Interview with Karl Vään CEO/Co-founder at BitOProperty – Investing in RealEstate made simple.
Can you introduce yourself and your role on BitofProperty?
My name is Karl Vään and I’m CEO/Co-founder at BitOProperty. I first started with investing when I was 16 years old and ever since then I have been looking for ways to invest, diversify my portfolio and at someday reach financial freedom, which I define as covering my basic needs from returns received from passive income investments.
Being a CEO in a young, but growing company requires me to wear many hats. My responsibilities vary from finding investors for the company, looking and hiring talent and also taking on product owner role to guide and plan platform development. In addition to that, there are many other smaller things that fall on my shoulders, but it doesn’t feel like a burden. Instead, seeing how the company grows and bringing value to customers, it makes me happy and gives me more energy to move forward.
How does BitofProperty work?
BitOfProperty is a real estate investment platform that enables people to make property investments starting from as little as €50. We are preparing pre-vetted deals for investors, meaning that we do the research and acquire the property before listing it on the platform. When we list the property to the platform, we divide it into shares, where the initial price of each share is €50. Investors can then view the details of the property, read about the property market situation in the given location and go through the additional documents of the investment opportunity. If an investor has found a preferred property then the next step is to verify profile by providing personal information and documents (ID or passport copy), as required by the law.
Each investor has to do profile verification only one time on the platform, meaning that when an investor wishes to make a second, third, fourth etc. investment, then verification is
already done and no need to do it the second time. Once an investor account has been verified, an investor can add money to the account by making a bank transfer. After that, the only thing left to do is to invest, which happens on the platform automatically.
After investing, investors become beneficial owners of the respective property and can track investment performance via the dashboard. First business day of every month, we are distributing rental income to investors’ account based on their share ownership. Investors can either withdraw rental income to their own personal bank account or reinvest it on the platform. For investors, it is 100% passive since property management and tenancy matters are taken care of by BitOfProperty.
How can investors earn passive income from BitofProperty investments?
At BitOfProperty, we offer people to invest in residential properties, which are existing and already tenanted either with short or long term contracts. Rental income that the properties generate is distributed monthly among the investors proportionally to their investment amounts. Property management and tenancy matters are taken care of by BitOfProperty, which make investing in real estate passive for the investors.
As for now, we have properties listed only from Estonia, but we are working on expanding the countries where properties are sourced to have more variety in the choice of properties.
Can you describe BitofProperty in numbers?
We are currently a team of five people from 4 different nationalities, each bringing a unique set of skills to the company. Up until now, we have enabled small investors to invest more than €350,000 in a total of four properties located in Estonia.
For the past 4 months, we have been growing 40% week over week with our customer base thanks to the launch of the OTC market. We are looking to add more properties very soon so that there would be more opportunities for investors to invest and diversify their real estate portfolio. With just a little amount of time, we are very close to reaching 500 order executed successfully.
Up until now, we haven’t had any defaults on the properties. We have had campaigns that did not get successfully funded, but money was returned to investors and no one took a loss.
In our case, once the property is purchased and investor has made their investment, then there cannot be a default, as all the properties are real estate backed and they are generating income. We do not have loan originators, thus the risk doesn’t lay on the borrower’s obligation to pay, instead, the risk comes from the stability of tenants and property price movements over time. As our model is different from regular crowdfunding, thus the risk level and exposure is also different. Investors don’t give loan to someone on our platform, they invest in real estate for passive income and to take advantage of the property price movements over time.
How does BitofProperty make money?
We are currently charging investors 10% management fee, which is taken from the rental income that the properties generate. Both buying and selling shares is with zero fees.
As we are in a growth phase with BitOfProperty, we are investing heavily in product and investor acquisition, thus we are currently not profitable.
What happens if BitOfProperty fails?
In order to safeguard our investors from the event of insolvency, we are using the common industry practice of structuring deals by creating Special Purpose Vehicles (SPVs) for each property to keep the assets separate from each other. In addition to that, we have introduced a security agent (aka collateral agent), which is a third-party law firm that holds the mortgages in favour of all investors.
In case of insolvency, the security agent will take over the properties and will start the liquidation process, after which the money will be distributed back to the investors.
The characteristics of investing existing properties (i.e. real estate can be tenanted and sold) with the processes that we have implemented (back investments with real estate, keep the assets separate and introduce security agent) make it safe and passive for investors, who wish to have exposure in real estate market with little capital.
PropertyMoose a UK company with a similar business model, failed to maintain operations, this was because the cost of maintaining the individual SPVs was too high. They ended up restricting into a REIT. Can this happen to BitofProperty?
We are structuring our deals using an SPV structure and it is carried out in Estonia. Opening up a private limited company in Estonia takes less than a day and costs €190, thus using the SPV structure makes sense for us and doesn’t pose risk in that regard.
Do all buy to let properties have an exit date?
Yes, they do. For the first deals that we did, we set it for 3 years, however, recently we overlooked it due to change in the business model. With the new strategy, we are holding properties slightly longer by making the holding period at least 5 years. For the investors, this should not make much of a difference, because they can sell their shares any time on the marketplace if they wish to exit the investment earlier.
What fees does the investor need to pay?
Investors are only paying 10% management fee from the rental income the properties are generating. Buying and selling shares in properties is with zero fees. Since we have changed our fee structure, there is no success fee of 15% anymore.
Is there an auto-invest tool?
We do not have auto-invest tool in place at the moment, but it is something that we are looking to build out in the future. Currently, whenever we have a new investment coming or listed on the platform, we notify our users by sending them an email.
Would you like to add more information?
The vision of BitOfProperty is to become the largest real estate investment ecosystem in Europe. In order to achieve that we are building out a technological solution to connect platforms in different countries/jurisdictions so that the properties and investor base are shared in the ecosystem. This creates a high liquidity international real estate investment ecosystem, where investors can buy/sell shares in properties from various countries and would not need to worry about liquidity.
For more information please visit: https://www.bitofproperty.com/
We thank Karl Vään for the interview.
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