Peeter Pärtel’s real estate course, part 2

Last weekend I had a chance to take part of the 9th real estate course that Peeter Pärtel organizes. The 10th, which will take place in autumn is almost sold out, if you happen to want to grab a ticket. It was a very intensive 2-day course that firstly gave me a lot of inspiration for blog posts and secondly it was a very high quality look into what is happening on the real estate market. This is why I wanted to give an overview of how the days went.


Presenting your projects

The second day started with people presenting their projects that they had picked out the previous day. It was interesting to see what people had come up with, since some were clearly very realistic and had done a lot of overnight work, while some were very optimistic both in terms of returns and investor interest towards the project.

The key idea behind this part is obviously the fact that to find deals it’s not just enough to look at the ads and surf mindlessly. You have to actually go through the numbers to figure out what works out, and if it doesn’t then you’ll have a chance to figure out which part of the project should be altered to make that project work. (And to realise that some projects won’t work whatever you try to do.)

Recovery of debt

Lately there has been a lot of media attention on various cases of tenants refusing to leave apartments and the hassle that this brings. The laws in Estonia are quite strongly in favour of the tenant, which means that as a property owner you’re pretty screwed if something happens to not work out, since getting the person evicted or even getting the debt they owe you recovered is barely possible.

This section introduced an actual case of attempting to get a debt recovered by going the whole way – to suing the tenant. While this topic was quite familiar to me because I’ve researched it because it’s relevant to social lending as well, then it was really an eye opener in terms of just how depressingly slow and incapable the legal system can be at times.

Impromptu panel

Since the room was clearly full of many experienced people to whom you could talk during breaks and whatnot, it was reasonable to give them some time to discuss their thoughts on stage as well.

They gathered up the most experienced investors with the biggest portfolios to share some thoughts about what has worked out well for them and what kind of advice they wish they would have had when they were starting.

The main learning point was that to grow that big, you have to be aggressive. To be aggressive in growth however you need extra financing from somewhere, it’s not easy to just start growing a portfolio and end up with 50 apartments.

Bizarre happenings

The final, stress relieving, section of the day had a visitor who spoke about the two tiny apartments that got a lot of media attention a while ago. (The apartments are 5 & 6 square metres respectively.)

It offered a chance to think about just how static the Estonian market really is, and what a long way we have to go in terms of alternative housing methods. Plus, it was a quite funny retelling of the events that surrounded the media attention.

Summary of second day

Clearly everyone’s brains were quite overloaded with the information from day one, so the pace was a bit slower and the topics were a bit more lecture-like. This wasn’t necessarily a bad thing, since I don’t think people would’ve been clearheaded enough to listen to the taxes section on the second day.

Overall I’d say I was deeply impressed by the quality of the event and I can see why they have been organizing it for years already. I will probably not attend the next event, but I’m likely to attend one in the not so distant future if things go well with my plans of real estate investing.


Peeter Pärtel’s real estate course, part 1

Last weekend I had a chance to take part of the 9th real estate course that Peeter Pärtel organizes. The 10th, which will take place in autumn is almost sold out, if you happen to want to grab a ticket. It was a very intensive 2-day course that firstly gave me a lot of inspiration for blog posts and secondly it was a very high quality look into what is happening on the real estate market. This is why I wanted to give an overview of how the days went.


The next financial crisis – when?

Understandably the start of the first day after the intro and expectations part (which was a bit slow for me) focused quite heavily on what exactly is happening on the market. Many investors were (surprisingly to me) very worried that a new crisis is literally around the corner, while others (like me) didn’t have such a pessimistic outlook on the situation of the market.

It is clear that there is a crisis on the horizon, because there is always a crisis on the horizon. A lot of people seemed to be slightly too panicked about this topic, and this motivated me to write a series of posts about how to prepare for a crisis that I’ll hopefully publish next week. People are right to be careful when it comes to real estate since the previous boom wiped out the life savings of many people. However, taking sudden action might cause more harm than good.

Taxes – who, how much, when?

Like with other classes of investments, taxes is a very important topic when it comes to maximizing income you get from investments. When it comes to real estate then some things you need to know to not make mistakes, so this part focused heavily on how to operate as a business, what kind of tax cuts are available for you and how to optimize taxes as a business.

I found this part super valuable because people asked a lot of very good questions and I got a chance to take the time to think of a perfect tax strategy for my own apartment for when I sell it at some point in the future. Since I have a company myself, I know how important it is to know how taxes work even if you have an accountant, so I was happy to see this topic get a lot of attention.

Checking real estate for any faults

There are dozens of different ways your purchased piece of real estate could be a “lemon”. This section focused heavily on what to check starting from a visual overview, looking over the documents and all the way to finding big faults in construction.

With my own apartment I’ve experienced some of those issues, so it was a very valuable part. I went to look at an apartment a few days after the course, so there were definitely a few things that I paid more attention to than I would have otherwise. (For example ventilation systems.)

Construction & remodeling

Since a lot of people focus on finding apartments that aren’t in the best order to fix them up and then either rent them out or “flip” them, then this was obviously another important section of the course.

What I learned from this is the fact that unless I have a very trustworthy person next to me, I’m not likely to be the person who is interested in doing flips. While I know at least a reasonable amount about construction I’m not the type of person who finds it all that fascinating.

Financing purchases

As we all know, real estate is expensive and trying to make any purchases means that you need thousands or tens of thousands of euros. This is why most people use loan money to be able to make purchases they otherwise wouldn’t be.

There were a few people who talked about what are the conditions to get loans from banks and what you should be prepared for when trying to get a loan to invest into real estate. This part also spent some time on the idea of getting money from FFF – family, friends & fools. A lot of people who had started investing into real estate said that they had gotten their first round of financing from friends.

Summary of first day

Sadly I missed the last section that focused on a different way of analyzing real estate, but since it was based on the book Property Magic, I’ll get around to that at some point. The day ended with a home work assignment to find a project that you’d want to invest into and to be prepared to present it the next morning.

Overall I was quite impressed by the first day. The start was a bit slow, but the topics got very specific and very valuable very quickly. Also, the people who attended the event were impressive in many ways, a lot of them had experience they were very much willing to share, and that added even more on top of the value of the information from the presentations.


Understanding social lending returns

A problem that’s been popping up more and more when people discuss social lending is that some people who have experienced some loans going bankrupt are creating a lot of panic about social lending making you lose money. This causes quite a lot of questions about social lending returns that I often have to answer, so I thought I’d go over some frequently asked questions.

How do I tell how much money my social lending portfolio makes?

There are many different “axe” methods that people use. Looking at defaults vs interest earned, looking at interest earned vs portfolio value and any other super simplistic methods. While those can give you relevant feedback about your portfolio in some cases, the only 100% sure way to assess your returns is calculating them yourself using (X)IRR.

This means that you have to use Excel or another data analysis program and run through the numbers yourself. I regularly go through my portfolio returns like this to see how my portfolio is moving.

What about the defaulted loans?

At start defaulted loans hit very hard. If you’ve just started with small amounts then you might not have even made 10€ in interest by the time the first 10€ loan piece has defaulted. This doesn’t mean you’ve made a loss yet – until you’ve made an exit any and all losses are theoretical. This means that unless you sell delayed loans before they default you have to wait for recovery to begin to meaningfully assess how they impact your portfolio.

After two and a half years of investing only four loans so far have made a complete recovery in the value of principal owed with about a dozen others slowly making payments. This means that I’ll be able to assess how well my first loans have recovered by the end of 2016 – and some may not have recovered at all by that point.

What creates high returns for social lending?

The main concept you have to understand when investing into social lending is the fact that your returns start to stabilize as time goes on. The money that gets paid back gets reinvested instantly helping create more returns every month. This means that after a while you start seeing the classical growth curve that starts to curve up more and more due to compound interest working in your favour. This effect is difficult to see if you’re just starting out or your portfolio consists of a small sum of money only.

How to avoid losing money in social lending?

Every investment decision has to be based on a strategic decision. Many people invest into social lending just because it sounds good and its currently popular instead of actually having a strategy or doing any calculations whatsoever. With social lending there are several key points you have to take into account when building your portfolio.

Firstly you need to diversify to at minimum 200 loan pieces as quickly as possible while 500 loan pieces should be your goal. Secondly, the more risky loan groups you invest into, the longer your investment period should be due to the impact of recovery on your returns.

How do I know that my portfolio strategy is working?

Provided that you’re constantly investing you need to also constantly keep track of your portfolio. This means either XIRR, following the growth of defaults and comparing them to site provided averages, assessing interest growth in comparison to portfolio size and other such metrics may be used.

Not a single investment works without additional care, especially not one like social lending that’s new enough that it doesn’t even have a decade of history yet. The credit ratings, the portfolio managers and the overall logic is likely to change, which is why it’s important to keep track of changes.

Do your own analysis, read blogs and newsletters or have an investment group or whatever else necessary. Social lending was and still is a high risk investment, and for that very reason you can’t invest passively even though it’s super accessible to everyone it’s not for everyone.

Things I wish I had known when starting with social lending

Last night the Women’s Investment club met again and this time our topic was social lending. Since most of the people who came to the even didn’t have much (or any) experience with social lending, I had to really go back to the basics when preparing for the meetup.


How to start?

This was one of the most popular questions – how to get started in the technical sense (as in, how to make an account, how to make portfolio managers) but more so, how to start with the actual investing – which loans to pick and how.

1. I wish I had known to worry a lot less about credit groups and returs and other numbers back when I didn’t really understand how they worked. It’s super easy to get caught up in all sorts of Excel tables and graphs and analyzing your return numbers, but it’s just not all that useful when you lack fundamental knowledge about how the sector works.

2. I wish I had started both earlier and with bigger amounts of money. Even if I had made the same mistakes or more mistakes at start, I would still be enjoying far bigger compounded returns at this point. I spent way too much time paying attention to how my very small portfolio was doing as opposed to focusing on how to increase it.

3. I wish I had found people who shared similar interests way back when I was starting. It’s been pure chance that I stumbled onto other people who shared an interest in social lending, and I think we have all learned a lot from each other’s ideas and thoughts. In that sense all the women in our investment club are super lucky – there is a lot of knowledge on offer if you just ask.

What to do if you’re just now starting?

1. Make your first 1-5 small investments into Estonian loans and just follow their progress and assess your risk tolerance based on how nervous you get and how often you log on to check on your loans. (Spending time on reading up on theory will not give you any extra magical returns on these first investments.)

2. Focus on increasing your savings or your income to be able to invest more money monthly. With social lending every 5 euros saved will help! Once you have some money in your emergency fund then start planning for how much money you want to invest into social lending each month.

3. Read up on some of the wealth of knowledge that has been written about social lending in the past few years. Look at blogs that show real numbers so you can estimate what your portfolio will look like in the future. Don’t get too carried away with this – it isn’t worth reading 5 hours if you’re investing 100 euros.

4. Find an investing buddy! This is super important because having a friend with similar interests will both motivate you to keep going, you can share interesting bits of info and learn from each other’s mistakes. Going to different meetups to hear other people helps you keep track of what’s happening as well.

5. Focus on slowly increasing your portfolio while keeping in mind that your first priority is to diversify your portfolio to at least a few hundred loans. Get a feel how different risk levels work for you – it’s ok to make small investments into riskier loans if you want to try them out. Just keep in mind – the closer you keep to “boring” investment strategies, the more stable your returns.

Happy investing!


I am a boring investor

One of the things I mentioned in the interview for Äripäev was that I’m a boring investor and I recommend investing in a way that’s boring as well. I had a few people ask me after reading the article what exactly I meant by that, so I thought I’d write down the principals of what I consider “boring” investing.


The dullest investment related stock photo I could find

1. Tolerating potential risk

Talking to many people, one of the biggest concerns I keep hearing again and again is the worry of what they’ll do when the market crashes or one of their investments fails unexpectedly.

What do you do? Realize that there has been a mistake in your investment strategy because steady and “boring” investing should not cause crippling stress. There are generally two reasons for your investments to do badly – either (exceptionally) bad judgement calls when investing or an unprecedented market movement. If you’ve made a bad judgement call, then learn from it and don’t repeat it. If it’s a surprise situation on the market, then take comfort in the fact that everyone else is suffering though the same issues.

How do I know if I make good investment decisions? Experience. I’ve made some bad calls when investing as well, what matters is that you learn from them and don’t repeat them. Of course there is a chance that something might go wrong, but that’s something you have to find inner peace about – if you can’t then investing might not be for you. A boring investor sleeps reasonably well not matter what the market situation is like.

2. Reasonable time expenditure

At first investing seems like a pretty high effort-high time investment field. There are several reasons for this, among them lack of financial education and a relatively steep learning curve to many types of investments.

How to control your time usage? While it is tempting to try and read everything possible there is about the world of finance, then at times it might be reasonable to control yourself. How much of a real return do you really get from reading another 10 investment books? I definitely got more of a return from going to the RSÕ training course than I did from the past 5 finance books I read (similar time investment). A certain level of financial education is of course necessary but once you’ve reached a certain level of knowledge you should be aware of how you use your time. (I’ve by now admitted to myself that reading up on investing is more of a hobby by this point.)

Am I spending too much time on investing? There are several theoretical ‘rules’ about proper time spent vs. market returns. I’m currently thinking towards the following idea (due to the size of my portfolio, may be subject to change) – every 5000€ in your portfolio deserves 0,5-2 hours of monthly time. This of course depends on the type of investments – social lending might take less, real estate takes more (most investments take less time, the longer you own them). Take a moment to think though, if you’d be better off working an extra hour to get more starting capital as opposed to reading another book. A boring investor gets real returns on their time.

3. Good habits

Keeping good habits is easy when everything is going well. People who are trying to quit smoking find it easier during a low stress period in their lives and it’s easier to go for an early morning run during a sunny weather. The first problems with maintaining and building good habits come when things stop going so smoothly.

How to build and keep habits? One of the more difficult habits I’ve gotten into in terms of investing is starting the pay yourself first system. Transferring money into my investment accounts at the start of the month creates a certain level of uncertainty – what happens if something goes wrong during the month? Transferring money into our stock account is definitely less motivating when you see that the account is demonstrating significant red numbers. This is why above all your focus should be to keep rational, analytical and systematic. When you make decisions about investments or changing your habits ask yourself – why? why now? why not some other way?

What do I do when I’m slipping? Definitely do not spend time logging onto your brokerage account every day to check whether the market has gone up or down. If you’re starting to suspect that something is wrong with your investment plan then discuss it with a fellow investor, read what others are thinking or just take a day or two to think. A boring investor makes carefully considered decisions based on data and analysis, with a clear head.

The road to becoming a boring investor

There is no secret tip or trick here. It’s mostly discipline and refraining from knee-jerk reactions. Of course being a boring investor becomes easier as time goes on and you know more about the market but it’s completely possible when you’re just starting off.

While you should of course be wary of using past performances as indicators for future returns, then have some faith in historical returns provided by the market. Whether you put your belief in investment books, Bogleheads philosophy or follow MrMoneyMustache  or have some own investment theory of your own, the key is still consistency. Even if the market drops a terrible 30%, then as a boring investor you know that it’s time to get buying, learn all that you can from the experience and that you still have infinitely more investments left than people who haven’t invested at all.