Private investors can now provide finance to small- and medium-sized enterprise developers via peer-to-peer property lending platforms, e.g. Tessin in Sweden. Different platforms offer a range of opportunities to provide equity or debt (e.g. senior debt, junior debt and mezzanine finance). However having that said, you should also do some basic due diligence before risking your own money into a property project. Below 7 things you should look into:
- To avoid long delays, invest only when full planning permission is in place;
- Ensure a professional feasibility study has been done and there is a profit margin exceeding 20% on gross development value to allow for a drop in the market;
- Remember when lending: the highest interest rate also carries the most risk;
- Ensure the developer has a strong track record for developments of that type and size;
- Ensure developer uses contractor with healthy balance sheet and is hired on a fixed price;
- Invest only in projects you really believe in. If you personally wouldn’t buy the house why would the target customer?
- Make sure there is an experienced sales and marketing team in place from start.
This blog post is not intended to be investment advise or a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purpose only. Be sure to understand all risks involved with each investment strategy and offered opportunity before committing to invest.