Visit at the EstateGuru office in Tallinn. Interview with Investor Community Manager, Kadri Akk. Review 2019

Visit at the EstateGuru office in Tallinn. Interview with Investor Community Manager, Kadri Akk. Review 2019

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EstateGuru Review 2019

I have been investing with EstateGuru 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 am only invested in 9 mortgage backed loans with them so far, as I like to test out a platform with smaller amount first to get comptable with the platform and their business model. If I like the outcome, I will then invest more. By the way, the numbers on roll down display on the top picture in the article Kadri and I stand, are not the current numbers. They grow every day. You can find the updated numbers on the EstateGuru website. 

The interview with Investor Community Manager, Kadri Akk

Georg: 
Can you tell me a little about your role and work tasks here at EstateGuru and how you got into the real estate investment business? 

Kadri: 
I started my position with EstateGuru at the beginning of 2019. I became aware of EstateGuru through an app called MeetFrank. Before I worked for big corporations and I was looking for new challenges. I found EstateGuru and saw that it was a startup. I knew something about the startup life from my friends I and thought it could be an interesting new challenge for me. I am a very energetic person and I want to get things done fast if possible. So a startup fits very well with the type of person I am and I am very happy working for EstateGuru. I work as a German-speaking investor community manager. I support our German investors in the German language. I also work with marketing activities such as exhibitions, newsletters, blog posts, and other online media. 

Georg: 
I have seen some of your blog posts on the EstateGuru blog in English, but do you have a German version as well? 

Kadri: 
At EstateGuru we actually publish our blog in Estonian, English, and German. Some of the blog posts are also in Latvian, Russian and Lithuanian language. But it depends from post to post. Older posts are only in English and Estonian but for the last year, they have been available in more languages. The posts are not just about EstateGuru but can also be about industry knowledge. It can be quarterly market analysis from the Baltics or Portugal for example. For investors from other countries, this can be an important resource. There are also articles about how to manage risk and about crowdlending in general. New investors can read about how to set up their profile and how to go through the verification process. 

Georg: 
Can you tell me a little bit about EstateGuru in general? 

Kadri: 
EstateGuru will be celebrating six years of existence in October 2019. EstateGuru is a marketplace that connects businesses and investors. For example, if you are a real estate developer and you would like to get a loan fast and hassle-free then you can come to EstateGuru and our loan managers do all the research and due diligence. After everything is done and if the loan is approved, it will be available on the platform and our investors can invest in the loan starting from 50 euros and earn annual returns between 8% and 13% depending on the project. The average annual return at the moment is 12.1%. EstateGuru currently have 30203 investors on the platform at the moment, but that number grows every day. We have raised over 137 million euros already. 

Georg: 
What kind of resources does EstateGuru have inhouse and what does EstateGuru have outsourced? 

Kadri: 
Here in the EstateGuru headquarter in Tallinn we have 26 employees and we have an office in Latvia as well with 2 employees, and we also have 2 employees in Lithuania. EstateGuru has an IT development team in Armenia that consists of 4 specialists. In Finland and the UK, EstateGuru has a country manager. So the total inhouse team in EstateGuru at the moment is 36 people. EstateGuru has partners that do our real estate evaluations and the debt collection and legal is also outsourced. EstateGuru has local partners in each country for this as it is important to have local specialists in these areas. Furthermore, our EstateGuru team members have 26 years of valuation experience, 10 years of banking experience in credit risk and 16 years of real estate development experience. Our EstateGuru debt collection manager has worked in the sector for 15 years and is proactively involved in every case where there are signs of late payment and/or default. EstateGuru has a team of 4 members doing the due diligence of the loans. EstateGuru also has 2 lawyers in-house. Our EstateGuru CEO, Marek Pärtel, has been in the property business for 15 years as both a developer and investor. Marek is an experienced entrepreneur with a passion for proptech & fintech. EstateGuru does not have country managers in Portugal or Spain yet, but that is something we plan to have in the future but of course, we use local experts in those countries as well. EstateGuru usually don’t get a second opinion of the evaluation reports of the properties from an outsourced resource but we have people who check then internally as well. EstateGuru always has at least a 25% buffer on the LTV. But if we need to sell we always start with a bit higher price to get the best price possible so we can cover both the principal and the interest. Therefore the process can take a bit longer sometimes, but EstateGuru want to ensure the investors the best possible return. The time it takes differs from country to country but it could be about 6 months to sell and recover or sometimes even longer. But EstateGuru use some months before to try to solve the issues and get a solution without going to the debt collection. 

Georg: 
What is the average investor portfolio size at EstateGuru

Kadri: 
It is very difficult to say because our investors are very different. Banks are investing with us, EstateGuru has institutional investors as well, then we have companies and of course private investors. So the portfolios are really different. But on average it is 2319 €. EstateGuru has around 200 big investors and 5 institutional investors. 

Georg: 
Everybody is talking about regulations. How are you being regulated? What are the impacts for the EstateGuru platform and your investors now, and in the near future? What about in the UK? 

Kadri: 
In Estonia, crowdfunding is not regulated and as EstateGuru mediates business loans no license is required according to Estonian laws. The same applies to Latvia. In Lithuania, crowdfunding is regulated and supervised by the Bank of Lithuania. On 8 July 2019 EstateGuru got added to the list of crowdfunding intermediaries by the Bank of Lithuania and therefore we are licensed in Lithuania. In other EU countries, our operations are carried out following the principle of reverse solicitation. Crowdfunding regulations vary a lot in different countries and before the adoption of the directive on crowdfunding by the European Commission, the regulation depends on the local laws of the countries. Before entering each market, EstateGuru always investigate the regulatory situation and consult with local law firms. In the UK, EstateGuru has applied for the license to operate as a crowdfunding platform and are currently in the process of acquiring it. 

Georg: 
In how many different countries can an investor invest in real estate in on the EstateGuru platform at the moment? Any plan of expansion? When? What countries? 

Kadri: 
EstateGuru investors can invest in business loans from 6 countries. The Baltics – Estonia, Latvia, Lithuania, and also Finland and Spain, and the newest is Portugal. EstateGuru will for sure expand in the future to other markets as our goal is to be a pan-European platform. In particular, it could be Germany and we are also planning to go into the UK market but we are monitoring the impacts of Brexit at the moment. 

Georg: 
How do you define the market in those countries? Is there a bobble anywhere? 

Kadri: 
The Baltic market has been growing fast but in a sustainable way. This is something that is really specific to the market, as you all know we are from the Soviet countries and were behind the rest of Europe for a long time. The Estonia market has been developing the fastest, now Latvia is really catching up. Lithuania as well. Although the real estate prices have increased, also the salaries have increased, and the economy is in balance. The market in Finland has been recovered after the crisis. Portugal and Spain also are recovering. In every country there are some segments that are overheating, for instance in Estonia the small apartment or micro-apartment sector is growing amazingly quicklyEstateGuru is analyzing the markets on a day to day basis, and if we see any signs of an unhealthy situation, then we will act. EstateGuru actually just released an interesting blog post about the new Portuguese market

Georg: 
Is EstateGuru open to investors outside of Europe? Could an investor in Japan invest if he had a Revolut or Paysera account for example

Kadri: 
You can invest outside of Europe, but you have to have a European bank account IBAN or using a Transferwise borderless account. That is needed for future withdrawals. 

Georg: 
How has the EstateGuru platform changed during your 6 years in operation? Did you change your business model for example? 

Kadri: 
The EstateGuru business model has been the same for almost 6 years. EstateGuru is turning 6 in October as a marketplace for secured business loans. Last year in October we launched our new platform. Green EstateGuru turned in to a blue EstateGuru and the platform turned from simple market fit products to an advanced investing platform with all the modern functionalities like auto-invest, tax reporting reports, portfolio analytics, etc. Today EstateGuru has a really strong team behind the product and services. EstateGuru have people from banks and real estate backgrounds, and also high-level specialists in IT and development. We offer property-backed loans and we will not change that, by for example, start with unsecured loans just to get higher interest rates. EstateGuru usually go for projects with a first rank mortgage, but sometimes also second rank mortgage. To use Auto Invest and all its features you need to make investments starting at 250 euros. 

Georg: 
Yes, what is this special setup for your auto-invest? EstateGuru has a minimum investment of 50 euros, but you get more options when investing from 250 euros and up per loan? 

Kadri: 
Yes. For 50 euros you have limited options. You can choose the period and the payment schedule. If it is monthly called bullet or full-bullet where the payment is a balloon payment in the end. For the advanced settings, you need to invest a minimum of 250 euros per loan. EstateGuru has realized that if we give all options for 50 euros, then the investors choose mostly the highest interest rates. That means a higher risk as well. So this is a way we try to help investors diversify more and get a lower risk in their portfolios. Our stress tests show, that investors portfolio will perform better during a downturn if they are diversified more, including projects with a bit lower interest rate as well. So if you invest the minimum 50 euros you cannot choose the interest rate, so here you will automatically get better diversification. From 250 euros investors get options for securities, LTV, if it is refinancing or not, interest rate, if you want to invest in stage loans or not, that is different stages in the same development project. For example in a development project for 2 million euros, in the beginning, there is only the land plot. So EstateGuru does not want to give a loan with security in the future value. We will only take the land plot that could be worth maybe 100000 euros. This is the first stage. Then we give out a maximum of 75%, so that is 75000 euros. Then the borrower can start the initial work. Then he does the foundation and maybe some walls. When the borrower had used the 75000 euros he comes back to us. Then EstateGuru evaluates the current situation again. Now it could be worth 200000 euros. Then we again give out 75% and he can continue with stage 2. This is how it works and will continue until the building is done. 

Georg: 
But is it possible to sell a half-built house if by some events the borrower defaults? 

Kadri: 
Yes. It is possible as all the permits are already in place, so a new developer can pick up and start working at the stage the other developer left it. EstateGuru has a situation right now with a project like that, where we are in the process of selling it to another developer. 

Georg: 
How do you find and evaluate new projects? What would disqualify? 

Kadri: 
First, the country manager gathers all the necessary information about the project and the developer. EstateGuru then does a background check of the business. We check the reputation of the business and the liquidity of the asset. If it is not liquid enough, we have to decline the project. It may be the project itself or a bad location. We have specialist inhouse to analyze this. If there is a bad business plan in place we will also decline. Our CEO has a lot of experience in this area and he is often in the office and involved in the projects as well. EstateGuru is his child so he, of course, has a lot of interest in EstateGuru picking the right projects. If the developer has tax debt the bank will decline him even if it is very little. So we look into that as well to see if it will have an effect or not. That is one way we work differently from the banks. We also check if the developer has some kind of criminal history. One very important thing is that there has to be a liquid real estate asset to back the project as a security. If it is a new developer with only a year or two experience that would not necessarily disqualify if the project and business plan are good and there is a liquid asset. 

Georg: 
If an investor would like to do their own little due diligence, where can they go to find information about other real estate in the area and maybe look into the prices, LTVs, and so on? 

Kadri: 
Our EstateGuru loan managers are trying to describe the projects as detailed as possible and provide needed documents with loan information. So my first recommendation is to read the loan description carefully. We also provide market analysis on our blog

As the Baltics – especially Estonia is very digitalized and an investor can find online information about the companies and buy some reports if needed for very little money, it’s also possible to use sources like Äriregister, where all the companies are registered or Krediidiinfo, where you can find credit information about the companies. If you want to look into other real estates in the area there is City24.ee, or kv.ee. All of these resources are available in English. For the Spanish market they have an AVM, automatic evaluation model, and our partner there, Idealista, is providing fast market value assessment reports. 

Georg: 
Do you plan to have some kind of buyback/provision funds? 

Kadri: 
Currently, there are no such plans. EstateGuru buyback guarantee is a mortgage that is backing up each loan. In my opinion, a liquid real estate asset has more value than a buyback guarantee. The hard asset will always be there and EstateGuru demands insurance on the real estate. A buyback guarantee can disappear overnight. 

Georg: 
What is your current default rate and how much from previous defaults has been recovered? 

Kadri: 
Our default rate is 3.2% at the moment, late loans 3.8% from the whole loan portfolio. 
Every investor can see the statistics and annual reports on the EstateGuru webpage. Under the statistics and annual reports menu. You can find them in the footer on the EstateGuru website. Our loss of capital is 0%. During the last month, we recovered 30% of our defaulted loans. So it has been a really awesome month for EstateGuru in terms of debt collection. 

Georg: 
I have fortunately not been hit by any defaults yet. However, I talked to another investor and out of his 42 projects, 12 of them has defaulted. That is a bit scary. 

Kadri: 
That is quite a lot. I think he has been very unlucky with his portfolio. 

Georg: 
He told me that in 2017 and 2018 you were growing really fast with the number of projects that you took on. Did you have more focus on growth than due diligence during that time? 

Kadri: 
No. The growth did not affect the default rates. But if something is growing the numbers stick together. But it seems like a lot. It could be that he invested in different stages of the same project. Like we talked about earlier if he may be invested in different stages of the same loan then he could potentially get more defaults. Because if one stage defaults, then they will all default. But they will be recovered at the same time as well. 

Georg: 
But if I, for example, invest in stage 1 and also stage 3, will stage 1 not be paid out when stage 3 starts? 

Kadri: 
No. Because the term for stage 1 could be maybe 2 years. Stage 3 could be after ,for example, a ½ year already. 

Georg: 
Can you set up your auto-invest to invest automatically in only one stage of a full project? 

Kadri: 
You can choose to not invest in stage loans at all. But to get this option your minimum investment needs to be at least 250 euros. You could also choose to invest manually with a smaller amount. 

Georg: 
How do you try to minimize your default rates at EstateGuru

Kadri: 
First of all, our experienced risk team with the debt collection manager and the Baltic risk manager are daily working towards this goal. Secondly, we have a robust credit policy which is mandatory to be followed in analyzing every project. Thirdly, EstateGuru’s credit committee will also have to give the loans final approval. 

Georg: 
Is there any timeline for the EstateGuru secondary market? 

Kadri: 
We are testing the final changes now, there have been some analytical updates almost on a daily basis and now the launch should be very soon. But I would not like to give a specific timeline. We want to do it in a proper way and not release something to investors that could contain errors. 

Georg: 
Do you invest personally? In what assets and platforms? 

Kadri: 
Yes, I invest in EstateGuruCrowdEstate, as I want to investigate our market friend as well, and also Mintos. Additionally, I have some ETFs as well. But I invest mainly with Mintos and EstateGuru. But I don’t invest in the newer platforms. I want to wait a bit longer to see how they perform. 

Georg: 
How does it work with investors funds and EstateGuru‘s operational funds in Estonia? Are they separated? 

Kadri: 
Investors’ money is held in a separate LHV client bank account. The account is separate from EstateGuru’s operational bank account and is protected in the unlikely event that anything happens with EstateGuru. Any uninvested money that is in your account can be withdrawn instantly. 

Georg: 
You are mainly involved with German investors. How do German investors differ from other European investors? 

Kadri: 
Yes, I’m supporting our German investor community, which is already our second-largest investor group. Germany is in the top 5 markets. Investing in P2P is getting more and more popular in Germany. There are some local big platforms as well, but their returns are not comparable with Baltic platforms and that makes us really interesting for German investors. Actually, there is no big difference between German investors and other investors, but what I can say is that they have a pretty big portfolio size, but invest small amounts per loan and maybe take fewer risks. I think Germans like to save and invest and they are more interested in the details. 

Georg: 
What is the biggest risk for crowdlending investment in general? 

Kadri: 
There are 3 main risks in P2P/P2B. 

Borrower or credit risk. The risk of loss resulting from a borrower’s failure to repay a loan or meet their contractual obligations.  

Market risk or a financial crisis.
But I think crowdlending is not the first area that the crisis will affect. More likely as crowd investing is long term investing (12-24 months) then the market will already recover itself during that time. 

Force majeure or act of God. For example, flood destroying a property development before it can be completed or the principal investor suffering death or illness that causes delays or complications in repayment schedules. 

Platform risk. The following needs to be in place. Investors money is separated, IT systems are backed, 4 eye principle, and clear organizational roles. 

Georg: 
What is the most exciting future development, addition or new feature on the EstateGuru platform? 

Kadri: 
Definitely secondary market! EstateGuru has asked our investors what are they missing in our platform and we got many interesting ideas to concentrate on. So we will for sure never rest, if one project is done, the next has been already started. One tool finally coming soon is also the diversification level. It will give investors an overview of how well diversified they are using a spider web. 

Georg: 
How do you work with cybersecurity? 

Kadri: 
EstateGuru has a 2-step verification available. We work with specialists in this field and pay a lot of attention to protecting the investor’s database. EstateGuru is constantly restructuring our processes and making sure that our platform is performing with the growing investor base. In addition, when you invest in a loan then you have to enter your password again, even though you are already logged in. 

Final thoughts about EstateGuru

I now feel more confident investing more money with EstateGuru, especially after visiting their office in Tallinn. I also want to have more real estate backed loans in my portfolio then I have today. With direct to consumer lending you could potentially lose everything, buyback or no buyback. With a mortgage backed asset, there is always the hard asset. Sure, the value could go down but I don’t see how you could lose everything. For EstateGuru in particular, I like the functionality of being able to turn off stage loans completely. I like that there are a lot of loans to diversify over as well. The blog is a really nice addition with help for investors regarding use of the platform, market knowledge and industry knowledge. There has been some defaults on the platform, but when you have a large volume this is bound to happen sometime. I don’t worry that much about it as I feel confident that in time, it will eventually be recovered by selling the securities. Starting from next month, I will put more money towards loans at EstateGuru and also CrowdEstate

I have made an agreement with EstateGuru, that if you register and start investing using the green button below, before the 8th of November 2019, you will receive a signup bonus of 5 euros. 

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