many Mintos lenders are based in Central and Eastern Europe.

Loan 15685230-01

Interest rate: 6.7% LTV: 63%Term: 5 MonthsFirst Lien mortgageLondon, England
 

Last month we highlighted a loan from Kuflink as one that we didn’t love. That was a second lien loan with a 75% LTV and over-valued collateral. This loan from Kuflink shows how much better loans can be found on this site if you are patient. For a similar interest rate, this loan is a first lien loan, and has a lower LTV of 63%. The borrower has recently purchased the property (located in London), so the recent valuation of the property is known. The borrower is seeking a change of licence for the property, and this loan will be refinanced once this is received. We like loans like this because they are boring, easy to understand, and the risks are limited.

'The Drive' loan

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Conferences are normally boring and very expensive

Many industry conferences can be boring and cost thousands of Euros/Pounds/Dollars to attend. However there is a conference coming up in Riga next month that we don’t think is any of these. Dozens of CEOs of P2P sites across Europe will be attending and they will be available to talk to their investors, or potential investors.

It also involves beaches, burgers, cocktail parties and the experience of being in one of Europe’s coolest cities – Riga, Latvia. Combine that with very inexpensive tickets and accomodation and we thought it was definitely worth letting our readers know about.

Who's going to be there?

Speakers include several important players in the P2P space that we have interviewed on Explore P2P in the past including the CEOs of Mintos, Bulkestate, Estateguru, Reinvest24 and Savy, as well as many others. 12 companies will give presentations, and there will be various other keynote presentations and roundtable discussions.

If you are a P2P investor, and would like to personally meet the management teams of many different lenders, meet other investors, and find out what’s happening in P2P,  this will be the place to go this year. 

Details and discount offer

The conference takes place on June 7 (the serious day) and June 8 (the party/fun/networking day). There is also an after-party taking place on the night of June 7th. Tickets can be purchased for just one day (€149) or both days (€249). 

20% DISCOUNT OFFER

We have secured a discount of 20% off tickets for all our readers. To get this, just use the promo code EXPLOREP2P at checkout.

For full details, and to purchase tickets, simply go to the conference website here.

The post There’s a big P2P conference coming up in Riga appeared first on Explore P2P.

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Buyback guarantees are awesome - but the details matter

Many P2P investment sites offer ‘buyback guarantees’. That means, if a borrower misses payments, the original lender will buy back the loan from the investor. They can afford to overpay for these bad loans because they are charging the customer a much higher interest rate than they are paying the investor.  These ‘credit losses’ can be paid for by the profits they are making on this interest spread. Across P2P investment sites the terms and conditions of these buyback guarantees can vary. Loans are normally bought back once they are 30 or 60 days overdue. This can either mean that they have failed to pay back a short term loan in full, or they have have missed a couple of monthly payments on a longer term loan.

An important check to make is whether the lender will just pay for the unpaid principal amount, or the full amount due including accrued interest. If it is just the principal amount, that means that investors will receive less than the interest rate that was published when they purchased the loan.  In the table below we have listed all the lenders on the popular European investment site Mintos. While the majority pay accrue interest, several do not, and the table shows how much investor returns are impacted by this policy.

Grace periods can also dilute returns

Many lenders offer their customers ‘grace periods’. The concept is to give borrowers a little extra time to make their scheduled payments to account for things such as weekends, processing delays and so on. It can also help to improve the relationship between the borrower and lender. In most cases, if a loan is repaid in full during a grace period, no interest is usually charged between the scheduled payment date and the actual payment date. For investors who purchase short term loans, this grace period has the potential to reduce the effective yield on their portfolio as they do not benefit from interest during this period, and the percentage of loans in a grace period tends to be higher. For lenders with generous grace periods, or who have many borrowers who regularly take advantage of this window, the impact on returns can be quite material – as we show below.

What is the cost of fine print? Let's look at Mintos lenders

Below is a table that lists all of the active lenders on Mintos with buyback guarantees, whether they pay accrued interest on loans bought back, the number of ‘grace period’ days, and the % of loans  in the grace period window (by balance).

Mintos lender Buybacks - interest paid? Grace period days % of loans in grace period Yield impact - accrued interest Yield impact - grace period Total impact
Aasa Yes 7-12 10% 0.0% -1.0% -1.0%
Aforti Holding No 1 0% -1.3% 0.0% -1.3%
Agrocredit No 3 0% -5.7% 0.0% -5.7%
Akulaku Yes 5 0% 0.0% 0.0% 0.0%
Alfakredyt Yes 1 0% 0.0% 0.0% 0.0%
BB Finance / EGE Yes 3 3% 0.0% -0.3% -0.3%
Bino Yes 6 5% 0.0% -0.5% -0.5%
Capital Service Yes 3 4% 0.0% -0.4% -0.4%
Cash Credit No 3 7% -0.7% -0.7% -1.3%
Cashwagon Yes 3 13% 0.0% -1.2% -1.2%
Cream Yes 0-9 21% 0.0% -2.0% -2%
Credilikeme Yes 3 2% 0.0% -0.2% -0.2%
Credissimo Yes 10 13% 0.0% -1.2% -1.2%
Credit Star Yes 0-3 1% 0.0% -0.1% -0.1%
Credius Yes 0 0% 0.0% 0.0% 0.0%
Dinero No 0 0% -1.2% 0.0% -1.2%
Dineo Yes 3 2% 0.0% -0.2% -0.2%
Dozarplati Yes 15 3% 0.0% -0.3% -0.3%
EBV Finance No 0 0% 0.0% 0.0% 0.0%
EcoFinance Yes 15 0% 0.0% 0.0% 0.0%
Efaktor Yes 0 0%..
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The best P2P investors 'read between the lines'

Most P2P investment sites provide a lot of information about the loans they offer. There will be information about the borrower, the purpose of the loan, and what the loan collateral is (if any). Often the information provided will be very positive about all aspects of each loan and each borrower. Some investment risks  may not be addressed fully or will be totally ‘glossed over’.  It can take time to gain experience and know what things to look for.

Our goal is to help P2P investors of all experience levels find the very best opportunities and avoid potential mistakes. The post below is meant to be a little provocative, but hopefully informative and fun. We’ve listed some common statements we see made on P2P investment sites and what they can sometimes REALLY mean. This is just a starting list though – we welcome all our readers to give their thoughts and also contribute some new ones by adding them in the comments below.

"The loan is to provide working capital to the company"

Sometimes means:
The company is running out of cash and needs to borrow more money to stay in business

"The collateral is a guarantee from a director of the company"

Actually means:
There isn't any collateral. The director is going to be insolvent anyway if this project fails, or will have given all his assets to his family.

The min loan target size is X, the max loan target is Y

Actually means:
The company wants to borrow as much as it can, but we are not sure how much investors are really willing to fund it. We will set a big range so no-one gets embarased

"This is a development loan stage 1"

Usually means:
The loan is secured on a land plot, which has had some holes dug in it. The project is going to take a long time to finish.

"This is a development loan stage 12"

Nearly always means:
Wow. This project hasn't gone well. It's taken a lot longer, and cost a lot more than we expected. But we need some more money to get it finished. Please....

"The loan will be repaid by refinancing, the sale of the collateral

property, or from the incoming business revenues of the company"
Actually means:
No one is really sure how the loan will be repaid, hopefully the loan-to-value ratio is low enough that it doesn't really matter.

"We give this loan a B rating"

Usually means:
We have an internal loan rating system that no one understands, we haven't explained it to anyone, and it has no track record but it sounds good. Trust us.

"The company grew its revenues by 20% last year"

Can mean:
Just don't ask us about profit though because the company keeps losing money....

"This loan has 2% cashback"


Can sometimes mean:
We are finding it really, really hard to find investors who want to buy this loan and reduce our exposure. There is something about it that other investors don't like. The borrower is willing to pay a higher interest rate because they really need this loan to be fully subscribed.

"The loan is secured on a crypto mining rig"

Always means:
Crypto is cool right? If crypto values go up we think we could get your money back plus a lot of interest interest. If not, well....

"You can purchase this loan through fiat currency or our ICO token"

Might mean:
Yes this looks like we are operating a real P2P investment site but the way we are really making money is to sell people our 'coins'. But if you want to give us pounds or euros we will accept those too.

"This is a refinancing of an existing loan"


Can sometimes mean:
We first sold this loan 9 months ago. We think this loan is still OK, but things haven't gone exactly to plan. The borrower can't repay us right now, and has not been able to sell the collateral. But hey - let's refinance the old loan with a new loan and hope everyone is cool with that.

The post Secrets – what P2P investment sites tell you and what they really mean appeared first on Explore P2P.

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Our pick of the best P2P loans

 This post is part of a regular series where we highlight what we think are some of the best P2P loans available in the UK and Europe. These loans may sell out very quickly. Even if they do, it is likely that similar opportunities are available on each platform.

Our goal is to help highlight the types of opportunities that are available on various platforms, and which types of loans offer the best balance of risk and reward.

Description
Why we like it
Link
Interest rate: 11% Term: 24 monthsPersonal loanlatvia

Many of our readers have an account with European site Mintos, and we constantly look for loans that offer a good balance between lender quality and return. Banknote announced excellent results for 2018 recently, which led us to give them a rating upgrade. The company is very profitable and has strong levels of capital. Loans like this can be fund on the primary market at a yield of 11%, which we think is a good return for the risk. 

Loan 12103693-01

Interest rate: 10.2%LTV: 66%Term: 12 months2nd lien mortgageEngland

This is a boring loan, secured on a really, really boring property. But that’s why we like it. We think that when it comes to P2P investing, boring loans, with boring results, are ideal. This loan sold out very quickly but we have included it in our list to show the types of loans that Bridgecrowd offer, which we are fans of. While some Bridgecrowd loans get repaid early, and some get extended, none of their loans have ever generated a loss for their investors, even when properties have been repossessed and sold. A return of over 10%, for an LTV loan of only 66%, makes this loan attractive in our view. This property is also being renovated by a professional developer, which will make the collateral more attractive, and add value. If this type of loan is appealing, you will need to register as an investor and act quickly once new loans are released, as the demand is very high.  The one downside of Bridgecrowd is that the minimum investment in each loan is £5,000, so it suits investors with larger sums available to invest.

'Copperleaf gardens' loan

Interest rate: 11.5%LTV: 73%Term: 24 months2nd lien mortgageRIGA, latvia

This loan from Estateguru is secured on 3 apartments inside an extremely beautiful classic building located in the heart of Riga, Latvia. Yes, it’s a 2nd lien loan, and yes the LTV is a little higher than normal at 73%. However it’s important to go beyond just looking at metrics like LTV when assessing loans like this. Firstly, it is quite easy to value properties located in central areas like this, so investors can have more certainty about valuation than properties located in more remote locations that can be difficult to value accurately. It will also be very easy to sell these apartments if the borrower defaults. Secondly, the borrower is using the funds to help complete a renovation of the apartments that is currently underway. That will add value to the properties, and the renovation photos provided by Estateguru show it is being performed to a high standard. Finally, the borrower has a good track record – they have now fully repaid four other loans on Estateguru. Taking all these factors above into consideration, we think 11.5% is an attractive return.

Loan #7331

Interest rate: 11%LTGDV: 44%Term: 20 months1st lien mortgageNorwich, England
 

This is another loan that sold out almost immediately but we wanted to highlight as being a great quality loan. It comes from Blend Network, a small but interesting British P2P site (our interview with CEO here). Why do we like it? Firstly again the quality of collateral is good. It is located in a quiet but central location in Norwich, England that is popular for tourists. Three experienced developers are planning to convert a guest house into serviced apartments and a commercial unit. The guest house has received good ratings online (4.6/5), with guests liking the location and size of rooms in particular. This development makes sense to us and it seems like a fairly low risk development to execute successfully. We also like the low LTGDV of 44% and that all three developers have provided personal guarantees. An 11% return represents a good return relative to the risk on this loan, and we are not surprised it sold out fast. If this type of opportunity is potentially of interest to you, we recommend registering with Blend and then being ready when each loan becomes available, as the demand is very high.

'Colegate' loan

And here are two we DON'T love right now....
Interest rate: 18% Term: 2 yearsbusiness loanLatvia
 

This loan, offered by new P2P site Kuetzal, is to the ‘European Crypto-Mining Association’. It’s hard to know where to even start when analysing this loan. Is crypto-mining really still a thing? Is it profitable? Does it make sense to do it in Latvia? How risky is it? What happens if crypto values continue to head towards zero? Does the company even really do half the things it claims to do? We don’t really know. In fact Kuetzal doesn’t provide even any of the basics like what assets the company has, how it is being funded, and whether it is making or losing money. If you like to take big risks, we suggest visiting the casino rather than investing in this loan. Your odds are probably better there.

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Latest update: 5 April 2019
Viventor is a multi-lender P2P investment site. Like Mintos, but much smaller

Viventor is a European P2P investment site that has been quietly growing and adding lenders to its platform over the last 12 months. So far investors have purchased €70 million of loans and the platform now offers loans from 15 different lenders. The rates offered by Viventor tend to be high – the average investor returns have been over 13% to date.

Viventor has an interesting selection of lenders, most of which do not appear on any other P2P sites. Several lenders offer secured loans  that are backed by invoices, real estate and cars. There are also several short term unsecured lenders who provide buyback guarantees. Viventor is owned by Finstar Financial Group, which is a $2bn private equity fund that is focused on Fintech investments. 

The quality of information provided about lenders varies a lot

We think it’s important to assess the quality of each lender before purchasing any loans on Viventor. That’s because most lenders provide buyback guarantees, so the investor will be relying on the lender to fulfil this guarantee when loans default. It is also important to get an understanding of how big each lender is, how well capitalised it is, and what’s it track record. 

Some lenders have provided useful corporate presentations and recent financial information while others have not provided anything particularly useful. In those cases we have purchased financial reports from the local government commercial register office to help us assess each company and provide this information to investors here.   

Viventor lenders - key financial information
Viventor Lender Reporting period Loans Equity P&L - latest P&L - prior year Audited
Credissimo Dec 2017 13.5 14.1 5 3.6 Yes
Lenno Dec 2018 8.8 2.9 1.0 0.2 Yes
Aforti Finance / Aforti Factor Dec 2018 27.1 1.5 0.4 0 No
Sofia Pawn / SofCom Dec 2018 4.3 5.2 0.5 0.5 No
Stik Credit Dec 2017 1.1 1.2 0.5 0.2 No
Kreditu Centras Dec 2017 1.3 0.1 0.2 -0.1 No
Ibancar Dec 2018 0.4 0.1 0 0 No
Moment Credit Dec 2017 11 4.4 0.2 0.5 No
Kviku Dec 2017 2.4 1.1 0.1 0.0 Yes
Twinero / Presto Dec 2017 2.9 -1.6 0.3 -1.8 No
KFP 24 Dec 2017 2.8 1.2 0.0 0.0 No
SMS Credit Dec 2016 3.7 -2.2 -2.1 -0.1 No
Atlantis Financiers Dec 2017 1.1 0.7 0.2 0.1 No
Seymoure Dec 2017 3.4 -0.1 -0.1 0 No
Viventor lenders - our rating scores
Viventor Lender Profit Capital Size Disclosure quality Track record Our score
Credissimo 18 19 13 14 16 80
Lenno 13 13 11 14 14 65
Aforti Finance / Aforti Factor 8
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Loanpad is a new British P2P site. It offers cleverly structured, lower risk investments

The British P2P market is the largest and most sophisticated in the world. Dozens of investment sites have already been established. New sites that launch face a lot of competition to attract new investors. To succeed, they have to offer something a bit different.  Loanpad, which has just launched, has achieved this differentiation. We think it has the potential to be successful.

Loanpad’s P2P investment products are unique and offers some features that many investors will find attractive. Loanpad sources its loans from specialist property lenders. All loans are secured on residential and commercial property. When the lenders sell these loans to Loanpad investors, they retain at least 25% of each loan, which acts as a subordinated ‘first loss’ piece. This first loss position will absorb any losses arising from a loan default first. This means that the risk of loss for Loanpad investors is very low, as the ‘effective’ loan-to-value (‘LTV’) will be around 35% on average. This makes the Loanpad investment structure probably one of the lowest risk P2P products anywhere on the market currently. Investor funds are also spread across several different loans, which provides diversification. 

Other features that we think will grab the attention of investors is the ability to exit their investments easily, and receive daily interest. The Classic Account allows investors to withdraw their funds immediately when needed, while the Premium Account requires a 60 day notice period prior to withdrawal of funds.

The interest rates of 4% for the Classic Account, and 5% for the Premium Account, are not the highest available in the UK P2P space, but we think that when the very low risk profile is considered, and the liquidity on offer, it will be seen as an attractive yield by many investors. Loanpad also offers ISA wrappers on the above products, which will make income received tax efficient for British taxpayers.

To learn more and review the full terms and conditions, click here.

Interview with Louis Schwartz, Founder and CEO of Loanpad

Louis, you are launching Loanpad today, please tell us why you set the business up, and what you are hoping to achieve

We set up Loanpad to create a fluid daily lending platform. Daily interest. Daily access (subject to liquidity). Daily diversification. We then created the lending structure to underpin this system because it was a way to significantly mitigate risks and is a very scalable model.  

What types of accounts are you offering, and what are the expected returns for investors?

We have two types of accounts. Our Classic Account has a 4% interest rate, with daily access. Investors can invest up to £20,000. We have to limit the size of the classic accounts to help us provide the daily access feature. Our Premium Account has a 5% interest rate. There is a 60-day withdrawal notification (or pay a small fee for immediate access). £250,000 account size limit. 

How will the funds of Loanpad investors be deployed? Can you explain the structure? What is the underlying collateral? Is there a trustee?

Funds in investors lending accounts (Classic/Premium) will be spread across the entire Loanpad loan book. Security is held by a separate company, Loanpad Security Trustee Limited. Our lending partner funds at least 25% of any loan and their position takes the first loss. The loans will be secured against residential and commercial property (bridging/commercial finance, and land with planning permission (development finance). All properties will be located in England and Wales only.

What will the effective LTV for Loanpad investors be, taking into account the 25% subordination of the loan originators?

Generally between 10% and 50%, with a likely average of ~ 35% LTV. The 25% subordination is a minimum and will often be higher, at least at the start.

You are offering investors an ability to exit their investments at short notice. This is very attractive, but how will you manage the liquidity position to ensure that there will be sufficient cash available to honour withdrawal requests?

Firstly we enable easy access wherever possible. Unfortunately, we are unable to guarantee it. With that said, we have several mechanisms to meet this goal including our lending partner structure, limited lending account amounts and larger underwriters.

The lending partners we work with will generally hold substantial reserves for future development commitments and can aid the platform with liquidity by buying back loans. This is always at the lending partners discretion (there is no obligation on them to do so) and the more lending partners we work with the more the likely available liquidity.  We do not expect to have to utilise this possibility.

The classic account is also limited to £20,000 per investor, so the daily withdrawal expectations will be limited. Where liquidity available is very high, we will enable daily access from Premium for a very small fee ranging from 0.1% to 1.0%, dependent on that liquidity.

We are also in discussions with institutional investors to provide “underwriting facilities” i.e. to provide capital for lending in larger scale where needed (as we scale up with new partners) and to provide liquidity in the event of larger than expected withdrawals. These investors range from high net worth individuals to listed investment trusts. This will be scaled as necessary. Our platform is built for retail investors, so we are primarily interested in growing our lender base and not using large investor capital except for the reasons stated.

How much diversification will Loanpad investors have? How many loans? 

Investor funds will be spread across the entire loan book daily. On launch this will be just a handful of loans. However, as we grow, investors’ diversification will automatically grow too. Investors can see all loans and their allocations to each loan at any time, updated daily.

What happens if a loan defaults? Can you explain how the interest cover fund (‘ICF’) works?

The ICF will pay out all interest due on loans where a borrower has not paid it. This continues until the loan is recovered and/or a loss is crystallised. Where a loan goes into default the interest cover fund kicks in to cover daily interest on that loan. This fund exists to make sure investors get paid in full every day.

Loans that go overdue are not automatically suspended. Loans are only suspended where there is a realistic prospect of a capital loss. As the security underpinning each loan will be larger than usual (because of the senior structure), capital loss is unlikely except in the rarest of occasions. However, where a possible capital loss does seems likely, the loan is suspended and investors’ funds in that specific loan will be frozen pending recovery (but continue to receive interest from ICF). 

What types of other P2P products are you looking to compete against? Is it Zopa, Ratesetter, Assetz Capital?

We are competing with all other P2P platforms for investors. The biggest competition for investors will be the ones you have named plus Funding Circle. We are not competing with any P2P platforms for borrowers.

We believe that our products offer investors a unique lending structure and a unique platform experience.  Our accounts offer the simplicity of typical online accounts, but with the risk profile as outlined. 

These accounts pay interest daily. All funds are diversified daily. And daily access is available normal conditions.

You are a new platform. What backup servicing plans are in place, in case Loanpad is not around in the future?

We have given considerable thought to our wind down plans to ensure that loans continue to be administered and investor funds returned in the event of an operator insolvency event or voluntary wind down. As such, we believe we have put in place a robust back up plan to ensure an appropriately funded and staffed wind down committee, together with external consultants, to help wind down any outstanding Loanbook.

Please tell us about the team you have put together and their backgrounds

We have a growing team consisting of finance, legal, accounting, marketing, technology and compliance. Details if all can be found on the About us page, which will be updated frequently post launch. We have also engaged a variety of external specialists.

What is the track record of the loan originator you are working with? How does Loanpad perform due diligence on the loans it adds to the platform?

We have a long working history with our first originator and know them well. They have a very good track record – 40 years in business and profitable in every single year. They have had no material losses at all to speak of, the occasional default interest only has not been recovered. They have a very tight network of borrowers/developers. 

What authorisations have you received from the FCA?

To operate an electronic system in relation to lending. We have also received authorisation from HMRC to be an ISA Manager, which enables us to offer the IFISA. The IFISA operates the same way as our standard account, but with the tax benefits for UK taxpayers. 

To visit Loanpad, click here.

The post Loanpad offers low risk, well designed P2P products. We speak with CEO Louis Schwartz appeared first on Explore P2P.

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Twino has been struggling

Twino is a well known P2P investment site based in Latvia, with lending subsidiaries in several countries. In the last few years it has regularly won awards. Its management regularly appear in various Fintech conferences and forums.

Back in 2017 we raised some concerns about Twino. There was not a lot of information or data available but we had  a sense that things may not be going as well for the company as all their PR campaigns and marketing materials would suggest. 

Twino has just released their audited consolidated financial results for 2017, and also the parent company results (i.e excluding the results of the subsidiaries) for the 9 months to September 2018. We think it shows that some of our previous concerns were well founded. In our view, the company faces considerable challenges that have not been put in the spotlight up to now.

Here's what we noticed in the financial statements that were released
  • Twino shareholders lost €12.2 million in 2017. That's a substantial amount for a company of its size
  • Twino had negative equity as at September 2018 (-€3.4 million). In other words, it had more liabilities than it had assets
  • No new capital has been provided by shareholders to support the company - in fact Twino actually lent €1.2m to shareholders and management
  • 9 of Twino's 11 lending subsidiaries lost money in 2017, and also have negative equity
  • Non-performing loans are much higher than the Twino website suggests - 41% of loans as at Dec 2017 were 'past due and impaired'
  • Twino closed or sold unsuccessful lending subsidiaries in Spain, Czech Republic, Romania, Mexico and Denmark
  • The Twino platform is shrinking - P2P funding fell €4.1 million in the first 9 months of 2018. It also reduced staff from 76 to 53 during 2018
  • The Twino parent company says it made a €3.1 million profit during the 9 months to Sep 2018. However this was after booking gains from multiple transactions with its subsidiaries. It's not clear how the overall group performed and whether this represents a real turnaround for the business
  • The Twino parent company (which P2P investors help to fund) has €48 million of assets of which €22.7 million related to assets due from related companies of unknown recoverable value. These are investments in subsidiaries (which are generally loss making, with negative equity), amounts receivable from subsidiaries, and loans to management and shareholders
We also noticed 2 charts on the Twino website that seem potentially misleading to us...

P2P sites often publish statistics to show potential investors how well they are doing and what success they are having. Volume is an important metric investors keep track of because the larger the platform, the more viable it becomes, and the less likelihood it will go out of business. The chart above certainly looks good. It shows very stable and consistent growth. However it is showing cumulative investments which is almost totally irrelevant. Why? Because what’s important is the total amount invested on a platform at any time, rather than cumulative investments. In 2018, Twino has been actually going backwards on this more important metric, with loans funded by P2P investors falling from €27.7m to €23.6m. So how can Twino publish a chart showing €450m of investments? Most of its loans are very short term – 30 days or so. Every time these loans are repaid and reinvested, it results in the ‘cumulative investment’ measure going up. 

The chart above shows the loan status of Twino loans, with 76.4% ‘current’ and 19.4% delayed (less than 30 days in arrears). Only 4.2% of loans are shown to be defaulted, which seems like a satisfactory result. This may be true of the loans currently held by the Twino parent company but we feel it does not really give the full picture. Defaulted loans are returned to the Twino subsidiary companies. Overall, the Twino group reported a non-performing loan ratio in December 2017 of 41%, after including all the bad loans sent back to the subsidiary. This will not be clear to many people viewing this chart, and in our view the chart  misrepresents the actual credit quality of loans sold on the Twino platform, as the extent of defaulted loans is 10 times higher than shown in the chart. It means that investors are significantly more reliant on the ‘buyback guarantees’ than the chart suggests.

Twino's auditors BDO note 'Material uncertainty related to going concern'

It is a requirement for auditors to highlight in their audit opinion when there is uncertainty over whether the company will remain in business in the following 12 months (the ‘going concern’ principle).In their recent audit opinion, auditor BDO stated that: 

‘The current liabilities exceed the assets by €3.37m….These conditions indicate that a material uncertainty exists that may cast significant doubt on the ability of the company to continue as a going concern.’

What next for Twino? What lessons are there for P2P investors?

Since raising our concerns in 2017 we have not provided much coverage of Twino, even though it is one of the larger and more prominent European P2P sites. This is because the financial information available was very old, and the statistics published on their website were not very useful. We felt it best to wait until more information was made available. Now the new financial reports are available, we encourage any existing Twino investors to read them carefully, and consider the points raised above. Yes, Twino has a strong brand, is well perceived by many investors, and has been taking actions to address its issues. It is more than possible that Twino will turn the corner and find a way to get back on track. However, there are also reasons for concern, as outlined by its auditors BDO. The solvency of Twino is important because the loans they are selling to investors are unsecured and in many cases will need to be bought back by Twino under their buyback guarantee following a borrower default. We will have a better understanding of the situation once the consolidated results for 2018 are released. Hopefully these will not be significantly delayed, as the 2017 ones were.

It seems that many of the issues that Twino has run into relate to starting many new lending businesses in different markets which they may have lacked sufficient experience or local knowledge. That’s why we can be sceptical of some startup lenders that appear on the Mintos platform. It generally takes at least 3 years of lending to become confident in the underwriting performance of a new lender. Where possible it is best to invest in loans originated by companies who can demonstrate a good lending track record, with knowledge of the local market.  

The post Twino’s auditors raise ‘going concern’ risks following failed expansion strategy appeared first on Explore P2P.

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P2P loans blitzed other asset classes during 2018

Here at Explore P2P we spend a lot of time covering where the most interesting P2P investment opportunities are right now. But up to now we haven’t spent much time highlighting how well P2P investments have been performing compared to other asset classes, and why P2P should have a place in the investment portfolios of most investors. With 2018 behind us now, we thought it was a good opportunity for us to take a look at how well P2P performed versus other investment options. As you will see, 2018 was the year that P2P investments outperformed dramatically, and showed why so many smart investors are including P2P loans within their investment portfolios.

Continental Europe

The chart opposite shows the average investment returns of European equities, euro bank deposits, and real estate in 2018. Equities had a very poor year, with the Eurostoxx 50 losing investors 15%. Average bank deposit rates in the Eurozone were barely above zero, due to the negative interest rate policy of the ECB. Property performed slightly better, with average house prices increasing by 4.3%

By comparison the returns delivered by 3 of our preferred European P2P investment sites during 2018 were excellent, achieving average investor returns in the region of 11-12%. These returns represent a 26% additional return over the equity market in 2018. This makes P2P loans easily one of the best performing asset classes in Europe during 2018.

* Sources – Ishares Estoxx 50 ETF price movements, Eurostat, ECB, company reported statistics

United Kingdom

P2P investment sites in the UK also performed other asset classes, however by less than in Europe. This is because P2P investment returns tend to be slightly lower in the UK, and UK equities fell by less than in Europe during 2018. 

Even so, P2P loans clearly outperformed the other major asset classes during 2018, and many of our preferred P2P sites achieved even higher returns than the sites shown here.

* Sources – Ishares FTSE 100 ETF price movements, Nationwide, Bank of England, Brismo, company reported statistics

What do these results demonstrate to us? Where do P2P loans fit into an investment portfolio?

2018 showed the benefit of holding lower risk fixed income investments in an environment where equities are expensive by historic standards and where there are considerable political and economic risks. In uncertain times investors often move their asset allocations towards lower return, lower risk instruments such as bonds, cash, and gold. We think that 2018 showed very well that P2P investments provide a very compelling  alternative to these defensive investment strategies of the past. A diversified P2P loan portfolio provides considerably less downside risk & volatility than equities, yet still offers a substantially higher expected return than the traditional ‘safe’ asset classes. 

That means that P2P investments are an opportunity for investors to reduce their overall investment portfolio volatility (which is particularly important for older investors who do not want to take too much risk as they head into retirement). It also provides an opportunity for traditional fixed income investors to generate substantially higher returns than bonds and cash deposits, with modest additional risk in many cases.

As more investors become aware of P2P, and as the overall market grows, we expect to see more investors hold P2P loans. We also expect existing P2P investors to increase their allocations to P2P  within their investment portfolios. The size of the P2P investment market has been growing strongly, and that growth is likely to continue for several years, as investors seek to fill the gap between expensive, volatile equities, and traditional fixed income products that offer almost no yield in the current environment. 

The post 26% – that’s how much European P2P outperformed equities in 2018 appeared first on Explore P2P.

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Reinvest24 is a crowdfunding site offering strong rental yields and easy exposure to real estate in the Baltic states

Reinvest24 is a little different to most of the other investment sites we cover here at Explore P2P. It is a real estate crowdfunding site, rather than a P2P investment site. However, we think that the investment and return profile will be of interest to many P2P investors.

Reinvest24 offers investors shares in individual properties in the Baltic region.  The shares receive dividends from the rental of properties, and unlike P2P investments, investors can benefit from any future growth in real estate prices (but also with the risk that prices may fall). Reinvest24 takes care of everything on behalf of their investors – asset selection, renovations (if required), legal work, finding tenants, collecting rents, and asset management.

Why could this type of investment be particularly interesting right now? Rental yields in this region are around 2 to 3 times higher than can be achieved in Western European markets. Net rental yields of properties offered by Reinvest24 range from 5.6% all the way up to 15.1%. Economies in the Baltic region are growing much more quickly than the rest of Europe, which should continue to translate into higher future income levels and asset prices. And finally, unlike many other real estate markets around Europe and beyond, prices are currently low.  Prices are very affordable relative to local average income levels. They are also very cheap on an absolute basis, being around 75-80% lower than equivalent properties in major European cities. Prices have been however increasing, and it appears there should scope for this continue. 

We think that Reinvest24 is really most suitable for investors looking to invest on a long term basis. The secondary market for the shares has not been launched yet (that will allow investors to sell their shares), although this is expected shortly. It is also not possible to know currently how much liquidity the secondary market will have, and at what price levels the shares will trade relative to the market values of each property. Reinvest24 however notes that secondary market sales on other crowdfunding sites such as Property Partner tend to be very close to market values. In our view, investments into Reinvest24 should have an investment horizon of at least 3-5 years. 

Reinvest24 has a minimum investment of only 100 euros. To visit their site, click here.

Interview with Tanel Orro, CEO of Reinvest24
Tanel, what is Reinvest24?
 
Reinvest24 is a real estate investment platform. Thanks to the crowdfunding mechanism, Reinvest24 allows you to buy shares in residential or commercial real estate collectively with other investors starting from 100 EUR. Investors earn profits from monthly rent and capital growth combined, in the same way as owning part of the property. Our team takes care of all the market research, paperwork, and property management, while our investors get to be passive landlords.
 
What is the investment profile for investors? What returns can they expect from rental income and capital growth?
 
We cater to investors who prefer secured real estate investments for long-term passive income, without being active landlords. Our real estate properties provide 6-9% net rental yield and we estimate long-term capital growth to reach above 6% per year on average. On
top of the market growth, some of our projects include property developments and our investors also get profits from that. For example:
Rental apartments in Tallinn’s tech hub – an ongoing development that will be finished by summer 2019, will increase the value of the property by 20%.
 
What’s your background? Why did you establish Reinvest24?
 
Before Reinvest24, I was working at LHV asset management for many years, where my job was to build customer relationships and lead the sales team. Over time, I noticed that there was more interest in real estate than in stocks, bonds or other securities. But there are some obstacles that real estate investors need to overcome. First of all, the high entry barrier, which makes real estate unobtainable for most retail investors. It also makes it very difficult to diversify your investments. The second challenge the investors face is putting in the time to be an active landlord, especially when dealing with more than one property. These are the
problems that Reinvest24 tries to solve; using the crowdfunding mechanism to lower the entry barriers, that will also help to diversify the portfolio. Hence, we provide investors with the freedom to be truly passive landlords.
 
What’s your track record so far?
 
Within the past 10 years, through private funding, we have successfully completed more than 10 high profile real estate projects in the Baltic states. These projects provided our investors on average with 14.6% combined returns per annum.
 
How to you select the properties you list on the site?
 
We look for properties with above average rental yield and projects that have potential to increase in value over time. Our property selection process is comprehensive.  Our research covers these aspects: location, liquidity, price, existing contracts, development options, financing, visual appeal, limitations, market potential and rental yield.
 
Some of your rental yields are much higher than you would see in Western Europe. Is that just normal for the region or are there other reasons for this?
 
The Baltic states has one of the highest rental yields (6% average per year) in all of Europe. Since our team has extensive experience in the field and knowing the market very well, we are able to provide our investors with above market average returns.
 
What’s your view on property prices in the region? Do you expect them to grow? Why?
 
The real estate prices in the Baltic states have been stably growing since the 2008 housing crisis. Last year the prices surpassed the previous highs of 2006-2007. At the same time, real estate is more affordable than ever, since the wages have been growing faster than real estate prices. If we take the previous 15 years (including the housing crisis) into consideration, the average market growth has been around 9% per year. At the moment, there are no signs of the real estate market slowing down. It is also important to point out that even when the real estate prices dropped around 50% in the 2008 crisis, the rental prices dropped only around 20% (the banks aren’t giving out loans so easily, but people still need to live somewhere). So even if another crisis would hit us in the future, our properties will still provide our investors with monthly cash flow and the market always recovers over time. We estimate the long-term (10-20 years) growth of the real estate market in the Baltic states to be above 6% per year on average.
 
How long do you hold properties before selling them? How often do you revalue the properties?
 
Most of our properties don’t have an exit date. The goal is to provide long-term passive income from rental yield (even after 10 or 20 years). If there is a need to exit, investors can sell their shares of the property in the secondary market and cash out anytime. We revalue
all the properties once a year, or after achieving milestone that will increase the property value (developments, construction work, renovation, licenses, etc).
 
Is Reinvest24 regulated in any way? Do you have auditors?
 
Like other crowdfunding platforms in Estonia, we don’t have or need to be regulated. There are no obligations for audits, but it is our free will to have regular audits conducted by licensed auditors. Transparency is very important to us and we are constantly seeking ways to improve it. All our properties are operated through separate SPV ́s, these Estonian company’s have annual reports publicly available. The regulations will most likely come in the near future and we are already preparing for that.
 
What’s the business model for Reinvest24? How do you make money? Are you profitable?
 
Reinvest24 fees include 2% on entry and 10% from rental yield for operating the property. So basically we only make money if our investors make money, which makes us extra hard-working when it comes to our real estate investments.
 
How do taxes work? If there is a capital gain is this taxed by local tax authorities?
 
The SPVs we create do not have to pay taxes from rental yield or capital growth. Investors must pay taxes according to the legal regulations of their country of residence.
 
What does the future look like for Reinvest24? What are your plans?
 
Our mission is to become the leading real estate investment platform in Europe. Our plan is to start from Estonia and Baltics real estate, while constantly seeking for profitable opportunities from new areas to expand. Our goal is to provide our platform investors opportunity to build and diversify their real estate portfolio with a different kind of properties from all over Europe.
 

To visit Reinvest24, click here

Example investments available from Reinvest24

'Majaka' building

This is a project to renovate a residential building close to Tallin's tech hub (Estonia), and then rent once completed. An 8% net rental yield is forecast, together with capital appreciation as a result of the renovation work.

'Kreutzwaldi'

This building is zoned currently for either residential or commercial use. The property offered by Reinvest24 was let to a Norwegian IT firm on a long lease, generating a net rental yield of 5.6%. The very central location and quality of the property is expected to see it benefit from growth in rents and valuation in the future.

The post Looking for returns with some extra upside? Reinvest24 may be for you. We speak with CEO Tanel Orro appeared first on Explore P2P.

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