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Investing in RE: 4 questions for a new investor

2018-11-14

According to the data from the Bank of Lithuania, this year, the salary has risen by 9.8% - 3 times more than prices. Positive economic changes encouraged the residents not only to live more freely but also to think about ways to make their money work for them and to increase their personal capital. According to RE expert V. Vanage, one of the possibilities that help to earn money is investing, however, she reminds us that you need to prepare for it and to complete the four main tasks and do not fall for get-rich-quickly adverts.

A usual Lithuanian who does not want to live the whole time from salary to salary is looking for ways how to improve their financial position. The most risk-averse people prefer to keep their money in a sock, even though they know that their savings will not remain the same but will also be devalued as the prices of products and services keep rising. Those who wish to avoid devaluation of their savings, think about an opportunity to invest, but often they do not know how to start. The doubts are encouraged by a vast fear of risk.

'For a starting investor it is really important to find a financing tool where the profit and low risk would be well-combined - says crowdfunding platform Profitus founder, Viktorija Vanage - For this reason, investing through crowdfunding platforms, where you can invest small amounts in already pre-picked and carefully checked projects, is becoming very popular in Lithuania and European Union'.

Before practically trying this investment in the RE tool, V. Vanage, recommends answering the four main questions.

 

  1. What is the aim of investing? Investing in real estate reminds of choosing a car - what kind of transport you need, depends on your personal requests: is the car for a family or for a one person, would you like a sports or an electric car - depending on these answers, you will pick a different product. When investing, it is also the most important to set your aims and needs. Firstly, name exactly what is your investing goal and what would you do with the money received. Goals can be very distinct - to save for a down payment, for children's education, retirement or a dream holiday. Goal can also be additional earnings from investment, e.g. 300-500 every month. Nevertheless, you should not forget that when investing smaller amounts, it is vital to have a regular investing plan noting how much money you will assign to reach your goal. Exactly the aim and the time in which it has to be achieved will help you to calculate how much you need to invest.

 

  1. How to choose an investing platform? The number of investing platforms is growing, therefore, if you wish to find the one that is the best for you, you should invest some time while researching and comparing all the available platforms. Primarily, you should check if the platform is included in the crowdfunding platform list of the Bank of Lithuania. It is necessary to also evaluate reviews, expert evaluations and other comments regarding the specific platform. Different platforms suggest different options for investing - you need to carefully evaluate all the possible risks. Another aspect - if you are trying to invest for the first time, you should pick a platform, where you can experiment with smaller amounts, for example, with 50 euros.

 

  1. What information is the most important when investing? Before investing in real estate projects through crowdfunding platforms, it is necessary to assess the annual interest and possible risks. Find out if the property is mortgaged with a primary or a secondary mortgage. The main difference is that the primary mortgage grants you a right to be the first one to obtain the mortgaged property if the borrower would fail to pay back the loan. Regarding the secondary mortgage, there is a possibility that the revenue from selling the property will not be sufficient for you, as the first ones to receive it are those who invested with a primary mortgage. Therefore, it is recommended to invest in projects with primary mortgages.

 

One more critical element when evaluating the risk of investment is LTV (loan-to-value) ratio. It measures the relationship between the loan amount and the market value of the asset securing the loan. For example, if the investors invested 70 thousand euros, and the mortgaged property has a value of 100 thousand euros, the LTV will be 70%. The lower the LTV percentage - the better, however, you shouldn't forget to consider mortgage type.

 

  1. How to lower the risk? When considering crowdfunding, one of the most effective ways to lower the risk is diversification. It means that the investments should be allocated to different projects rather than the whole amount on one project. However, according to the set investment aims it is also vital to acknowledge that when investing larger amounts, you can get extras such as an additional per cent on the annual interest rate.

 

When you have decided to make your money work for you using crowdfunding platforms, you should not expect to get rich quickly. Although everyone would like to experience such a success story, firstly a habit for investing should be developed, i.e. the money earned should be invested again. Depending on the amount allocated for investment, the financial benefits of investing can be noticed only after a few years. Do not forget that if you are promised to get rich quickly, you can expect that it will be a very high risk to lose all of your invested money.

 

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