Invest in Lucrative Crowdfunding Platforms to Multiply Your Returns
What is Crowdlending?
Crowdlending is a special type of crowdfunding investment. It is also called Peer to Peer lending, P2P lending or Social lending. It’s a crowdfunding method where investors co-finance projects by lending money (under the form of loans) to the project owners in return for interests (e.g. buying an apartment, financing a company). It can generate an average ROI of 12-14% per year in Europe.
To better understand better how these investments work, here is an example of a concrete case:
This example is a real estate crowdfunding investment (also called property crowdfunding). The owner of this project needs to get money to finance the construction of a new residential building (he needs a real estate development loan). From the project description, you can see that 986 investors financed this project of 300’000 EUR. For instance, if you were part of this crowdlending project you could have invested for example 1’000 EUR in it.
In addition, we can also read that this investment will generate a 15.58% yearly interest rate and will run for 9 months. So in this case, you would have earned 116.85 EUR of interests over a 9-month period (which is 15.58% over 9 months) by investing 1’000 EUR. At the end of this investment term of 9 months, you will receive back (unless there is a problem) all your invested money in addition to the interests.
The Crowdlending Market
Before starting the discussion about how to invest, let’s just take a look at the trend of this crowdfunding investment method. This type of investment started around 2011 and is getting more and more popular over the years.
The total transaction value of the worldwide Crowdlending market in 2019 is estimated to €160’111 million (an increase of 31% compared to 2018).
The total transaction value is expected to show an annual growth rate from 2019 to 2023 of 12.6% resulting in the total amount of €257’000 million by 2023.
Fig. Total invested amount per year on the Crowdlending worldwide market (source)
Advantages of Crowdlending
This crowdfunding investment method holds a lot of advantages such as investments possibilities, flexibility, and risks:
- Some crowdlending platforms allow you to invest starting with a small amount such as 1 EUR (the usual market average is 10 EUR)
- Spread risk between multiple investments and multiple platforms (this is why it is advised to open investment accounts on 5-10 platforms)
- Spread the risk by investing across multiple countries (common now in Europe: Estonia, Latvia, Portugal, Spain, Italy, Finland)
- Invest with flexible/short term duration starting from 10 days to 1-2 years
- Access to big investments with small capital since many investors invest in the same project (Social lending). It is possible to invest in a project bigger than 2-3 M EUR even with 10 EUR in your pocket.
- Many crowdlending platforms also offer you a starting bonus when you register (e.g. the platform Mintos offer you 1% cashback on your investments of the first 3 months).
Types of investments
Crowdlending investments (let’s call them crowdfunding investments to keep a generic term) can be split into two types:
Reward-based crowdfunding: people invest in exchange for a reward (e.g. interests, dividends), but the investors won’t own any shares of the investment. They will act as a bank and lend money under the form of loans to borrowers.
Equity-based crowdfunding: people invest to become shareholders of the company/real estate property they invest in. The income of this type of investments in mostly related to the successful sale of the project (returns are not fixed and can highly vary).
In the next part of this explanation, we will focus on Reward-based as it is the simplest way to start investing since before investing you will receive clear projections on the returns you will get. It is also a simpler way to invest that requires less knowledge.
Fields of Investments
There are 3 main categories of crowdlending investment fields that you will be able to invest-in: business loans (crowdfunding for business), real estate loans (property investment crowdfunding) and consumer loans (crowdfunding for privates).
|Business loans||Real estate loans||Consumer loans|
Here are some examples of investments that you can find on peer to peer lending platforms:
Business loans: invest in projects of businesses and companies (e.g. crypto-currency farm, restaurant, consumer goods business, startup company). These crowdfunding investments for businesses usually range from 50’000 EUR to 1 M EUR (that can be shared between thousands of investors).
Real estate loans: invest in real estate projects. This property investment crowdfunding can be separated into 3 categories: new real estate development loans (e.g. finance a loan to build a new building that will then be sold), buy-to-resell loan (e.g. buy an apartment, renovate it, resell it and make income on the plus-value), buy-to-rent loan (e.g. buy an apartment, renovate it, rent it to make income from rents). These investments usually range from 100’000 EUR to 5 M EUR.
Consumer loans: invest in personal loans for private people like micro-loans, car loans, short-term loans. These loans are usually used by people to buy consumer products and do small spending such as buying a car. These investments usually range from 200 EUR to 20’000 EUR.
Return on Investment (ROI)
Each crowdfunding platform has its own ROI and risks. Therefore it is advised to invest in multiple platforms (at least 5 to 10) to diversify investments and spread risks
|You can expect a return on investment of around 14% per year.|
Crowdfunding platforms can be split into 3-risk/return categories:
- Low-risk platforms: 4% to 10% return per year (ROI)
- Medium-risk platforms: 10% to 14% return per year (ROI)
- Higher-risk platforms: 14% to 20% return per year (ROI)
Below you will find a chart of the risk vs the return of our top selection of investment platforms. After reading this page you can check our ranking of the top P2P lending platforms.
Below you will find a chart of the expected yearly returns of the main Peer to Peer lending platforms (the return rates are based on the real current investments available in 2019 on these platforms, and are NOT based on the marketing numbers advertised on the platforms’ websites)
When should you Start Investing
|As early as possible (for example by investing 10’000 EUR at a return of 14%, you will have 500’000 EUR after 30 years)|
Do you know about compound interest? It is the accumulated increase of interests that you get when you reinvest all the interest generated by your previous investments.
For example, if you invest 10’000 EUR at a 14% yearly return, this is how will be the evolution of your assets over the years:
- at year 0: 10’000 EUR
- 1 year after: 11’400 EUR (= +1’400 EUR)
- 2 years after: 12’996 EUR (= +1’596 EUR)
- 3 years after: 14’815 EUR (= +1’819 EUR)
- 10 years after: 37’072 EUR
- 20 years after: 137’435 EUR
- 30 years after: 509’501 EUR
This means that you can earn 16’650 EUR per year over 30 years by investing only 10’000 EUR.
The table below illustrates the evolution of your assets over 30 years. By investing 10’000 EUR at 14% you will end-up with 510’000 EUR after 30 years. Therefore if you are in your 20’s and 30’s, it is the perfect time to invest a small sum that will create a big capital over the years.
How a Crowdlending Platform works
To invest, you will have to use investment platforms. On the market, you can find hundreds of them. They have their own specialties such as the type of investments, the fields of investments, the returns (ROI), the risk, etc… (Later in this article we will advise you on the best crowdlending platforms to use based on your investor needs).
But even if each platform has her own specialties, they still follow the same general working process represented on the image below.
Here are the details and tips about the different steps of the process:
Create your platform account (takes 5 min)
Your account will be registered directly on the external platform. During registration, you will have to provide information such as Name, Email, Phone, ID picture. In addition, in most of the platforms, it is also possible to open Business accounts if you invest through a company.
Deposit money to invest (takes 5 min)
After that, once your account is created, the next step is to send money to load your platform account. Transfers are usually done via bank transfer and in Europe and take usually 2-3 business days to go from your bank account to the platform account. Our advice is to send a small amount the first time (e.g. 10 EUR) to be sure that the transfer work and then to send the real big amount to invest.
Also, investments are mainly done in Euro, so if you are investing from a non-euro country or if you own money in a foreign currency, here is an article on currency exchange at low fees.
Choose a project to invest (time varies)
The platform will propose you a big list of investments. They will usually provide you information such as the return on investment (ROI), investment term/duration, lender information, type of investment, risk, country of investment.
Decide how much to invest/lend (takes 1 min)
Once you have chosen the investment, you just need to select how much money to invest. A good practice is to invest the smallest amount as possible on each investment (usual minimum of 10 EUR) and to diversify your money on many investments. So if you invest 1’000 EUR you will be able to invest in 100 loans of 10 EUR which will help you to spread the risk among different borrowers.
Invest in the project with other investors (takes 1 min)
Finally, validate your selected investment amount. At this point, you will be part of the investment and will have financed a big project (sometimes >2-3 M EUR) in collaboration with thousands of other investors. This is the part that is called Crowdlending (or P2P lending, Peer to Peer lending, Social lending) investment.
When you do an investment, you will usually be bound to borrowed by a contract. The investment platform is just an intermediary. Thus if the website fails and closes, legally you should be able to continue the investments and retrieve your money at the end of the contract term.
Earn monthly interests
When you invest your money in a project, the project description gives you information about interests repayments. Some loans have a very short term of a few days and others will last months. For the short term loans (few days) you will usually get your interests at the full repayment of the loan, while if the investment in on a longer-term (multiple months) you will usually get interests monthly. (Since these investments generated from 12-14% on average, you should be able to get returns on your invested money of 1% per month).
How to Start Investing
We summarized the list of the top Crowdlending platforms to invest in. You can find information about: returns on investment (ROI), minimum investments amounts, if the platform gives you back your investment in case the borrower doesn’t (BuyBack Guarantee) and the fields of investment.
|Start investing in Peer to Peer lending / Crowdlending: Select the best platform|