Visit at the Crowdestate office in Tallinn. Interview with CEO and founder Loit Linnupõld. Review 2019

Visit at the Crowdestate office in Tallinn. Interview with CEO and founder Loit Linnupõld. Review 2019

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Crowdestate Review 2019

I have been investing with Crowdestate for a little over a year now so it was a real pleasure to get the opportunity to visit their headquarter in Tallinn, Estonia. I asked them a lot of questions and visited five projects and made videos of them. You can find both the interview and links to the videos below. I recently decided to invest more in real estate and I now feel comfortable with the Crowdestate platform at this point, so I have some more money sitting on the platform waiting for new projects. There is something for all kinds of risk profiles here as they both have high return equity projects, and lower yielding projects secured by first rank mortgages. Also, if you read on to the end you can see how it is possible for you to make good money trading on the Crowdestate secondary market. That is an interesting opportunity! 

The interview with CEO and founder Loit Linnupõld

Georg: 
When investors look into a new P2P platforms to either start investing with their first platform, or to expand their portfolio to the next platform to diversify, it is always important to know something about the people behind the platform and their experience in finance and business. I know that you, Loit, has quite an impressive track record in finance before you founded Crowdestate. You have 20+ years in the finance industry and even your education was in finance. Can you tell me some more about that? 

Loit: 
My Bachelor’s degree was at Taltech, the Technical University of Tallinn, where I studied economics. I studied industrial planning at the end of the Soviet time. But the borders were opening and we had active trading with Finland. After school in 1992, I worked at the Estonian Social Bank. It does not exist anymore, but it was the largest bank in Estonia at that time. I managed their international operations at the age of 23 and I had 45 people working for me. I stayed with them for a year and then I worked with international business for another bank. Then I was 8 years with a local bank that was later acquired by SEB and I ran their asset management business. So more than half of my experience in banking has been around investing other people’s money and the other half was general commercial banking. I have established a bank in Estonia from scratch. I was the first employee and acquired the banking license and ran it for four years. Now it is a part of the biggest Latvian bank. After that, I worked 3 years at Nordea investment management technology, we had an IT team in Poland writing all the code. The last banking job was more than 5 years ago and was with Swedbank, which is the largest Estonian bank. I was the CEO of their pension fund management company. So I see myself as someone who knows how to give the money out and how to get it back as well. Both doing investments and sitting in creative communities. Meanwhile, I took an MBA at the Estonian business school as well. It was in international finance and accounting. I like the numbers. If you look at Crowdestate we pay very much attention to the structure of the capital in the property, doing business modeling, and business plans a bit differently than other platforms. I think the truth is in the numbers. You put them in a structure and play out different scenarios and that tells you a lot about what works, what does not, and where the risks are. Crowdestate has now been in operations since May 2014. I worked on the platform 6 months before it was launched. I had been thinking about doing something on my own for a while because just working for a salary at the bank has almost no upside if you do everything right. You get no bonus. But if you do something wrong you get fired easily. In 2003 a fellow investor and I came together and tried to figure out what kind of business we could do. We decided to make a medical health care platform. We invested close to 700000 euros. It was a platform for family doctors to optimize their resources, do the planning, connect to pharmacies and central health care systems. This is something that Google and Microsoft just started doing today. We were not successful and we lost all the money. We closed in 2009 because we did not get enough doctors to sign up. It is a bit of a funny story because while we were planning what project to do, we had three or four ideas and one of them was crowdlending. We skipped the idea because we did not think that there were enough internet users yet and the first internet banks were just developing. It was a great idea and technology, but we could not find a good way to convince investors to invest through the Internet. When I was in the banking industry there were a lot of investors who wanted exposure towards real estate, but with smaller amounts like 5000 euros, and the banks always said that they did not have a product like that and we are never going to create a product like that. That led to that someone else had to do it. Having heard those stories for years and having some real estate contacts as clients that needed funding, is what started everything and it eventually became Crowdestate

Georg: 
Talking about Crowdestate, for people who don’t know what kind of platform it is, what do you offer for investors and what kind of assets can you invest in? 

Loit: 
For investors, Crowdestate try to be a one-stop-shop for different types of capital. We want to offer different types of capital for real estate developers. For investors that means that you have a great chance of picking projects with the risk level that you want. So if you don’t like equity because it is riskier, then Crowdestate also has real estate loans secured with real estate. We have investors who say: “Don’t send me these fixed-rate loans, I want equity risk but I expect to have a 20% return.” Crowdestate has some other loans like working capital, but we are still trying to figure out if this is something that our investors really want. The issue is that there are not enough quality real estate projects on the market. We have a long term bank analyst who does the corporate finance projects for us. Investors really like it and we have some demand, but risk wise the profile is different. It is not projects as such, but companies that develop on an ongoing basis. We have strict rules about it and of course, they need to be established companies with a team, cash, and capital. We think it should be pretty secure, so we don’t do work with early-stage companies. There are a lot of good companies out there and in some ways, the economy is turning away from being asset-based to being service-based. If you do trade financing, for example, the company margin is still 10-15% on a deal, but you are turning the money around 12 times per year which means you will double your money. So they will easily be able to pay 15% per year. They just give away 1 month’s profit and they keep 11 to themself. Today it is really hard to get a 15% profit. So this the kind of corporate finance Crowdestate also does. We are currently trying it out to see how it works, probably with one opportunity per month, and then we will see how it goes. Crowdestate is settings up an office in Italy and we have an office now in Bucharest in Romania. So we are really focusing on real estate, even though there are requests for doing invoice factoring, but the more complex the platform gets the investors can get confused, so I think the focus will stay on real estate. 

Georg: 
How many employees does Crowdestate have? Maybe split up on offices. Crowdestate has an office in Latvia as well? 

Loit: 
Yes. Crowdestate has six people in Tallinn now. We have an office in Riga, Latvia, and we have two people there. We have an office in Milan, Italy, also with two people. We have one guy in Tbilisi, Georgia and one in Bucharest, Romania. We are currently working on a few more locations to get a local presence. Crowdestate don’t actually have any projects in Georgia yet, but we are talking to large developers there. Georgia has a financial problem that there is not really any banking market. There are a few big banks but they are in consumer finance, usually with short term loans. So if you want to do residential construction you have to do a lot of equity, a lot of prepayments and you have to finance the buyers with scheduled payments. Then at some point, they can take a short term mortgage loan to cover the rest. So it is a challenge for developers there. The large developers are used to raising money from abroad, especially from Israel and Saudi Arabia. So Crowdestate is discussing with some large developers at the moment because they are very interested in the service we offer. We are looking at some projects to built some high-rise buildings with 20+ floors in the center of Tbilisi. Construction is cheap so we are trying to figure out how we can make it work. I think it is a good market and I think there is a lot of potential. It is still a bit exotic so maybe some investors will not like it, but country-wise it is promising. There is almost no corruption anymore. They are in the top ten government institutions in the world when it comes to low corruption. They have a simple tax code as well, so they are doing a lot of things right. I see some similar patterns that we have experienced in Estonia earlier. 

Georg: 
So you have all your resources in-house or have you outsourced some functions? 

Loit: 
Crowdestate has outsourced everything that is not core. We outsource all legal. So Crowdestate has different legal resources in different countries. So all the contracts and if something goes bad and we need to do collections, that all goes to the local law firms. It is easier to outsource these tasks. IT is outsourced. We have the same three guys working for us for the whole time. They are part of a large IT company. But is someone gets sick or needs to take a vacation, they have the option of assigning other people to the tasks. If Crowdestate would have three guys internally that would eventually create a problem for me. So this way we also have the possibility to scale fast if we need to. These are the two things we outsource and the rest of the functions are in-house. Well, a bit of marketing goes out as well. We really care about what we put on the platform so the sourcing and analyzing the projects we have to have in-house. Crowdestate reject most of the projects we look at. We see some marketplace platforms that just to put on whatever comes up. Some of them even require that the platform does not interfere. So investors should really look at the platforms and consider the worst-case scenarios and how they will get their money back then. 

Georg: 
Can you tell me what the average portfolio size at Crowdestate is?

Loit: 
Probably 2000-4000 euros. Usually, it is around 700-800 euros investors put into a single project. So they have around 5-6 investments on average over the year. The projects are short term so the projects are between 12 and 24 months. Crowdestate doesn’t really focus on institutional investors yet. Retail investors invest less money per project but we are happy with that. 

Georg: 
How does Crowdestate make money? 

Loit: 
Crowdestate is charging developers and we disclose those fees in the financial models for the projects. Originally, we tried to charge the investors but taxwise that is complex as you lose the VAT because the investors cannot reclaim it. So financially it makes sense to charge the developers. Crowdestate was actually profitable already from the first year. Some of the big platforms are spending so much on marketing now that they are not able to be profitable even though they have been in operations for 5-10 years. There was a very good article recently in The Financial Times about it. This is a big risk for the platform’s survival even though they have a good portfolio. Last year Crowdestate had around 1.4 million euros in revenues and 0.5 million euros in net profits. So at this point, we have about 1.5 million in equity. If we don’t make any more deals we can still sit here for 2-3 years doing nothing. This is a good sign for investors as we are not forced to do any deals we don’t like. If this is not the case, you may be tempted to lower your standards and take more deals to generate more revenue. That will hurt investors in the long term. We don’t have that pressure and we are happy with our earnings. 

Georg: 
Talking about your investors. Where do most of the Crowdestate investors live? 

Loit: 
Probably 95% are from the European Union. Estonians are about 1/3 of our investor base. There is plenty of potential in the European market so we don’t really market Crowdestate outside of Europe. But of course, if they find us, we are happy to take their business. Also, any country on the AML blacklist we will not do business with. 

Georg: 
What kind of returns can investors expect on Crowdestate? Of course, that depends and the project and the risk involved. 

Loit: 
If we start from the highest risk, equity deals, it would be 18-20%. No equity developer would take a project where the return is below 20%. They would most likely target 25-35%. The next step would be 13-16% and here the yield depends on the stage of the project. Is it preconstruction, is it during construction, and are there presales? If we talk about secured loans backed by real estate, then it is 10-12%. I actually think that this is a bit high. If Crowdestate could somehow lower the return expectations of investors to 8% we would have 5 times more business and a lot higher quality projects. But investors are greedy and many times investors don’t care that much about the underlying asset. But if we go below 10% investors start to move their money to consumer lending platforms like Mintos. Then they are happy doing unsecured consumer finance loans with 10-12%. It is kind of interesting to see how people’s minds work. I don’t think investors pay enough attention to risk many times. But the investors vote with their money, so that leaves us with fewer good projects to do. Risk-return wise it would be really good for investors if they lowered their expectations with 1-2%. In Western Europe, the rates are lower and over time I think it will happen here as well. 

Georg: 
How does Crowdestate find new quality projects? Do you cooperate with the same developers over and over again? 

Loit: 
Estonia is a small country so Crowdestate talk with almost all the established developers here on a regular basis. We have some incoming requests as well. Asia is not a really good source of projects. Crowdestate has not seen anything interesting over the last five years. The problem is that many times the brokerage companies are small developers themselves, so they cherry-pick the good projects and try to push the lower quality projects to the public market. 

Georg: 
When Crowdestate finds a promising project, what is then your due diligence process? 

Loit: 
We do a lot of things, but on a very high-level Crowdestate are paying attention to five things. Is the track record and the experience of the team sufficient? If it is just a year, we will most likely not take the project. We look at the composition of the team. They have to have someone who knows the numbers, and somebody who knows construction. The developers can and often do outsource some of these things. If they pass the team hurdle, then Crowdestate look at the business plan. Where is it located, what is the size, what does the local zoning allow you to do? We get a lot of this material from the developer, but we always check it again. We look at the market as well. If the apartments are too big, they will be harder to sell as there is hardly any demand for them. There could be some currency concerns if the development is done in a country that does not use euros and the project could run over for example 1.5 years. Then we look at the financial modeling of the project. How will it cash flow? Crowdestate does monthly cash flow projections, to make sure that the developer does not fall short on cash during the project. One of the worst things that can happen is that they run out of cash and the construction company goes away. Now the developer has to find more money and a new construction company. It can be hard to find someone to take over a half-built project as they don’t know how it has been constructed so far. The price would most likely be higher than before. So we do a lot of analysis on the cash and equity side of the project. Then we look at how much does the developer have. Is there a bank loan available? Where does Crowdestate fit into the capital stack? The developer needs to have a proper amount of skin-in-the-game or we will not take the project. They should have at least 20-25% equity in the project. The bank loan in the Baltics is usually about 50%. Then there is about 25-30% left to finance. We analyze the different stacks to see where Crowdestate stands in line to get payouts sequence. The Bank gets first, Crowdestate gets second, so we analyze it to make sure there is a good margin. Crowdestate needs to insure that the investors get a proper return for the risk they are taking. There is a lot of negotiation as well to find a proper balance. 

Georg: 
What countries does Crowdestate have projects in? Just the countries where you have local presence? 

Loit: 
Yes. We have a principle that we always want a local presence there that is on our payroll, so he serves our interests. Actually even though I go to Riga very often and have a feeling how the market is there, it is not so. When I talk to people there who have local knowledge about Riga and the market there, I quickly realize that it is not the case. This is only 300 kilometers away, so local knowledge and presence is important. Crowdestate gets a lot of propositions from Southern Europe, so we are also looking into if some of those countries could be worth to do projects in. Investors should expect the same kind of analyzing and process in any country, the same kind of agreement, and the same type of collateral. Crowdlending is a pretty new type of investment, so there is not a lot of regulations in place in Europe yet. But there are countries like the USA, UK, and Portugal that have implemented local regulations. Lithuania is also an example. at the same time, we know that there is a European regulation coming very soon. The crowdlending regulation that is coming is not a directive, that is like an umbrella that covers all countries and they can then make it stricter or loosen up the rules. It will be a European Law that will be applied to all countries exactly as it is without allowing the specific countries to make amendments to it. So it will be exactly the same playground in all countries. It should be accepted later this year and maybe valid in 12-18 months. So if we look at Lithuania for example. If Crowdestate wanted to start up there today, we would apply for the license in Lithuania, which takes another 12 months and would cost around 50000 euros. In 12 months there is going to be a European regulation, so it would not be worth it. We are looking at countries that do not have any regulations at the moment. It makes sense right now from an economical perspective. So the regulations will open up more possibilities for Crowdestate. Most of our projects are in Tallinn and around, so we have about ½ million people living in the area. 

Georg: 
Are there any of the countries that Crowdestate operates in, where the market is already in, or is going into a bobble on the real estate market? What about Italy for example? 

Loit: 
No one really knows what will happen. But there has been a long period of growth. So something could happen. Every 6 months someone is creating a panic about that now the world is ending and everything is going to collapse. If we look at Italy for example, it is a country with about 100 million people. The general economic indicators are not that good, the banking system is also not that good. They have a lot of bad debt there. But when you go to Italy you realize it is a lot of smaller regions. The north of Italy is doing really great. Maybe down to Rome I would say. They have a lot of services, export, good education, tech companies. Everything is there. I would not say it is booming, but it is very liquid, so good deals are picked up very quickly. But on the other hand, if you go to the south end of Italy, then there is much more agriculture, fewer tourists, the living standard is much less, and the market is illiquid. So we do not want to have projects in that area. You cannot really look at just the country, you need to look at the different economic regions. Even if you go just 15 minutes out of Tallinn, the market can be completely different than in the city. The construction costs are the same, the cost of the land plot is of course lower. But the price of the building will be much lower. There are cities in Estonia where you can get an apartment for 500 euros. Someone may even give one to you. But it does not make any economic sense to own property there, because people are moving away from the area. There are places where there are abandoned apartment complexes where you could probably buy a building with five floors for 5000 euros. But you do not really want to own it. You really want to be in a location where there is liquidity in the market and that is not too much dependant on the country. Urban areas in capitals are good. Take Tallinn for example. Because it is my home town I know that 5000 people or 1% of the population move here every year. As it is many times couples or families, that gives a natural demand of let’s say 2500 new apartments per year. This does not include that people get salary raises and want to raise their standard of living by moving to a bigger apartment, more central, and more luxurious. Riga has actually lost a lot of people recently, but I think it is stable now. But that is why it is so important to have local presence and knowledge because everywhere it can be different. 

Georg: 
Many crowdlending investors will not invest unless there is a buyback guarantee in place. Investors does not have buyback at Crowdestate. What is your opinion on buyback

Loit: 
In my personal opinion, I think is a great marketing scam. The other big marketing scam is the skin-in-the-game of the originator. That also does not work. Many investors don’t understand it and I think is misleading to investors. The originator has no skin-in-the-game because the money has been taken out together with most of the future profits as well. When it comes to buyback guarantee not working, Eurocent in Poland was a good example. The had buyback guarantee and they defaulted and then everybody realized that there was no guarantee. 

Georg: 
Yes, they were a loan originator with Mintos. There was also a shorter incident with the loan originator Aforti recently where the buyback was halted for a few days. That affected several platforms. There was no time to react. I just got an email that until further notice, there is no buyback

Loit: 
Insurance bonds, bank guarantee, something third party that says that if I don’t pay you will pay for me, is much better. Sometimes we have a personal guarantee of the entrepreneur. If my business fails I pledge my house and I bring back the money. That is a good commitment and that is a true collateral or guarantee. 

Georg: 
When I look at the Crowdestate platform there is actually a lot of information about the projects. For each project, there is a rating, a full SWOT analysis and a lot more. 

Loit: 
Yes, there is also info on the market, the economics, actually all the stuff I would like to read before I invest, although if investors just invest 100 euros par month I think they don’t pay too much attention to all these analysis and numbers. But for large amounts, I would want to spend some time reading the information and asking a few questions. We always sit down and discuss internally if we are addressing all the sides fairly. Crowdestate don’t want to hide anything and if there is a risk it will be priced in, but investors should still be clearly aware of it and not just get it from the interest rate. Some risk is pretty standard. The sales period might be longer if it is an equity deal, and you will get your money back later. This affects investors’ IRR. We have seen a few examples of this where we should have exited a project, but there are still a few apartments unsold and that keeps us from getting the equity back in time for investors. You should be aware of that as an investor when you invest in an equity object. Investors need to know if it is a secured loan or equity and what that means. We do our best to explain what everything is about so investors will not get any bad surprises. Then they will have a good experience and come back to invest in other projects. 

Georg: 
About the Crowdestate track record. Do you have any defaulted projects that still have not been recovered yet? 

Loit: 
Crowdestate currently has one in collection. It is mortgage secured, so there is no big risk. We did it three years ago and basically there was, I don’t want to say scam, but trick in that project. But we are well secured. The property company changed ownership after the project. Crowdestate was not able to foresee that. The current owner is kind of a sneaky lawyer. He used all kinds of legal tricks to prolong the process. He has been pretty successful. Usually, it is simple. If you don’t pay we send it to the bailiff, they do the auction, the winner takes it, and then we get the money. We did that and we had a winner. The buyer said “here is the money”. I think the auction ended at 2 o’clock in the afternoon. After the auction, the bailiff needs to write a document with the result of the auction. That usually takes a few hours, and during that time frame, the lawyer went to the court and handed in a bankruptcy application for the company. As a bankruptcy process overrules the bailiff process, the bailiff process was halted. So even though we had a buyer, we could not sell to him. The court has now processed the bankruptcy. He tried to get it back, so that took time as well. But he failed. A few weeks ago the bankruptcy was declared and we have the first meeting to divide the assets tomorrow and we have the first hand claim, so we will take everything on the table. If it ends well the market price will have risen, so investors are actually going to be pretty happy. It is not going to be a 10% project like originally but more likely a 15-17% project because of the capital gains. But these procedures can be lengthy and it is something that we cannot really control. If investors get into a 2-year loan and there then turns out to be a collection process in the end, then it could be 3-4 years before investors get their money back. Of course, we have a secondary market where you can sell your part of the loan if you run out of patience. Then you can get your principal back and another, more risk-prone investor, will take over the investment. I actually bought up some claims that were on the market, knowing that it would end positively maybe in a year or two. Getting 15% per year could turn out to be a good deal, even though there is a collection process. 

Georg: 
You can actually speculate in that on the secondary market. Buying a project that is in default if you have a strong idea that it will turn out well. 

Loit: 
I personally actually can not speculate as I have more information than the investors. If something is not working properly I cannot just sell all my stuff. I have to stick to it and take the pain as well. It is the proper way to do it. I have invested in all the projects on the platform, so it is also kind of a test for me as well. I am willing to invest my own money in the Crowdestate projects, but I have to take the pains and gains like the other investors. 

Georg: 
I get a lot of emails about new projects from Crowdestate, But I think some of them are status emails about the same projects, like “Open for funding” and later “Fully funded”. How often do you have new projects? 

Loit: 
Sometimes it can be weeks between the projects and other times there are more. Internally we do not feel any pressure to hurry up the process or slack on procedures because we want a higher volume. We actually have more resources than we need for the current setup. With the number of people and the capacity we have at the moment, we could probably do 50% more deals on a monthly basis. The projects are becoming larger, so the ticket price is larger. We don’t see too many projects on the market that would qualify for the Crowdestate platform. I would be happy if we could find more good projects, so we could raise more capital. 

Georg: 
If Crowdestate gets an offer about a project and for some reason, you decline it and later you then see it on another platform, do you react to that? 

Loit: 
We see it from time to time that a project that Crowdestate disqualified ends up on another platform. I actually informed the owners a few times to tell them that we found something with this project and therefore disqualified it. I ask them if they are sure they want to do it. We cannot go into any kind of specifics, of course, because of the data protection laws. I think the biggest issue is that, especially under secured loans, the evaluation document is not “science”, but more like a kind of art. There are certain property evaluators that are very creative when producing the document. This can sometimes result in that the market value they are stating, is not the actual market value. It is more like a hypothetical dream that they want. In some cases, it included a few Latvian projects that we declined. We saw later that he raised all the money he needed to buy the property and maybe 30% on top of that from investors. So basically he is not putting it any money himself but taking money out from the investors. If this project goes into default, they can recover maybe half of the funds. So that is a really bad situation. We have one project in the pipeline where the evaluation is about 30% higher than the actual purchase price. Most developers tell us this. So even if the LTV on paper is 70% they should still put 20-25% equity in so officially it will become a 50% LTV project. In reality, it is a 70% LTV project because the evaluation is inflated. We see that kind of stuff a lot in the market. We have a list of evaluators who do these things. If they tell us that they want to use any of these evaluators we suggest that they use only the top 3 or 4 evaluation companies. Then we don’t have to do these adjustments, because the top evaluators don’t get creative like this. 

Georg: 
Everybody is worried about what will happen to the p2p market when a new financial crisis hits. You have been in banking for many years, so, in your personal opinion what do you think will happen to the p2p market during a crisis? 

Loit: 
I think it depends a lot on the sector. Invoice financing, for example, could be a problem, because companies will be hit hard. What happened in 2008 was that basically, the banks stopped lending for two weeks. So any company that relied on credit was in a bad place. But it all depends on what type of crisis it will be. Will it be a liquidity crisis, some type of property crisis, or something completely different? I think most of the p2p market is probably healthy. In the real estate sector, if you do development projects, what will most likely happen is that a lot of projects will be delayed. My biggest concern, when I put my money in a project, is that it needs to be properly funded from the beginning so that it can be completed in any case. During a crisis, you could probably get a discount on the construction price, which is a plus. The negative part is that there will be few or no buyers for the property. So you will have to sit on it for a while. During the crisis, you can turn the property into a rental. Then you will get enough to cover the interest payment, but investors will not get the principal back until the property eventually will be sold. Run it for 3 years, paint the walls, fix up the floors, and then sell. If you were a bank you would be forced to liquidate and sell it off at whatever price. Of course, if you are forced to rent out it will hurt your IRR. Maybe you don’t get 20%, you get 10 to 12%, but you still get a good return and your principal back. In 2008 in Riga for example, the prices came down 50% for a year but it came up again. So I am not too concerned about that. Just after 2008, as the banks liquidated a lot of personal mortgage loans, there was an increase in rental prices as many previous house owners were forced to rent until they were able to buy a house again. So the vacancies went down and the rental prices went up. For the owners of a rental building, this is a positive thing. They say that the multi-family residential buildings are the most crisis-proof assets because it works contrary to the market. The US is a good example, there they have these abandoned shopping centers that they convert into residential buildings. You can be creative and make a lot of money during the process. The time to invest is when there is blood in the streets but it takes guts to do that. More demand will also push up the rates a bit. Consumer lending will probably have much more demand. It is only natural when the banks stop lending out money. But here you really need to look at the quality of the loans, when it comes to consumer lending and invoice factoring during a crisis. Lendingclub, for example, who started operations in 2007 survived the crisis and did not see a big peak in the default rates. The return rate decreased for a year and then it jumped back. So there was no real loss of capital of the overall portfolio, just lower earnings. Of course, that is not a guarantee that the same will happen again. 

Georg: 
What are the Crowdestate expansion plans for the next couple of years? Do you have some interesting improvements to functionality or additional functionality in the pipeline for the Crowdestate platform? 

Loit: 
A lot of stuff, actually. A lot of things are going to be internal to automate it even more. We soon have enough projects to start doing some statistical analysis but we still need a little more data points to do some statistical investigation. Crowdestate plan to open in a few more countries. We are not under pressure to grow, but we are opportunistic. If we see some exciting possibilities we open up to discuss. We see projects coming in from Slovenia and we are talking to the guy to begin to understand the market to see if it could be a potential market for Crowdestate.  

Georg: 
The final question is about the secondary market. When you see investors sell a loan on the secondary market it usually is set to be sold at a premium, and not at a discount as it many times is elsewhere. Why is that? 

Loit: 
What we see internally is, that there are dozens of investors who I think are making a living on by trading on the Crowdestate secondary market. One guy earns about 7000 euros per month. So they buy a lot of 100 euro investments in a project. Maybe something like 20 investments in each project. When the project is then sold out, they then sell them separately on the secondary market and add 1 euro on each investment. As trading is free, they earn a lot of money. We have had internal discussions about if this is good or bad. The original purpose of the secondary market was, that if there is a liquidity crisis, you can sell all or some of your investments to get back your principal and maybe some interest and the ones who buy get a nice return. That was the idea. These guys have turned it around and are trading investments for profit. We have talked about internally if we should discontinue it and put in some kind of limitations so they cannot do this anymore. From one perspective it is unfair for the investors who are not able to invest on the primary market. At the same time, these traders provide liquidity which is a viable service in itself. When Crowdestate launched the secondary market, I had no idea that some investors would use it like this. But in a way they also provide a valuable service for the investors and keep the secondary market active. I think investors should be paying attention to the calculations we do on what the returns are. However, we do those calculations as a night job so it is calculated once per day using the data in our system. So it becomes outdated, and investors should really look to the calculations, the discounts and the cash flows of the investments to be sure that they are getting the things that they want. You can pay too much or you can pay too little. We have both seen that people earn money but also lose money, trying to trade. So it is something that should be done with care. We have had an investor that put 1000 euros in a project and then when we are waiting for the settlement process, she said “I reconsidered. Can I get my money back?”. Of course, she could not as she completed the agreement. But she put in on the secondary market and put 1-2 euros on top. I actually said: “If nobody buys it, give me a call, and I will buy it from you”. She put it on the secondary market and when I checked 15 minutes later, it was already gone. So it is something that is really valuable. There can be hundreds of transactions on the market daily. I did not expect that to happen, but that is the market economy. People get creative and figure out how to use the tools in new ways. 

Videos from a day out with Business Development Manager Herki Hollak

Herki Hollak, Business Development Manager at Crowdestate, was so kind to use a lot of time with me to show me some former Crowdestate projects in and around Tallinn. He took be to a lot of objects and you can find all of the videos on my YouTube channel. Actually, there are still videos from this day to be published. So subscribe to my channel to get even more videos about Crowdestate projects. 

Final thoughts about Crowdestate

I think it is an interesting addition that you can make money trading on the Crowdestate secondary market. I really like the detailed description, market analysis of the market, risk ratings, SWOT analysis and everything else on each project. Crowdestate put a lot of work into delivering understandable information to investors. I would invest a lot more if there were a higher frequency of projects. So it can take a little time to get a good diversification if you like me like to invest the minimum 100 euros per project to get maximum diversification, as they have maybe 2-4 projects per month. On the other hand, I like that Crowdestate is very selective with the projects on the platform. I think Crowdestate provide some interesting opportunities for both very careful investors and also equity investors who want to take more risk to get higher returns. There is something for everybody on Crowdestateand I like the hard assets that real estate investing offers. 

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Have you already invested with Crowdestate? What do you think of the platform? Are you thinking about signing up? Have you invested on other real estate platforms? Are they better or worse than CrowdestatePlease leave a comment or any question you have below. If you know someone who would like to get started investing or is already investing, feel free to share using the social media sharing buttons below. 

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