EstateGuru is the leading real estate lending platform in Europe. It has been around for nearly a decade and has since expanded to nine markets fuelled by almost €6 million in venture capital. We talk to EstateGuru's Chief Operating Officer to look back at the platform's and industry's beginnings and forward to what awaits EstateGuru and the whole European online lending sector.
EstateGuru is a very well-known platform to many of our readers. Could you take us back to the beginning of the platform and tell a little about who came up with the idea to build EstateGuru and why it was founded?
It all began in 2009 during the last big financial crisis. Like most other entrepreneurs in the real estate industry back then, our founders, Marek Pärtel and Kristjan-Thor Vahi had lost nearly everything. With the financial crisis brought on by the American banking industry, local banks stopped lending and refused any form of mutually beneficial cooperation. This was unexpected as they stopped financing almost any business.
The only way to survive was through cooperation with private investors that allowed them to buy out loans from banks and still save their projects. This was the stimulus needed to create a platform powered and united by private investors. Around five years after the 2009 crisis, when all loans and returns were paid back to private investors and the first property financing platforms were established in the USA and the UK, the idea reached maturity and EstateGuru was born. Its purpose was to help realise business plans and dreams and help entrepreneurs and private investors.
EstateGuru Ownership Structure
Who financed EstateGuru initially, and how is the ownership structure today? Do you have ownership in the business yourself?
We have always been capital efficient and funded our business from organic growth. Firstly, the main founders and partners have committed their capital, and soon a couple of additional angel investors also joined. In 2019 we received additional funding from one of the leading European VCs, Speedinvest. A year later, we successfully ran our first Seedrs campaign, and at the beginning of 2021, with a combined round of Seedrs and VC, we did our biggest fundraising round of €5.8 million. We attracted VCs who have previously invested in other successful Estonian start-ups like Pipedrive and Bolt, which have since become Unicorns.
All these additional funding rounds have been mainly strategic, with the aim of having the reserves to speed up our growth and maintain profitability by bringing sales volumes to a level that covers our costs.
As for me, yes, as I am also a small shareholder and fully committed to the long term success of the company.
What is your background, and how did you become interested in the real estate lending industry?
I come from the banking world (mainly the retail side). It is an industry that went through enormous digital transformation, and I did business in many European countries. I held a few different positions and worked with different levels of management. But in parallel, I was also building my own investment portfolio, and real estate played an important role in this. So when I met Marek (our main founder) and we spoke about the vision, it seemed a perfect fit and logical next challenge to take. To combine my experience and interest at the same time. To help Estateguru become a big player in the European and global markets.
Who are the other management members, and what overall thoughts have you had when assembling the best possible team to run EstateGuru?
I do think we have a really great and diverse leadership team with a good mix of age and background. Of course, we have people with banking, real estate, and technology backgrounds. You can find all the members of our management team on our website’s about us page.
EstateGuru's Investment Offerings
Could you briefly explain what type of investments you offer at EstateGuru?
We offer investors the chance to finance short-term loans secured with a mortgage on real estate. We currently offer three loan types (development, bridging and business) for small and medium-sized enterprises in nine European countries. Investors can either invest manually by selecting from open loans on our primary market or select from three automated Investment Strategies. The minimum investment per loan is €50. Loan duration is generally between 12 and 18 months.
Who is the average investor at EstateGuru?
Our investors come from over 100 different countries, so they span the full range – from individuals who want a better return on their savings than that offered by a bank, to high net-worth individuals looking to diversify their portfolios through real estate-backed investments, to large financial institutions looking for access to good quality deals in different parts of Europe.
If I decide to place money at EstateGuru and build a diversified portfolio, how much can I expect in net yearly return after losses and delayed payments?
The current historical average return per annum is 11,2% on returned loans. And in cases where everything doesn’t go as expected, and we need to start liquidating the mortgage, even though the repayment has been delayed around nine months on average, we have still been able to offer an average return of around 9.6%. This is because we only lend up to 75% LTV, with an average of 60%. This means there is usually enough buffer to cover all the penalties and late fees for the loan period overdue.
This and more info is publicly available on our statistics page, and you can make your own analyses on the full portfolio. Transparency is important for us.
However, this doesn’t guarantee you similar results in the future. So to follow up on the performance, we publish a monthly portfolio performance overview.
How do you calculate your returns? What method do you use to decide when a loan must be written off and accounted as lost or with minimal chance of recovery? Do you use an objective or subjective way of deciding when to write off loans in the actual returns?
The process is entirely objective. In eight years of operation, we have only written off €40,121 out of more than €500 million lent, which constitutes about 0.01%. In general, our loan recovery team will exhaust every possible legal avenue in their efforts to recover investor capital. Only once these avenues have been exhausted entirely do we write off a loan, and this remains an extremely rare occurrence. We have recovered loans that have been in default for several years as we partner with industry-leading legal teams in our operating countries to support our in-house team.
How EstateGuru Handles Risk
How do you ensure that the loans listed on EstateGuru are safe for investors to put money into?
All loan applications are subjected to a rigorous vetting procedure that features a combination of AI and human judgement. We have local specialist teams in each country where we operate who have a deep and thorough knowledge of the local real estate market. We will check a potential borrower’s history and experience. We will also ask the borrower to compile their track record and previous projects, evidence of their success, and the new project’s business plan that requires the loan. As we are real estate-backed lenders, we also assess the real estate offered as collateral.
So that means we look at the location, the market value, the valuation report methodology, and what it had previously sold for. We use independent valuation experts to ensure an extra level of scrutiny. These rigorous processes mean that only about 10% of all loan applications are successful.
If EstateGuru, for some unlikely reason, should go out of business, what will happen to the investors’ money?
All investor money is held by either LHV bank in Estonia or the Lemonway payments system, completely separate from Estateguru operational funds. As the contract is directly between the investor and the borrower, with Estateguru acting as the facilitator, in the extremely unlikely event of the company ceasing operations, all investor money is safe, and contracts with borrowers will remain fully legal and enforceable. In the highly unlikely event that something happens to Estateguru, we will execute our wind-down plan approved by regulatory authorities. This means an independent operator or organisation will take over and help close out the portfolio until all investor funds have been returned.
EstateGuru was founded in 2013, so it has been around for quite some time now compared to many other platforms. In your view, what have been the most significant challenges so far - both for the EstateGuru and for the industry as a whole?
There are many challenges and different times always raise their own unique set. Recently, global crises (like Covid) have affected all businesses and produced a major obstacle in how to adjust to that.
However, as with every innovation, in the beginning, it’s a bit like the wild west. You don’t have all the rules in place, and it’s hard to understand who is doing good business and looks at the long term and who doesn’t have good intentions. So, in the beginning, I think one of the challenges for the industry has been to establish itself as a serious player and build trust.
After eight years, it’s now clearer which business plan is working and which is not; who is here for the short-term and who is here for the long term. EstateGuru is definitely in it for the long haul. And one of the indicators that will soon make it easy to distinguish will be which companies are acquiring their pan-European licenses.
What do you think the future of real estate lending looks like? Which challenges do you see for the industry in the coming years?
It will be more and more about evolving and expanding. I think platforms will try to expand to more countries, and at one point, we will see more verticals also added to the mix. But it will also feature cooperation and partnering up with other fin-techs, prop-techs and even traditional lenders.
EstateGuru has previously raised funds through a Seedrs equity crowdfunding campaign. Why did you choose crowdfunding instead of a regular funding round? Do you plan to use crowdfunding for future funding rounds as well?
We chose crowdfunding because we are, in essence, a crowdfunding platform ourselves, so it seemed a logical fit and a great proof of concept. Yes, we will definitely have a crowdfunding element in our future fundraising rounds because we believe in the power of people. We’ve already got more than 125,000 investors on our platform, helping us build a better world. Estateguru’s vision is to make property financing and investing attainable for anyone, anywhere in the world. And that’s why our retail investors are so important to us.
What’s next for EstateGuru? Where do you see the platform in five years?
We aim to facilitate €5 billion in loans annually by 2025. We have an ambitious expansion roadmap that will see us roll out our service in more European countries to achieve this. We are also stepping up our efforts to partner with institutions to raise volumes. We recently launched cooperation with Raisin Bank, allowing us to accelerate our efforts in the German market. We also opened an office in Manchester to prepare to enter the UK. In addition, we have entered an agreement with the European Investment Fund, which will be a cornerstone investor in our Senior Secured Credit Fund. Our ultimate goal is to be the main player in the European market and become the best-known brand in the real estate investment and lending industries.
Check out more information about EstateGuru on P2PMarketData - you can even track EstateGuru's live projects directly on our platform. If you enjoyed this interview, check out the interviews with other leading crowdfunding platforms!