Hello Daddy,
I'm pleased that you've started a discussion on this, as I've heard Initiative Ireland mentioned quite a few times and have been intending to research them, potentially with a view to investing.
On their website it says:
Earn Passive Income of 6.00- 8.00% APR Target Return
...so it's not a guaranteed return as I read it, and furthermore, it's likely to be gross so approx half of that, if you invest in your personal capacity and pay tax at the higher rate.
So, we are hoping for 3% - 4% pa net of tax, from investing in property development.
That return seems low to me, given Banks would be charging annual interest rates of between 6% - 12%, plus fees, to fund property developers, and they would be in a far more secured and stronger position, than a small investor like myself.
How much are they actually charging the Borrowers, and how much are they taking in fees at Initiative Ireland ?
Most P2P websites are raising funds for Borrowers that are trading entities, so there are monthly repayments over the fixed period of time (assuming all goes well). However, given the nature of these property development projects, I expect that there are no repayments of any money until the project is completed, and the properties are sold. So, you get no cash back over the term of your loan, hence the risk is greater than if you were getting regular repayments over say 36 months. Yet, the returns appear the same, or perhaps even lower here, than those offered for some forms of borrower on the likes of Linked Finance. With your entire cash at risk until the properties are sold, don't you think you would deserve a higher return (even if you have some form of claim over the property itself) ?
Secured Property Lending
Just like with a mortgage, as a property lender the loans are secured against the property title deeds from the start. We carefully assess each loan to assure a minimum of €133k in property collateral value is in place for every €100k released to the borrower throughout the course of the loan. This collateral cover protects you as a lender from market volatility, providing a more predictable return for lenders without all the work and risks usually involved with direct property investing. By helping to deliver social, affordable family homes, you are also doing good, making a real difference to Irish Families across the country.
So, how do they calculate the €133k in value per €100k released ?
Sure, it seems quite straight forward on Day 1, but how about half way through a development project, when you've twelve half built houses, and how about the risk of the developer going bust or walking off half way through the job, then what's it worth ?
I note the use of the phrase "direct property investing" above, but actually investing in completed investment properties is a lower risk than investing in property development, which is actually what this is.