Gustas Germanavičius November 30, 2020
Dear Evo Investors,
I am glad to finally introduce you to our new originator - InRento. The story of InRento is quite different, but before we jump into it, I feel like I should share our story before.
Together with Audrius, we have decided to create EvoEstate already back in 2018 for a few reasons. The obvious one was to enable people to invest across different platforms from a single account and provide all the investment features that other platforms lacked. However, behind these logical reasons, there are definitely some that are emotional. One of the books that capture this reasoning is called “Start with Why” by S. Sinek (which I highly recommend reading to everyone) which explains why one should have one "why" in life. Our why with Audrius was to encourage people to save money, invest it and invest it smart, meaning having the possibility to diversify. So far, I believe we’ve executed at least one of our internal “whys”, but as we continued to build EvoEstate we have felt, that there’s a lack of buy-to-let projects which in our personal opinion offers a great risk-reward ratio. If you have been investing with EvoEstate for some time now, you have most likely noticed that there are very few rental investment opportunities offered and we felt that we want to contribute in order to make the supply of them larger.
Because we decided to leave EvoEstate strictly as an aggregator and do not originate the deals, we have decided to build another buy to let crowdfunding platform called InRento, which already has the license at the Bank of Lithuania.
Our mission with InRento is simple - provide people with carefully sourced buy to let investment opportunities across Europe in a secure, transparent and easy to understand way. I would like to emphasize the word secure here. When I’m writing secure, we have to understand the business model of InRento. InRento will not borrow money itself as another buy to let platforms do but will be facilitating the loans between the borrowers and lenders.
How are the deals structured?
The investments are structured as loans that are secured with a mortgage. Because the investments are structured as loans, they have a combination of fixed-interest rate and variable interest. In simple terms, this translates that if the property would be vacant, the borrower will be obliged to pay the fixed interest rate. If the property would not be rented out for a longer period, the interest rate is being increased 2.5-4X times, in order that investors would receive the rental yield. (The exact terms will be found in each project description and contract).
What happens if the borrower doesn’t pay?
In case the borrower would fail to meet financial obligations to the investors, InRento will take all the necessary measures to resolve them in the name of investors and if needed enforce the mortgage and repossess the property.
How is the rental yield spread between the investors and the borrower?
While assessing the loan applications, InRento strives to reach an agreement with the borrower that 80% of the rental income would be paid out to the investors. If the property is rented out, the investors will be distributed with 80% of the rental income, but if the property would lose its tenant, the borrower will be distributing the interest payments. The 20% which is left to the borrower covers the administration costs, minimum upkeep and other expenses. While owning a rental property by yourself can look like an attractive option, for some, there are few elements that can make it upsetting. Landlords managing multiple properties can tell you that sometimes the hassle of dealing with problematic tenants or fixing broken furniture, can make you wonder whether owning or administering the property by yourself even make sense.
Do investors participate in the capital appreciation of the property?
Because InRento strives to create an investment experience which would be as close as possible to owning an actual rental property when / if the property would be sold more costly than it was acquired, the capital growth-share would apply to the investors. InRento is targeting the investor share for the capital growth to be in the range of 50-70%.
Let’s take a look at this example:
Loan value: 100,000 EUR
Capital growth share: 70% investors / 10% InRento / 20% borrower
Proportional sales price to the loan value: 110,000 EUR
Duration: 2 years.
The investors would receive an additional 7,000 EUR, while InRento would earn 1,000 EUR and the borrower would earn 2,000 EUR. Given such an example, investors would earn an additional 3.5% annual return, which combined with 6% would make an annual return rate equal to 9.5%.
Considering the arguments above, it becomes easy to understand that InRento model is based on incentivizing the borrower to produce the highest possible return. The higher the return is for the investor, the higher it is for the borrower.