Real estate crowdfunding is on a roll, and for good reason, the amounts in 2019 have doubled compared to 2018* with 373 million euros invested. Check out our handy fact sheet to become knowledgeable about real estate crowdfunding.

1. Personal guarantee

It is quite common to ask, in order to guarantee a loan, that the director establishes himself as a personal guarantor. This commits the director on his own assets and requires him to personally assume the repayment of the debts if they remain unpaid by the company. This personal guarantee must be accompanied by a handwritten text stipulating that the director masters the scope of the commitments made as well as their amount. In case of death, the guarantee is transmitted to the heirs at the time of the succession, if this one is accepted. For more details, see our article dedicated to this subject.

2. Term or maturity of the loan

The duration of the loan, also called maturity, is determined before the operation. It indicates to the investor at which maximum maturity he will be reimbursed for the capital invested as well as the interest over the period. In 2019 on Raizers, it was 20 months on average.

3. Transmitter

In real estate crowdfunding, the issuer is the real estate developer or the property trader. It issues a debt that will be subscribed by investors. The investor lends money to the issuer, who, in return, will pay him interest over the duration of the loan, in addition to reimbursing him the capital invested.

4. Amortizable loan

A loan is said to be amortizable when the capital is repaid in several installments over time. During the whole duration of the loan and according to a schedule established beforehand, the borrower will repay a part of the capital with the interests. It is opposed to the loan or loan in fine.

Example in the context of a real estate crowdfunding operation: the investor lends 1000€ at 10% per year for 24 months, amortized annually, the developer will therefore have to pay :

  • 600€ at the end of the 1st year (500€ of capital + 100€ of interest, calculated as follows at 10% x 1000€ of capital over 12 months)
  • 550€ at the end of the 2nd year (500€ of capital + 50€ of interest, calculated as follows at 10% x 500€ of capital over 12 months)

5. Borrowing in fine

The loan or loan in fine, is a loan whose capital will be completely refunded at maturity. The interests can be paid in several times or at maturity.

Example in the context of a real estate crowdfunding operation: the investor lends 1000€ in fine at 10% per year for 24 months, the developer will have to pay :

  • 100€ at the end of the1st year (i.e. the interest of 10% x 1000€ of capital over 12 months)
  • 1100€ at the end of the2nd year (1000€ of capital + 100€ of interest, 10% x 1000€ of capital over 12 months)

6. Flat tax or PFU

In the case of individual investors residing in France, the interest received from a bond issue is subject to the Prélèvement Forfaitaire Unique**. This is divided into two parts: social security contributions (17.2%) and income tax (12.8%). In both cases, the deduction is made at source (organized by Raizers) and the interest received by the investor is net of tax.

7. First Demand Guarantee (GAPD)

The first demand guarantee is a security which commits the guarantor (in this case the borrower), in the context of an obligation subscribed by a third party (in this case the investor), to reimburse the sum due, either on the first demand of the creditor, or according to previously agreed terms. This guarantee is on the same level as a personal guarantee when given by a company. For more details, see our article dedicated to this subject.

8. GFA

The financial guarantee of completion is an insurance given (by a bank or an insurer) to a real estate developer on behalf of the purchasers under compromise of the real estate to be built. This insurance gives the guarantee that in case of default of the developer, the construction will be completed and the purchased goods will be delivered.

It is issued by an insurer who, in exchange for a percentage of the construction cost and several guarantees (mortgage, first demand guarantee, personal guarantee of the manager...), undertakes to pay for the construction in case of default by the builder. Note that for commercial real estate operations, the GFA is not mandatory. It is, however, mandatory for residential real estate.

9. Mortgage

Themortgage is a security on an existing real estate (land, building, house...), allowing the lender to seize the property on its behalf in case of default of repayment.

The mortgage may be first or second ranking, the ranking indicating the order of priority of creditors for repayment.

The first mortgage ensures that the creditor will be paid first in the event of default. In effect, this means that the creditor will be the first to be paid by the notary once the funds are available. When a creditor takes out a mortgage on a property that is already mortgaged, this is called a second mortgage and the creditor will have to wait for the first mortgage to be repaid.

10. Interest and coupons

A coupon is attached to a bond. It represents the interest paid to the holder of that bond, in this case the investor. Historically, bonds were printed on paper and accompanied by detachable coupons, the payer withdrew the corresponding coupon as soon as he made a repayment.

To illustrate, let's take the same example as before, with our 1000€ bond at 10% interest over 24 months, a coupon is 1000 x 10% or 100€ to be multiplied by two, given that this interest rate is over 2 years. This bond therefore comes with two coupons of €100.

11. Bond, bond issue and bond contract

A bond issue is a debt issued by a legal entity (here a company) to finance itself with investors, called bondholders. Bonds are financial securities that are debt-like for the company issuing them. In the case of a bond issue, the company and the investor sign a bond contract that formalizes the loan and sets out, among other things, the maturity (duration of the loan), the interest rate and the other obligations of each party.

12. Yield or profitability

When raising financing for a real estate project, an interest rate is negotiated upstream between Raizers and the real estate developer. This rate represents the return on investment that will be paid to the investor, at regular maturity or at the end of the contract (maturity of the loan). Example: for 1000€ invested with a 10% return, over a 24 month period, the investor will receive 100€ at the end of the first year, and 1100€ at the end of the second year. That is to say 200€ of paid interests.

13. Bondholders' mass

The bondholders' group represents all bondholders on a project as a single entity. The representative(s) have the power, on behalf of the bondholders, to make decisions in the common interest.

In the case of a project financed on our platform, it is Raizers that represents the mass of bondholders.

14. Liquidity risk

For each transaction, investors are informed that investing in bonds involves a risk of illiquidity. In fact, even if these bonds are freely transferable, there is no market available to sell them easily. You'll have to find an investor willing to buy back your bonds.

In effect, this means that the investor, unless an outside buyer can be found, will only be able to recover his or her capital at the redemption date specified in the bond contract.

15. SCCV

A société civile de construction-vente (SCCV) is a form of company widely used by developers. The SCCV functions like a classic civil company, it is its corporate purpose that is specific. The SCCV is not taxed directly, it is said to be transparent. Indeed, taxes are paid by its parent company if it is held by another company or deducted from the income of each partner if it is held by one or more individuals. Its duration is of 99 years maximum but it ends as soon as its object is achieved (end of construction and sale of lots for example).

Within the framework of a bond loan, it is the holding company or SAS owner of the SCCV which carries the loan.

16. VEFA

VEFA stands for Vente en l'Etat de Futur Achèvement. For a buyer, this involves purchasing an off-plan, unfinished home. VEFA is a contract between the purchaser and the developer, guaranteeing completion of the building for the purchaser, and enabling the developer to be paid as work progresses. To this end, a payment schedule is set by the developer, and the balance is paid on delivery of the property by the purchaser. In the case of VEFA sales of residential properties, the developer is obliged to take out a GFA (see definition) to guarantee completion of the work.

In addition, there are tax benefits associated with buying a new home: reduced notary fees because it is a new property (2 to 3% compared to 8% for an old home), the Pinel law which allows you to benefit from tax advantages by renting the property for a minimum of 6 years, or even zero-interest loans to finance up to 40% of the purchase of a new property, the costs of which are covered by the State.

Go to Raizers and invest in one of our current projects.

*Source: Real Estate Crowdfunding Barometer 2019 by Fundimmo and HelloCrowdfunding

**This rate is set each year in the Finance Act

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