How to calculate the return on your real estate crowdfunding investment?

The return is the key element of any investment strategy, especially in real estate crowdfunding where the return is known in advance. But how to calculate it? Our advice on how to do it easily, thanks to concrete examples.

Methodology for calculating your return

Real estate crowdfunding allows you to invest by financing a developer. It is a short term investment with a high high return. When we talk about return, we are talking about an annual return: each year, the investor receives a percentage of the amount he invested. The return shown is the percentage of the amount invested that the investor will receive each year.

Let's imagine that Matthew invests 1,000 euros in a real estate crowdfunding project that is spread over 2 years with a 10% return. At the end of the first year, he will receive 10% of 1,000 euros, i.e. 100 euros. This is called the coupon. And at the end of the two years, he will get back his initial investment (1,000 euros), to which will be added the coupon of the second year (100 euros). In two years and by investing 1,000 euros, Matthew will have made a gross profit of 200 euros.

How to deduct taxes?

Taxation on financial income has been simplified with the introduction of the " Flat Tax " in 2018. This tax replaces income tax, with its progressive scale, and social security deductions. In its place: a single flat-rate levy at a fixed rate of 30%. A tax levied by the crowdfunding platform, which pays it directly to the tax authorities.

Let's go back to Matthew. If we take into account taxes, he will have received 100 euros minus 30%, i.e. 70 euros the first year and 70 euros the second year. His net profit, after tax, is then 140 euros over two years, i.e. a net annual return of 7%.

Focus on the average return of real estate crowdfunding

9,3%. That's the average return on real estate crowdfunding in 2020, despite the health and economic crisis. This is significantly higher than the average yield of a SCPI (4.4%) or a bond issued by a company, not to mention government bonds with a negative yield. It is therefore a particularly interesting investment as the investor knows in advance when he will get his money back and with what profit.

One of the reasons for the high yield is that the bonds issued allow developers to raise large sums of money quickly. This money then allows them to build up equity and borrow money at low rates from banks. This loan is therefore necessarily more expensive than a bank loan, as its repayment is subordinated to the latter... but this benefits both investors and promoters who can carry out profitable operations and develop their business.

In real estate crowdfunding, everyone benefits, even the platform that gets paid by the developer once the funds are raised (only once for most of them).

Watch our video explaining the performance of real estate crowdfunding