First quarter in numbers
- Number of new projects: 7;
- Number of unique properties: 12;
- Number of square meters financed: 3,297.20 m²;
- Average project return: 9.44%;
- Average investor return: 14.60%;
- Repaid amount of principal: EUR 289,618.80;
- Late projects: 0;
- Amount financed: 1 718 050 EUR;
Bank of Lithuania overview
During the last quarter, the Bank of Lithuania prepared a report on the performance of crowdfunding platform operators in 2022, indicating that InRento did not have any overdue projects.
However, 2022 is not the only year. Since its launch in 2020, the platform has not had a single late project, and the total amount of projects funded has exceeded the EUR 9.5 million threshold.
The numbers speak for themselves. More than EUR 1.5 million worth of projects have now been realized, and all of them have had an actual annual return higher than that stated at the beginning of the project.
This is the result of a disciplined and careful selection of funding opportunities, which is firmly linked to the company's values and responsible approach to investment.
Statistical changes among investors
Looking at other data, the biggest change in our activity is seen in the size of the average investment, which has decreased by 66% compared to 2022. This change is due to the large increase in the number of foreign investors, and in total, the number of foreign investors reached the number of Lithuanian investors on the platform. When comparing the two groups of investors, Lithuanians stand out with significantly higher investment amounts, while the median investment of a foreign investor is the minimum investment.
In 2022, the amount of additional investments made has increased more than 6 times, from 806 investments to 5,065. This is due to both the reasons listed above: the increase in the number of investment proposals and the total funding amount of projects financed.
The volume of investments concluded in 2023 is expected to increase significantly due to the expansion into foreign countries, which compares to double the amount financed in the first quarter of this year compared to the first quarter of last year.
The international financing environment
We see that the current rising Euribor rate is turning more and more buy-to-let project projects away from banks, which provides better opportunities for InRento investors. Given the high Euribor rate in countries where capital has historically been significantly cheaper - for example, Spain, Finland, Ireland - even large corporations and solid institutional level rental projects are now borrowing at more than 6% per annum. In Poland, the situation is even more different, as the six-month WIBOR (the Euribor alternative to the zloty) is currently close to 7%, which means that even a 3% interest loan in Poland currently costs around 10%. This shows that even for larger businesses or large-scale buy-to-let projects, it is difficult to expect PLN financing at less than 10% annual interest. This is one of the key reasons why, during the sudden increase of base interest rates, we will prioritize projects abroad this quarter and plan to scale this further in the coming quarters.
In addition to the successful launch in Poland, we can also share that the partial repayment of the Spanish project was also completed during this quarter.
More capital gains
A number of projects were partially and fully realized this quarter. The most notable project was S47, Kaunas, which earned as much as EUR 59,000 in the 19-month period. The real annual return to investors was 16.25%, instead of the 7.08% indicated at the beginning of the project. A particularly important factor is that investors in this project earned more from capital gains than from monthly interest payments. This shows that the real estate asset class is very competitive in periods when inflation is high in the economy.
InRento's operational strategy
InRento is currently leading in terms of average investors’ returns and statistics not only in Lithuania but also in Europe. The main reason for this is the product's operating principle and financing strategy. I have said many times, and I would like to repeat it again, that financial markets always fluctuate - they rise and fall, and most often even on the same day. We have developed and continue to develop a product that is based on the cash flow principle so that the fluctuations have as little impact as possible on the stability of investments. This means that the projects which are financed are already generating, or will generate in the near future, rental income, from which the project owners will pay interest. With this operating principle and longer investment periods, the project owner can concentrate on the rental business, increase its profitability and realize the project at the most viable time.
In addition, real estate properties that are financed are most often focused on their realization for the investor. This means that the owner of the project will usually sell the property to a private or professional investor. This also means that, just as InRento's financing is based on the cash flow to be generated by the property, a prospective buyer will most often buy the property because of the monthly cash flow or annual return it generates. I make the distinction between cash flow and annual return in the last sentence because, in my experience, private investors buying smaller assets look more at how much monthly income the asset will generate than at the annual return. This characteristic of the properties creates additional liquidity. The market always has a certain annual rental return, but a high return generating property can often be realized at a higher than average market price, as it is easier to measure the value for money in an investment property, unlike when buying a property for use.
Price is what you pay – value is what you get
Real estate as an asset class is attractive because, unlike gold or corporate shares, it has a purpose and use, the latter of which generates value and a cash flow. As a result, the price of institutional property assets is often measured in terms of cash flow, i.e. the price of commercial property is often determined by the annual return it generates. This is, in my personal opinion, a more rational and stable method of calculation than that of equities or cryptocurrencies, where prices are usually determined by supply and demand or, in other words, by market sentiment. Market sentiment also has a significant impact on the property market, but what we have seen in the property market recently, both in terms of funding requests and in terms of the realizations of properties mortgaged to InRento investors, is that demand for investment property, and especially for rental property, remains high. Over the last six months we can see a reversal in rental yields. During the Covid pandemic and the quarantine period, when property prices were rising, the average rental yield in Vilnius was, according to our calculations, in the range of 4-5%, while currently the yields are up to 6-7%, so properties with rental yields of 10% or more remain very attractive, and there are a lot of such properties on the InRento platform.
Annual Tax Report
This quarter we’ve also prepared annual income statements for 2022, which can be found by clicking on your name in your InRento account under Taxes section. The data has been automatically submitted to the National Lithuania Tax Office, so all you need to do is confirm the income amounts when filing your annual tax returns if you are Lithuanian resident. As a reminder, the Lithuanian state offers a tax deduction for Class B income from InRento of up to €500 per year for Lithuanian residents, see more on the State Tax Office page. This information is current at the time of publishing this article and does not constitute tax advice, please consult your tax office or accountant for any tax related information.
CEO and Founder of InRento