Capital Rise

Aceace

Yes I did thanks. I was browsing to see what others thought of CR as I was thinking of adding to my holding and noticed that Nardge had made an investment some time ago. So I thought I would ask how it went since time has now moved on. 

I probably got a bit carried away with the rest, but thought the advice given was a little strong given that I've made very good returns from the platforms mentioned. Not suggesting that it was anything other than an honest opinion, but thought it was worth giving an alternative point of view from someone who had direct experience with those platforms.  

masonic

Aceace said:

I probably got a bit carried away with the rest, but thought the advice given was a little strong given that I've made very good returns from the platforms mentioned. Not suggesting that it was anything other than an honest opinion, but thought it was worth giving an alternative point of view from someone who had direct experience with those platforms.  

I'm from the second generation of mugs sucked into P2P and you and Narge are from the third generation. When I started investing I didn't heed the advice of those from the first generation, and thought they just picked some bad platforms to invest with, all loaded up with bad debt as they were, while I picked platforms with no such problems. My returns were great, until the defaults started to build up and a few of them had to shut down. Meanwhile a new crop of platforms opened up with new unblemished reputations, and a new generation of investor flocked to them. Of course, not many of them listen to me, because it is obvious to them I just picked some bad platforms to invest with, all loaded up with bad debt as they were, while they picked platforms with no such problems. And so the cycle repeats.

Aceace

masonic said:

Aceace said:

I probably got a bit carried away with the rest, but thought the advice given was a little strong given that I've made very good returns from the platforms mentioned. Not suggesting that it was anything other than an honest opinion, but thought it was worth giving an alternative point of view from someone who had direct experience with those platforms.  

I'm from the second generation of mugs sucked into P2P and you and Narge are from the third generation. When I started investing I didn't heed the advice of those from the first generation, and thought they just picked some bad platforms to invest with, all loaded up with bad debt as they were, while I picked platforms with no such problems. My returns were great, until the defaults started to build up and a few of them had to shut down. Meanwhile a new crop of platforms opened up with new unblemished reputations, and a new generation of investor flocked to them. Of course, not many of them listen to me, because it is obvious to them I just picked some bad platforms to invest with, all loaded up with bad debt as they were, while they picked platforms with no such problems. And so the cycle repeats.

Well, your right that I think that people who have lost money through P2P have largely picked some bad platforms. I'm not necessarily attributing blame to those lenders. It's clear that there was considerable incompetence and even fraud committed by some platforms. Hopefully,  prosecutions will eventuality bring the perpetrators to justice,  and possibly compensation for the lenders from the sleeping FCA. Whether that means that all P2P platforms will repeat the same cycle only time will tell, but i really don't think so. Isn't that a bit like saying: someone lost money on shares so all share investments are bad? Surely there are good and bad in all sectors.

I've tried out a very large number of platforms. I find it easier to investigate from the inside with small sums  at first. I've rejected roughly half of the ones I've tried so far, and there are many more that I rejected from some basic research or on the advice of others who's opinions I have come to respect. Having retired early,  I now use P2P as my main form of generating living expenses. It's become a major, enjoyable, and profitable hobby for me. I've made mistakes along the way and expect to make some losses, but overall I'm making a comfortable profit over a very diversified portfolio of loans and platforms. I find it far more enjoyable than my equity investments, where I mainly invest in global trackers as I don't believe I have sufficient skills to beat the markets. 

I'm not trying to convince anyone else to invest in P2P,  just trying to give a counterbalance to what is a perfectly understandable opinion that I feel goes too far the other way.

I wish you the best of luck with whatever form of investment you've moved on to. 

masonic

Aceace said:

Well, your right that I think that people who have lost money through P2P have largely picked some bad platforms. I'm not necessarily attributing blame to those lenders. It's clear that there was considerable incompetence and even fraud committed by some platforms. Hopefully,  prosecutions will eventuality bring the perpetrators to justice,  and possibly compensation for the lenders from the sleeping FCA. Whether that means that all P2P platforms will repeat the same cycle only time will tell, but i really don't think so. Isn't that a bit like saying: someone lost money on shares so all share investments are bad? Surely there are good and bad in all sectors.

I don't believe all P2P platforms are bad and I don't believe all P2P is bad. I still hold some P2P investments. One also has to consider the crooks who are borrowing the money. For example, Ablrate (one of the platforms I am still investing through) has had an exemplary record of fighting hard for lenders, yet people have still lost a lot of money. One could be charitable and say Moneything's only fault was trusting its borrowers were not fraudulent. No platform is immune to their fair share of bad debtors, and since those cases take years to appear and then further years to reach a conclusion, those bad debts snowball in the later years of a platform's life.

I don't believe you can predict much of this in advance, but one thing that is highly predictable is that the class of loan known as development finance, with its fictitious concept of Loan to Gross Development Value (LTGDV), is the most risky form of P2P and should be avoided at all costs. Part completed building sites are invariably worth many times less than the value of a completed development, so when the going gets tough, it is in those borrowers' interests to walk away and leave the platform and lenders to carry the can. Firesales of building sites can in the worse cases, just cover the fees of the receivers/administrators, and even in quite favourable cases lead to a 50% loss of capital.

If you go back and re-read my earlier comments, you'll see they relate to development finance, not P2P in general, though I think anyone would have to be pretty brave to invest new funds in P2P in the present economic climate.

Aceace

Hi masonic, thanks for engaging.  I agree with almost everything in your post, and I do appreciate being called brave   

The bit I disagree on is where you say that development loans "should be avoided at all cost". If I take Loanpad as an example (admittedly, I'm deliberately choosing this example as I think it illustrates my point best).
Any funds invested are automatically spread over all loans on the platform, and this is rebalanced daily. So, you have automatic diversification within the platform. 
Loanpad is the Senior lender on all loans,  so they have first call on the security if anything goes wrong. I.e. the developer and the lending partner will lose all their capital invested before Loanpad lenders lose a penny, which gives them a very strong incentive to ensure that development is successful.
Loanpad never lend more than 50% LTV on any loan and usually much lower.
The average LTV across all loans on the platform is currently 29%. So property prices can fall 71% on average before capital is at risk. 
The "V" in the LTV used by Loanpad prior to development is the Market Value rather than the GDV. They don't lend against the GDV until the development is complete (OK, I think they sometimes do when the development is almost complete,  certainly more than 90% complete), which essentially makes them far less risky bridging loans rather than development loans. 
In addition to this Loanpad have maintained liquidity throughout the CV-19 crisis.

Yes, there's still risk,  but I feel that they offer rates that are commensurate with the level of risk involved. I consider them to be one of my safer investments,  far safer than my global S&S trackers.

To give just one more example of a P2P property development loan specialist that I feel should not be "avoided at all cost", CrowdProperty.  They are higher up the risk/reward curve than Loanpad, but they have a strong team of experienced property development experts, so if any of their loans get into trouble they could ultimately take over the development and complete it themselves. They've funded over 200 projects so far with no losses to date,  and have also sailed through the CV-19 crises unscathed.

I understand that you may wish to stay away from property development if you've been burnt by them in the past. I just think it's too strong to say that they should be avoided at all cost. I think they can be a perfectly sensible part of a well diversified portfolio. 

martinisfab

https://forums.moneysavingexpert.com/discussion/comment/77466176#Comment_77466176

@Aceace : it has been six years now since the posts above and, respectfully, you have proven to be completely wrong in your glowing appraisal of CrowdProperty above.

I note from your posts on the P2P Independent Forum that, over the last several years, you have had a large number of your CrowdProperty investments in default and for that reason have been trying to wind down your CrowdProperty investments and exit from the platform.

CrowdProperty struggles to get a single reviewer on Trustpilot or elsewhere in the last few years who does not give them the lowest possible rating, with every investor fuming that their loans are mostly in eternal default and complaining about how much money they have lost. Some of their loans date back to pre-Covid and CrowdProperty state in the updates that Covid was pivotal to the loans becoming problematic, so CrowdProperty did not go through Covid unscathed as you state above.

As @masonic rightfully says, every investor thinks they are smarter than each previous cohort of P2P investors who lost their capital, but it is only several years later they realise that it's not the investors at fault but P2P investing in general in this country.

That's why, based on the data you've shared on P2P Independent Forum, so many of your loans with property development platforms are in default and you state your overall return from P2P investing is around 5% XIRR. After taxes and expenses it's obviously lower. Such a return is on a par with inflation in recent years - i.e. essentially no return - and only a third of the rate of return from the American stockmarket (S&P 500 tracker etc.) over the last few years, which massively more Brits invest in than P2P.

Aceace

You are absolutely correct that my appraisal of CrowdProperty 6 years ago has turned out to be incorrect. Their assertion that they would take over failing projects to get them back on track has turned out to be empty words. Many of their projects have now resulted in larger losses than should have been possible for a platform dealing with only first charge loans. I was wrong.

Having said that, I'm still not expecting my CP experience to be a disaster. 58% of my capital has already been returned. Despite some terrible losses on individual projects I'm still showing a annualised profit of 3.3%. It's turned out to be a poor investment, but it looks like I should escape without an overall loss. It's by no means my worst platform.

My overall return from P2P is currently 5.37%. Not great, but well ahead of inflation, which the BoE measures as 3.54% over the same period.

I note that you fail to mention the main subject of the post that you quoted: Loanpad. LP still haven't lost a single penny of interest, let alone capital, so far. The platform has been profitable for many years now, which greatly reduces the largest risk in P2P: platform failure. In fact, they are now so successful that they are able to pay a maiden dividend.

Since we're in the CapitalRise thread, I'm now averaging an annualised return of 6.83% with no losses (9.28% including accrued interest).

Yes, as I've pointed out in my P2PIF posts, global S&S trackers have returned an superior result over the same period, and are probably a better long term investment.

As you may have also seen in my P2PIF posts, I'm currently monitoring returns from a select group of 9 platforms that are currently returning an annualised average return of over 14%. 5 of them deal in property secured loans, including Loanpad and Capitalrise. So, I'd still say it's wrong to say that they "should be avoided at all cost". The 9 cover the full range of risk from very high to very low. It will be interesting to see how they do against global trackers long term!

masonic

I'm not really sure of the merits of dredging up a thread from such a long time ago, or relitigating old exchanges, but it seems this will now require further comment.

I think my phrase "should be avoided at all cost" has been taken out of context and overgeneralised. I want to set the record straight on what I actually meant, and why I continue to strongly advocate against P2P for the average consumer.

The "at all costs" statement was referring to development finance - specifically, long-term, from-scratch projects built over multiple tranches, where borrowing is based on the fictitious concept of Loan to Gross Development Value (LTGDV) or future "hope" value.

Loanpad, which you rightly pointed out remains a success story to date, operates differently in my view. In fact, my own due diligence on Loanpad back then indicated they weren't engaging in development finance as I define it. Rather, their projects were predominantly short-term renovations, redevelopments, and essentially lower-risk bridging loans. Ironically enough, I actually ended up using Loanpad myself to soak up the bad debt relief I had accumulated from other failed P2P platforms!

It is not surprising that some platforms have failed spectacularly while others have thrived. The core issue with P2P is that a lay consumer investor has no realistic prospect of identifying the winners from the losers in advance. Six years ago, CrowdProperty looked just as bulletproof to many as Loanpad did. When defaults inevitably roll in, the narrative often shifts to "investors just picked the wrong platforms," but this relies entirely on hindsight. If picking the safe platforms requires treating P2P as a "major hobby" and actively monitoring nine different platforms just to scrape a return a few percent above the risk free rate, it ceases to be a viable investment strategy for the average person.

Beyond just the raw numbers, my warning to stick to mainstream investments comes down to the sheer hassle of managing a P2P portfolio in distress. When things go wrong in P2P, it is rarely a clean break. Investors are subjected to a lack of regulatory protection (lenders are entirely exposed when platforms fail, with no FSCS safety net to catch you in any capacity), moving goalposts (as platforms in trouble frequently change their terms, freeze withdrawals, or alter recovery processes, meaning the rules lenders agreed to at the start are rarely the rules they end up with), eternal defaults (capital can be locked up for years in administrative purgatory, generating headaches and stress rather than returns).

When you compare this administrative burden, the lack of transparency, and the asymmetric risk/reward ratio against mainstream investments (like high yield bond funds, infrastructure or specialist lending investment trusts), P2P simply does not hold up for the everyday investor.

I'm glad you've managed to avoid a total disaster, @Aceace , and are seeing some decent returns on your current selection. But for anyone else reading this looking for a place to put their savings, the structural risks of P2P remain, and the mainstream markets are still by far the better, safer choice. BTW I would still stand by my "avoid at all costs" recommendation for development finance as defined above.