How you get your money back in real estate crowdfunding, and why it sometimes takes a while
Any project's page tells you how much you could receive and on what date. Hardly anyone asks the question that comes before that: where that money is going to come from.
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And the answer is a little uncomfortable at first: right now, it doesn't exist. The developer doesn't have in the bank what it has to pay you back, because if it did, it wouldn't be asking you for it. That money will appear when something specific happens, and that something has a name in the industry: the source of repayment.
Understanding what it is, and what it depends on, is probably what most separates someone who reads a project page from someone who just looks at it.
The four sources you will come across
The names vary from platform to platform, but at heart these are the ones.
It is the most common source in new builds and refurbishments. The developer builds, sells the flats and repays with that money. It depends on two things that nobody controls: the price it manages to sell at and the pace at which it sells. The more units already committed before work starts, the less uncertainty remains.
Here the flats are not sold one by one; instead, the whole building is sold to an institutional buyer, a fund or a family office. The advantage is that it closes in a single transaction. The drawback is exactly the same: everything depends on a single buyer, and on that buyer still wanting to buy when the time comes.
The project reaches a point (building permit granted, works certified, enough sales) at which a bank steps in to finance it on normal terms, and that loan is used to repay the investors. It is common in land deals and early-stage projects. It depends on the bank saying yes, and that does not depend only on the project: it also depends on where interest rates and banks' appetite for lending stand in the year the refinancing falls due.
In assets that are already up and running, such as a let building, the interest comes from the rent collected each month. It is the most stable of the four for making payments along the way, but it is worth reading the small print, because repayment of the principal almost always ends up depending on a sale or a refinancing at the end of the term.
The question that puts everything else in order
Each source is, at heart, a future event with its own probability of happening on time.
Selling thirty homes to private buyers is a long process with many small players, and if the market cools, sales slow down but they keep happening. Selling a building to a single fund is quick when it comes off, and when it doesn't, it leaves you without a plan. A refinancing depends on a signature that isn't the developer's. Rent comes in every month but does not repay the principal by itself.
So the useful question to ask of any project page is simple: how many things, and how many people, does it take for that money to appear? The fewer players and conditions involved, the faster everything can move, and the more you depend on none of them failing.
The primary source and plan B
Every well-structured deal has a second answer behind it.
The source of repayment is what is expected to happen. The collateral is what is left if it doesn't: a mortgage over the land or the building, a personal guarantee from the developer, a pledge over the company's shares. They are not the same thing and they do not work the same way, because the first pays out by itself when the project goes well, whereas the second has to be enforced, which means time, lawyers and an outcome that is not set in stone.
A project page that explains the source of repayment in detail and dismisses the collateral in a single line, or the other way round, is only telling you half the story.
Why this explains almost every delay
When a project is extended, it is very rarely because the developer has disappeared.
What usually happens is that the source of repayment arrives later than planned: there are four flats left to sell, the institutional buyer asks for three more months to close, the bank is slow to approve the refinancing, or the permit that would unlock the land sale is still sitting at the town hall. The project is still alive and so is your money, but the timetable shifts.
That is why reading the source of repayment carefully before you invest is the best way to know how likely it is that you will have to wait, and to avoid being caught off guard as if it were something unforeseeable.
