P2P Good or Bad Deal?

This project is available on Crowdestor and is being sold for upto 30% discount. But is it a good deal to buy? Let us examine.

Crowdestor lists this project as ‘Renovation of Dwelling House in the Heart of Riga‘. A total of 810,000 was funded in three phases. The LTV of the project during phase 1 was already 187%, about 3 times more than the LTVs on other real estate platforms like Estateguru. This is one of the riskiest real estate deal, even riskier than an equity deal because investors get no upside at all.

Phase 1- 730,000
Phase 2- 40,000
Phase 3- 40,000

Project details-
Cadaster No. 0100 041 0063
Real Estate Acquisition: 390,000
Land Registration fees, etc: 50,000
Renovation Costs: 793,000
Municipal compensation: -(40,000)

As we can see, this project is clearly short on funds. Crowdestor has only managed to acquire the dwelling house and start some renovation. Due to lack of information from Crowdestor, we can only make assumptions while evaluating this deal. Please note that these are just assumptions, which may differ from the actual reality.

1) Only 20-30% of renovation works has been completed
Crowdestor has given no updates regarding what % of renovations has been done. Out of 810,000 amount collected on Crowdestor platform, 440,000 has been spent on just acquiring the property. That leaves 370,000 for renovation which is less than 50% of projected renovation cost.

2) The property will have to be sold by force
So far, Crowdestor has failed to refinance. Only option is to create Phase 4 round of this project on Crowdestor platform, but based on current sentiment investors likely wont invest much. The project has been delayed since September and Crowdestor has likely failed to find a buyer for fair price.

If the property is sold by force, what will be the price of it? Lets look at the Latvian Cadaster. As we can see, it is only 68,942 euros.

Usually, properties don’t sell below the Cadastral value. Unless Covid has changed how it works, we can assume this as the price we get in the worst case scenario. So, this price of 68,942 is only 8.5% of 810,000- the total money invested by investors on all 3 phases.

So, now you know why people are selling this project for a high discount. I would not buy this on Secondary Market even if it is offered with 50% discount. Because investors can only recover 8.5% of their principal in the worst case scenario. Hopefully, Crowdestor can give project updates that can help us evaluate the best case scenario as well.

Disclaimer: I am not a real estate expert nor a financial advisor. This is my personal opinion and I can be very well be wrong.

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