Looking for returns with some extra upside? Reinvest24 may be for you. We speak with CEO Tanel Orro
Reinvest24 is a crowdfunding site offering strong rental yields and easy exposure to real estate in the Baltic states
Reinvest24 is a little different to most of the other investment sites we cover here at Explore P2P. It is a real estate crowdfunding site, rather than a P2P investment site. However, we think that the investment and return profile will be of interest to many P2P investors.
Reinvest24 offers investors shares in individual properties in the Baltic region. The shares receive dividends from the rental of properties, and unlike P2P investments, investors can benefit from any future growth in real estate prices (but also with the risk that prices may fall). Reinvest24 takes care of everything on behalf of their investors – asset selection, renovations (if required), legal work, finding tenants, collecting rents, and asset management.
Why could this type of investment be particularly interesting right now? Rental yields in this region are around 2 to 3 times higher than can be achieved in Western European markets. Net rental yields of properties offered by Reinvest24 range from 5.6% all the way up to 15.1%. Economies in the Baltic region are growing much more quickly than the rest of Europe, which should continue to translate into higher future income levels and asset prices. And finally, unlike many other real estate markets around Europe and beyond, prices are currently low. Prices are very affordable relative to local average income levels. They are also very cheap on an absolute basis, being around 75-80% lower than equivalent properties in major European cities. Prices have been however increasing, and it appears there should scope for this continue.
We think that Reinvest24 is really most suitable for investors looking to invest on a long term basis. The secondary market for the shares has not been launched yet (that will allow investors to sell their shares), although this is expected shortly. It is also not possible to know currently how much liquidity the secondary market will have, and at what price levels the shares will trade relative to the market values of each property. Reinvest24 however notes that secondary market sales on other crowdfunding sites such as Property Partner tend to be very close to market values. In our view, investments into Reinvest24 should have an investment horizon of at least 3-5 years.
Reinvest24 has a minimum investment of only 100 euros. To visit their site, click here.
Interview with Tanel Orro, CEO of Reinvest24
Tanel, what is Reinvest24? Reinvest24 is a real estate investment platform. Thanks to the crowdfunding mechanism, Reinvest24 allows you to buy shares in residential or commercial real estate collectively with other investors starting from 100 EUR. Investors earn profits from monthly rent and capital growth combined, in the same way as owning part of the property. Our team takes care of all the market research, paperwork, and property management, while our investors get to be passive landlords. What is the investment profile for investors? What returns can they expect from rental income and capital growth? We cater to investors who prefer secured real estate investments for long-term passive income, without being active landlords. Our real estate properties provide 6-9% net rental yield and we estimate long-term capital growth to reach above 6% per year on average. Ontop of the market growth, some of our projects include property developments and our investors also get profits from that. For example:Rental apartments in Tallinn’s tech hub – an ongoing development that will be finished by summer 2019, will increase the value of the property by 20%. What’s your background? Why did you establish Reinvest24? Before Reinvest24, I was working at LHV asset management for many years, where my job was to build customer relationships and lead the sales team. Over time, I noticed that there was more interest in real estate than in stocks, bonds or other securities. But there are some obstacles that real estate investors need to overcome. First of all, the high entry barrier, which makes real estate unobtainable for most retail investors. It also makes it very difficult to diversify your investments. The second challenge the investors face is putting in the time to be an active landlord, especially when dealing with more than one property. These are theproblems that Reinvest24 tries to solve; using the crowdfunding mechanism to lower the entry barriers, that will also help to diversify the portfolio. Hence, we provide investors with the freedom to be truly passive landlords. What’s your track record so far? Within the past 10 years, through private funding, we have successfully completed more than 10 high profile real estate projects in the Baltic states. These projects provided our investors on average with 14.6% combined returns per annum. How to you select the properties you list on the site? We look for properties with above average rental yield and projects that have potential to increase in value over time. Our property selection process is comprehensive. Our research covers these aspects: location, liquidity, price, existing contracts, development options, financing, visual appeal, limitations, market potential and rental yield. Some of your rental yields are much higher than you would see in Western Europe. Is that just normal for the region or are there other reasons for this? The Baltic states has one of the highest rental yields (6% average per year) in all of Europe. Since our team has extensive experience in the field and knowing the market very well, we are able to provide our investors with above market average returns. What’s your view on property prices in the region? Do you expect them to grow? Why? The real estate prices in the Baltic states have been stably growing since the 2008 housing crisis. Last year the prices surpassed the previous highs of 2006-2007. At the same time, real estate is more affordable than ever, since the wages have been growing faster than real estate prices. If we take the previous 15 years (including the housing crisis) into consideration, the average market growth has been around 9% per year. At the moment, there are no signs of the real estate market slowing down. It is also important to point out that even when the real estate prices dropped around 50% in the 2008 crisis, the rental prices dropped only around 20% (the banks aren’t giving out loans so easily, but people still need to live somewhere). So even if another crisis would hit us in the future, our properties will still provide our investors with monthly cash flow and the market always recovers over time. We estimate the long-term (10-20 years) growth of the real estate market in the Baltic states to be above 6% per year on average. How long do you hold properties before selling them? How often do you revalue the properties? Most of our properties don’t have an exit date. The goal is to provide long-term passive income from rental yield (even after 10 or 20 years). If there is a need to exit, investors can sell their shares of the property in the secondary market and cash out anytime. We revalueall the properties once a year, or after achieving milestone that will increase the property value (developments, construction work, renovation, licenses, etc). Is Reinvest24 regulated in any way? Do you have auditors? Like other crowdfunding platforms in Estonia, we don’t have or need to be regulated. There are no obligations for audits, but it is our free will to have regular audits conducted by licensed auditors. Transparency is very important to us and we are constantly seeking ways to improve it. All our properties are operated through separate SPV ́s, these Estonian company’s have annual reports publicly available. The regulations will most likely come in the near future and we are already preparing for that. What’s the business model for Reinvest24? How do you make money? Are you profitable? Reinvest24 fees include 2% on entry and 10% from rental yield for operating the property. So basically we only make money if our investors make money, which makes us extra hard-working when it comes to our real estate investments. How do taxes work? If there is a capital gain is this taxed by local tax authorities? The SPVs we create do not have to pay taxes from rental yield or capital growth. Investors must pay taxes according to the legal regulations of their country of residence. What does the future look like for Reinvest24? What are your plans? Our mission is to become the leading real estate investment platform in Europe. Our plan is to start from Estonia and Baltics real estate, while constantly seeking for profitable opportunities from new areas to expand. Our goal is to provide our platform investors opportunity to build and diversify their real estate portfolio with a different kind of properties from all over Europe.
To visit Reinvest24, click here
Example investments available from Reinvest24