FAQ DH REAL ESTATE INVESTMENTS
Compilation of frequently asked questions about our Crowdequity Real Estate Investment Contracts
PROFITABILITY TARGETS
For every task - flipping house (buying the property, renovating and selling it) the profitability targets are:
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Minimum 10% profitability per flipped house
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Medium profitability according to process: 15%
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Maximum yield: 20%
Targets of flipped houses carried out in a contractual year:
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Finalizing at least 2 flipping houses per year (every 6 months)
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Average targets according to previous tasks: perform 3 flipping houses per year (every 4 months)
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Maximum targets: perform 4 flipping houses a year (every 3 months)
Estimating the results in a contractual year:
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Fulfilling 2 flipping houses a year:
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Minimum yield: 20%
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Medium yield: 30% - 40%
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Maximum yield: 50%
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Fulfilling 3 flipping houses a year (medium objective):
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Minimum yield: 30%
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Medium yield: 45% - 60%
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Maximum yield: 75%
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Fulfilling 4 flipping houses a year:
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Minimum yield: 40%
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Medium yield: 60% - 80%
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Maximum yield: 100%
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PARTICIPATION IN THE OBTAINED RESULTS
1. In case the flipping house (purchase, renovation and sale) generates benefits:
How and when are the benefits of buying, renovating and selling distributed?
The benefits are distributed as follows: 50% for investors and 50% for the company Deshiria Home Real Estate SL.
The payment of benefits will be made within 10 working days from the closure of each task (flipping house) that generates benefits.
As a consequence of the capital contribution (investment) in favor of the company, the investor will be entitled to receive, in addition to the repayment of the main contributed capital, the corresponding share proportional to their contributions.
As an example and to facilitate the understanding: If the execution of the task would have resulted in a profit of 20.000 Euros and investor A would have contributed 10% of the total capital brought by all investors, the result would be the following:
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Return of the invested capital (at the end of the contract. THE DURATION OF THE CONTRACT FOR PARTICIPATORY ACCOUNTS IS 1 YEAR
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Out of the 20.000 Euros profit (distributed at the end of every sale):
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50% belongs to our company, which in our example comes to 10.000 Euros
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The other 50% is distributed between all investors (the other 10.000 Euros).
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As in this example, the contribution of investor A was estimated at 10% of the capital allocated to the operation
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Total to be paid to Investor A who has signed investment contract: The contribution made + 1.000€
The payment of the benefits will be paid to Investor A within 10 business days from the closing of each operation (flipping house) that generates benefits
Instead, the contribution (initial investment made) will be repaid at the end of the contract, in order to be able to continue the investments throughout the year.
2. In the event that the property does not garner any profits or losses.
In the event that, following the renovation, the purchase offers are obtained at the same value as the purchase expenses, the following will be done
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If we are less than 6 months in, the sale period is extended up to 6 months from the acquisition of the property, trying to sell it for a profit.
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If we have reached the 6 month mark since buying the property, the sale period is extended another month, trying to sell for the best offer or at cost (buying price+ acquisition expenses+ renovation+ materials+ notary+ advertising).
In the event of the assumption described in section 2, there will be no repayment in the shareholder’s account but the company will initiate a new transaction, always within the terms of the contract, with a new ownership in order to obtain benefits in the next transaction (flipping house).
If the contract is approaching its expiration date and it is not possible to perform a new operation within the deadlines established in the contract, the contribution will be returned as there are no benefits or losses.
3. In the event that the property needs to be sold at a loss.
If within 7 months from the date of purchase of the house we only received offers for an amount less than the purchase price plus expenses, the property will be sold at a loss for the highest price offered. With the proceeds from this sale, a new property will be purchased to benefit from the previous transaction.
If at the end of the contract, the result of the tasks carried out shows losses, they will be assumed as follows: we, the company, would assume half of the losses and the investors the other half, which will be charged in proportion to the percentage of your contribution to the raised capital.
For example: If at the end of the contract the result generated a loss of 20.000 Euros and Investor A contributed 10% of the total capital invested by all investors:
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We, the company, will assume half of the losses, which in our example is 10.000 Euros
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The investors will assume the other half, so 10.000 Euros, which will be diverted in proportion to the contribution made by each. As per our example, considering that Investor A contributed 10%, he will have to assume the loss of 1.000 Euros, so the amount to be returned would be the difference between the amount contributed and alleged loss Contribution – alleged loss / 1,000 Euros = returned amount
4. What happens if the property loses its value and needs to be sold at a deficit?
We proceed to purchase the next property for the total amount of the property that was sold at a loss (purchase, renovation, materials, purchase and sale expenses) trying to recover the loss caused to the property with a better outcome for this new property.
5. What happens if the house is not sold on time or earns the expected value after the renovation is completed?
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If we are less than 6 months in, the sale period is extended up to 6 months from the acquisition of the property, trying to sell it with a profit
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If we have reached the maximum period of 6 months from the acquisition of the property, the sale period is extended by one month and we try to sell the house at cost (purchase price + purchase expenses + renovation + materials + notary + advertisement) or, as a last resort, at a loss. If in the end, the house was sold at a loss, with the proceeds from this sale a new property will be acquired in order to obtain a profit from the following operations that will be carried out during the duration of the contract.
6. What happens if the participatory contract expires and the last property is not yet sold?
If, on the expiry of the contract, an operation is in progress and it has not been completed, the contract will be automatically extended for a period of three months and may be extended for a second period of another three months for the sole purpose of ending any pending tasks.
Characteristics of the purchased property:
If the sum of the investor contributions reaches the amount of 200.000€ a property will be purchased that has the following characteristics:
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3 bedrooms
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Balcony
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Elevator (if the property has more than 2 levels)
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Proximity to means of transport ( bus, metro, subway)
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Maximum purchase price 170,000 €
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Location: Community of Madrid
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Approximate budget for renovation 18.000€ (one month labor), 27.000 Euros (one month and a half labor)
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Maximum budget for materials (kitchen furniture, windows, tile, flooring, hard - wood, radiators, etc.) 15.000 €
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ITP (tax for transferring ownership of the property – 2%) + notary fees around 3.800 €
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Advertising the property (real estate portals, social networking, photographs, etc.) up to 4.000 €
If the sum of the investor contributions reaches the amount of 150,000 Euros, a property will be purchased that has the following characteristics:
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3 bedrooms
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Balcony
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Elevator (if the property has more than 2 levels)
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Proximity to means of transport (bus, metro, subway)
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Maximum purchase price 120.000 €
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Location: Community of Madrid
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Approximate budget for renovation 18.000 Euros (one month labor)
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Maximum budget for materials (kitchen furniture, windows, tile, flooring, hard - wood, radiators, etc.) 10.000 €
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ITP (tax for transferring ownership of the property – 2%) + notary fees around 2.800 €
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Advertising the property (real estate portals, social networking, photographs, etc.) up to 4.000 €
Why do you purchase this type of property?
Thanks to our experience on the market (which contrasts with the statistics published in various media pages) we know that 50% of Madrid residents are looking for a home to own on the outskirts of the center city, that 52% prefer an older house that does not need renovation and with an area between 51 m2 and 90 m2, which is close to shops (90%) and well connected (96%).
In addition, 58% of the demand for housing is between 100.001€ and 250.000€, and the average amount available for the purchase of a home in Madrid is 235.784 Euros.
How do you know the price you need to buy to make the property profitable?
Before we make an offer to buy a home that we consider appropriate, we make a current assessment (we have a legal expert on our team for this) and a future assessment (how much the renovated home will be worth). We also make an estimate of the expenses in order to know in advance the expected profitability for the property we are studying. All these studies are conducted with negative estimates (“worst case scenario”) and if the result shows that the home can generate a minimum yield of 10%, we make an offer to buy the home.
INVESTOR INFORMATIONS
1. Will I always be informed about the happenings of my investment?
The answer is yes. Below you will find all the investor rights during our contracts.
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Reserving the property: an email will be sent to all investors with a file containing all the information about the property we are interested in purchasing which will include: photos of the house, its description, the approximate working budget (there may be variations during the work), the purchase and sale expenses ( ITP and notary), the maximum average and minimum marketing price and the duration of the whole project (buying, renovating and selling of the property).
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When buying a home at the notary: all investors will be notified of the date of signing, having the right to be present, if they so wish. As there is a maximum capacity of people who can attend, a video recording of the signing process will be sent to all investors, together with a copy of the deed. In addition, an open house event will be held for a full day so that investors can visit the property.
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When making the infographics (a graphical representation of what the house will look like after the renovation) : during the renovation process, the property will be advertised for sale with infographics at the desired average sale price, so it will be emailed to publishing internet pages as well as to all investors.
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Changes in the initial renovation budget: whenever there will be a change in the budget due to unforeseen issues we will send an email to all investors to notify them of any changes.
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At the end of the renovation: as soon as the task will be finished, we will clean and stage the property for photo sessions and open house events for our investors as well as for interested buyers.
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When publishing the renovated photographs and sale advertisements all the web links will be sent to all investors as well.
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When signing the reservation contract (booking the property), a copy of the signed contract will be sent to all investors.
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When selling the property in front of the notary: all investors will be informed with said date and will have the opportunity to attend. As there is a maximum capacity allowed in the notary office, we will send the signing video and a copy of the signed documents to all investors.
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At the end of every operation (buying, renovating, selling) we will send an email to all investors containing:
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A document containing all bills and proof of payments made to facilitate buying, renovating and selling the property (renovating costs, buying and selling costs, advertisement, etc.)
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A profit report.
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Proof of payment of the proportional share obtained by each investor in the transaction
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Any bank transfers to and from the joint account so that all investors may verify the payments made and the income from every transaction.
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If there is an unforeseen event throughout the contractual year:
A face to face and online meeting will be scheduled with all investors so that decisions can be made. For those decisions, with a 70% acceptance by the participant, the voted changes will be made. Contingent examples:
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The property must be sold at a loss and there is not sufficient funds for another investment.
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A problem is detected outside the company ( a supplier does not deliver the material on time which causes a significant delay in the completion time, the real estate market collapses due to unrelated causes, Covid restrictions that prevent us from doing business normally, or any major international or national issue that has a negative impact on the investment process).
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An investment opportunity arises that does not meet the acquisition characteristics described in the collective real estate loan agreement and we consider that it might be interesting to invest money.
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Any other convincing motive.
2. What is LTV? How is the collected money used?
LTV (Loan To Value) is a parameter that measures (in %) the relationship between the investment made and the value of the real estate asset.
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In our case, when making a 200.000€ investment, about 160.000€ will go towards buying the property (as a warranty), giving us a low risk LTV of 80%.
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The quantity left of the investment will be used towards cost fees. (taxes, renovating, selling, advertising, etc.)
3. What happens if the 200.000 Euros capital needed for the investment is not raised?
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If a minimum of 165.000 Euros is raised, we will continue with our contract, buying a smaller property, as described above.
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If a smaller amount is raised, between 130.000 and 165.000 Euros, the collection time extends a month, until 06.22.2022.
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If a smaller than 130.000 Euros is raised, all the money will be returned to our investors and we will not proceed with the task.
4. How much time do I have to deposit my investment money?
The investor has 3 business days from signing the contract to deposit his share. If on the fourth business day we do not receive the amount signed upon, the collaboration with said investor will be cancelled.
5. How much time is allocated to buy the investment property?
Our company needs a maximum of 2 months to make the investment acquisition.
6. How long does the renovation period last?
Due to the type of properties that we buy, our team needs a maximum of 2 months to fulfill the renovation of each property.
7. How long would it take you to sell the property once it has been renovated?
From our experience, we know that the sale of the renovated properties takes up to 2 months.
8. Whose name is the investments property registered under?
The properties will be registered under the Deshiria Home Real Estate SL. The main reason for this being the low price of ITP (taxes to buy a home in Madrid) expenses for real estate management companies 2%* vs. a 4% for arge families or 6% if you buy as an individual and yoy are not a large family. The 4% of which we pay less for each operation translates into a saving of 8.000€ per transaction, which in turn, leads to an average saving of 24.000€ per year.
*Acquisition of property by real estate companies:
2% will be applied if the total or partial transfer of one or more homes and their annexes to a company to which the rules of the General Accounting Plan of the Real Estate Sector apply, provided that the following requirements are met:
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Adding the property to the current assents to sell.
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Its main activity is building construction, real estate developments or the sale of real estate on its own.
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That the transfer be formalized in a public document which shows that the acquisition of the property is made of the sole purpose of sale.
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That the subsequent sale is subject to the transfer of assets for consideration.
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That the entire property and its annexes be sold within 3 years of its acquisition.
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They are expressly excluded from the application of this reduced rate:
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Acquisitions of properties at judicial auction.
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Transfers of real estate falling under assumptions referred to the Article 17.2 of the Consolidated Text of Wealth Transfer Tax Law and AJD
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9. Where is the invested money deposited? Is there a warranty for the contributed money?
Each collective real estate contract agreement has its own bank account from which payments and income are made. We also have insurance for investments made.
10. Where will the investment be made?
For each investment a joint agreement will be signed with each investor. This contract is exclusive, but if an investor wants to register the signed contract, it is possible to sign it in front of a notary. The notary costs will be at the investor’s cost, since they requested this procedure.