Crowdlending as an investment system is in fashion. Many start-up platforms go onto the market offering financing and investment services, in what is called the new Fintech environment.
But of all the available options, there is the one that we are going to discuss in this article, Real Estate Crowdlending , trying to explain how to invest in real estate Crowdlending in Spain.
Differences between Crowdlending and Crowdfunding
Before explaining the difference, we should take into account the evolution in what is now called Fintech (technology companies that offer financial services).
It all starts thanks to the Internet and its fantastic ability to connect people through social networks and user platforms.
The first platforms that were created offered financing services thanks to users who lent their money with an investor profile, this business model began with the so-called P2P lending .
The P2P lending (peer to peer lending), is the way to define loans from private to private, or what was commonly already known, loans between individuals .
In the national market, the pioneer Comunitae has been the first to offer P2P lending services with more or less success, later other P2P platforms such as Lendico and Zank have appeared in terms of individuals.
With regard to companies, platforms have appeared that offer services or products so that they have access to participatory financing . Companies like Arborius or Circulantis have gained fame in the alternative financing sector.
All these companies that appear in the new fintech markets carry out the evolution from P2P Lending to Crowdlending, which is the same but with another name.
What were previously P2P lending companies and loans between participating individuals are now crowdlending companies.
Now that we more or less understand this new financial jargon 2.0, what is the difference between crowdlending and crowdfunding?
Crowdlending is intended for the participatory financing of loans that are made to companies and individuals and crowdfunding is dedicated to financing projects through rewards.
Crowdfunding is a modern version of patronage. It is based on the contribution of capital in exchange for a reward, shares, invitations, copy of the product, that is, something that is not "economic benefit".
Real Estate Crowdlending as a guarantee of investment
When we start to participate as money lenders, there will always be concern both in the company that manages your investment and the destination of the money.
To solve this concern, crowdlending platforms base their strategy on showing confidence and recommending diversification over the total investments available in their marketplace, but at the end of the day, the risk will always be present.
The non-payment of a loan will generally result in a long order for payment process and in many cases of difficult collection, depending on many factors so that the debtor can pay his debt.
During the banking crisis after 2008, financial credit institutions offered a 50% reduction on their debt as long as the debtor paid off some of his debt.
This reflects the difficulty and time that a debt claim can take.
If we transfer this to financial institutions with large bank deposits, which cannot be passed on to a private lender who can participate in a crowdlending platform.
All these data do not mean that we can finally collect a failed loan, they simply indicate the difficulty of the recovery process.
Societies and companies deserve another point apart, that in the case of non-payment the procedure is also expensive and long, praying that said company does not enter bankruptcy procedure because the end of the procedure is generally the ruin of the debtors.
Therefore, the business of lending money requires a guarantee and there is no greater guarantee than a real estate guarantee.
Given this argument, some financial expert may formulate that the best guarantee is the bank, correct! But with a bank guarantee we will not have problems with any financial institution offering us financing.
Not everyone has a bank guarantee that guarantees an operation, but thanks to the real estate heritage culture that exists in our country , many people have a real estate guarantee of inheritance, family or property that guarantees the requested credit.
Therefore, if we deal with the crowdlending business in terms of guarantees, the platforms that work on real estate guarantees have a better chance of recovering their investment than the platforms that make loans to companies, discounts of promissory notes or lend to individuals with the simple personal guarantee .
When there is a real estate guarantee in the event that a loan is unsuccessful, the investment will always be protected by the guarantee. The quick sale, or the execution and auction in the case of not reaching an agreement, will allow the return on the investment.
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The Law against real estate crowdlending
The law on crowdfunding platforms identifies PFP crowdfunding platforms as follows:
“Participatory financing platforms are authorized companies whose activity consists of putting in contact, in a professional way and through web pages or other electronic means, a plurality of natural or legal persons that offer financing in exchange for a monetary return, called investors , with natural or legal persons who request financing in their own name to be used for a participatory financing project, called promoters. "
This can be focused on any company that through a website offers loan services with private money from private investors can already be defined as a PFP platform (although they do not want to).
Within the same law, article 87 on the prohibition of loans or mortgage credits in projects with consumers , and limits the business even more:
"Participatory financing platforms will not publish projects in which consumers request a loan or credit with a mortgage guarantee"
And here we have the problem.
The law of participatory financing companies, layer to future crowdlending platforms, to work in Spain the real business that gives profitability to banking, mortgages .
But yes, it allows you to play with small amounts of € 50, diversifying investments and being able to lose your money without the possibility of ever recovering it.
Therefore, crowdlending and real estate, for now are like water and oil.
But there are tricks to jump the limits and participate in this lucrative business.
You can carry out projects for the purchase, reform and rentals of real estate through companies. This business model crosses the fine line that exists between crowdlending and crowdfunding, its name is real estate crowdfunding and the only company that works in the sector is Housers.
The solution: Loans between individuals
If you have not yet recovered from the shock and you still want to invest your money at an interest higher than that offered by the bank with the guarantee of a property, loans between individuals are your solution.
An individual can lend money to another with the guarantee of a property, through a contract in the form of a mortgage loan before a notary public.
This form of financing would not be reflected as participatory, since the business is carried out one by one.
In order for an individual or company to act as a professional lender between individuals, they must be registered with the Ministry of Consumer Affairs of Spain and comply with current regulations for the state registration of companies, which, without having the status of credit institutions, carry carry out activities for contracting mortgage loans or intermediation for the conclusion of loan or credit contracts with consumers, Royal Decree 106/2011 of January 28.
Registering with the consumer ministry is simple (a bit slow), and as the only additional cost you will only have to take out a civil liability insurance of at least € 300,000 which has an approximate cost of € 350 / year.
So if you want to invest in loans between individuals with real estate guarantees, this is the solution you have at your fingertips.
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