tombraider
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Post by tombraider on Sept 14, 2017 2:12:57 GMT
Hi, I have invested heavily in another platform and have found the forums invaluable to try and avoid defaults, but recently the platform in question has produced some rather optimistic LTV figures for their lending so much so that I will be pulling my investments. I've used the auto invest accounts with assetz before and found them extremely slow to invest.
Im looking into investing in loans direct and mainly buy to let and property backed ones. I know there is an auto facility for that purpose with provision fund but 5.5 return seems low for a LTV of 70%.
the question I have and I hope someone can answer this. I'm not being cheeky either here, but how accurate do you feel assetz due diligence and in particular LTV estimates are on say a scale of 1-10 (10 being very accurate etc ) Thanks in advance.
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elliotn
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Post by elliotn on Sept 14, 2017 3:42:07 GMT
The supply of information, loan updates and query replies suggest they're on top of their due diligence; with regard to LTV's, they're beholden to the same limitations of RICS open market valuations (particularly backward calculations from GDV for development loans or where there are limited comparables for more bespoke properties) as any other platform and recovery may depend on unkown demand at a specific moment in time. Wouldn't like to put a number on it, sorry!
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ashtondav
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Post by ashtondav on Sept 14, 2017 7:45:04 GMT
Hi, I have invested heavily in another platform and have found the forums invaluable to try and avoid defaults, but recently the platform in question has produced some rather optimistic LTV figures for their lending so much so that I will be pulling my investments. I've used the auto invest accounts with assetz before and found them extremely slow to invest. Im looking into investing in loans direct and mainly buy to let and property backed ones. I know there is an auto facility for that purpose with provision fund but 5.5 return seems low for a LTV of 70%. the question I have and I hope someone can answer this. I'm not being cheeky either here, but how accurate do you feel assetz due diligence and in particular LTV estimates are on say a scale of 1-10 (10 being very accurate etc ) Thanks in advance. Mortgage rates are 2% to 3%ish. 5.5% with a PF (if it has rules and pays out in reasonable time) is damn good! Even with a flawed PF and a probable return of, say, 4.5% that's not bad.
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clay
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Post by clay on Sept 14, 2017 8:17:31 GMT
I only invest manually, because I don't think the due diligence is comprehensive enough for me to trust them to auto-invest in everything. I've only been on the platform for a couple of months, but pretty much every credit report I've read has had an error or an omission in it.
Most recent example: the only loan currently showing as "Upcoming" is a property development one. Search the company or the borrower on Companies House and you'll find he has another company with an almost identical name that went through insolvency proceedings two years ago. I couldn't find any mention of that whatsoever in the credit report, and there's no way I'd want to invest in that without an explanation.
I'm also wary of the headline LTV figures. A lot of them are based on Gross Development Value. Trivial example: if I loan £1m to build houses that would be worth £2m, on land that's currently worth £500k, then AC would give an LTV of 50% (£1m/£2m) rather than 200% (£1m/£500k). They also sometimes include the borrower's home in the LTV calculation, which can be misleading as recovering a debt from someone's primary residence is hugely problematic.
So AC's due diligence and LTV figures are a good starting point, but I wouldn't rely on them to make investment decisions.
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rick24
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Post by rick24 on Sept 14, 2017 9:56:58 GMT
I only invest manually, because I don't think the due diligence is comprehensive enough for me to trust them to auto-invest in everything. I've only been on the platform for a couple of months, but pretty much every credit report I've read has had an error or an omission in it. Most recent example: the only loan currently showing as "Upcoming" is a property development one. Search the company or the borrower on Companies House and you'll find he has another company with an almost identical name that went through insolvency proceedings two years ago. I couldn't find any mention of that whatsoever in the credit report, and there's no way I'd want to invest in that without an explanation. I'm also wary of the headline LTV figures. A lot of them are based on Gross Development Value. Trivial example: if I loan £1m to build houses that would be worth £2m, on land that's currently worth £500k, then AC would give an LTV of 50% (£1m/£2m) rather than 200% (£1m/£500k). They also sometimes include the borrower's home in the LTV calculation, which can be misleading as recovering a debt from someone's primary residence is hugely problematic. So AC's due diligence and LTV figures are a good starting point, but I wouldn't rely on them to make investment decisions. Re: LTV. Development loans are drawn down in stages, so the LTV at any one time will be the ratio of the cumulative loan instalments to the current value of the site. This should make the LTV less alarming. I stand to be corrected.
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pikestaff
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Post by pikestaff on Sept 14, 2017 9:56:59 GMT
...I'm also wary of the headline LTV figures. A lot of them are based on Gross Development Value. Trivial example: if I loan £1m to build houses that would be worth £2m, on land that's currently worth £500k, then AC would give an LTV of 50% (£1m/£2m) rather than 200% (£1m/£500k)... 200% would be wrong because the loan is advanced against expenditure as it is incurred. The worst case is probably if the developer goes bust half way through and the market's tanked. Exposure (amount advanced) say £500k. Value of land with half-finished property uncertain. It might be less than £500k but things would have to get very bad before that was so. Ilustrative example: if the cost to complete is £750k including a margin for the new developer and the expected selling price is now £1.5m (a 25% drop) the land would be worth £1.5m - £750k = £750k. AC's LTGDVs are usually more like 70%. If we change your example to have an expected selling price of £1.4m (LTV 71%), the value of the land in my illustrative example, assuming the same 25% drop in expected selling price, would be just £1,050k - £750k = £300k. Not so healthy but I think that's a realistic indicator of our risk. [Edit: crossed with rick24 ]
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lobster
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Post by lobster on Sept 14, 2017 10:32:16 GMT
...I'm also wary of the headline LTV figures. A lot of them are based on Gross Development Value. Trivial example: if I loan £1m to build houses that would be worth £2m, on land that's currently worth £500k, then AC would give an LTV of 50% (£1m/£2m) rather than 200% (£1m/£500k)... 200% would be wrong because the loan is advanced against expenditure as it is incurred. The worst case is probably if the developer goes bust half way through and the market's tanked. Exposure (amount advanced) say £500k. Value of land with half-finished property uncertain. It might be less than £500k but things would have to get very bad before that was so. Ilustrative example: if the cost to complete is £750k including a margin for the new developer and the expected selling price is now £1.5m (a 25% drop) the land would be worth £1.5m - £750k = £700k. AC's LTGDVs are usually more like 70%. If we change your example to have an expected selling price of £1.4m (LTV 71%), the value of the land in my illustrative example, assuming the same 25% drop in expected selling price, would be just £1,050k - £750k = £400k. Not so healthy but I think that's a realistic indicator of our risk. [Edit: crossed with rick24 ] £1,050k - £750k = £300k . Useful post though - thanks
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clay
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Post by clay on Sept 14, 2017 11:32:03 GMT
...I'm also wary of the headline LTV figures. A lot of them are based on Gross Development Value. Trivial example: if I loan £1m to build houses that would be worth £2m, on land that's currently worth £500k, then AC would give an LTV of 50% (£1m/£2m) rather than 200% (£1m/£500k)... Ilustrative example: if the cost to complete is £750k including a margin for the new developer and the expected selling price is now £1.5m (a 25% drop) the land would be worth £1.5m - £750k = £700k. That assumes you can find a developer who's wants to complete the project. For something simple (e.g. housing) that probably won't be a problem, although it might take a little time. But if the project failed because there is no demand for what's being built, then the asset is only going to be worth the land value less the cost of clearing the land. I might be wrong, but my understanding of GDV is that it's not the realisable value, and when it comes to security it's only realisable values that I care about.
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Post by mrclondon on Sept 14, 2017 12:10:20 GMT
Ilustrative example: if the cost to complete is £750k including a margin for the new developer and the expected selling price is now £1.5m (a 25% drop) the land would be worth £1.5m - £750k = £700k. That assumes you can find a developer who's wants to complete the project. For something simple (e.g. housing) that probably won't be a problem, although it might take a little time. But if the project failed because there is no demand for what's being built, then the asset is only going to be worth the land value less the cost of clearing the land. Yes, a very good point. The MT Paisley residential language school is a good example here, where its only the borrower's own belief that there is a demand for a language school in the first place. This is in complete contrast to say "Mr DA" SPV's on TC for assisted living apartments where he has agreed heads of terms between the local authority and the housing association (of which he is a director) for the appartments before embarking on the development project. If the SPV was to fail, there is still the (notional / implied) demand from the local authority for the assisted living apartments to encourage a.n.other to take the project over.
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jonah
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Post by jonah on Sept 14, 2017 12:20:17 GMT
Mortgage rates are 2% to 3%ish. 5.5% with a PF (if it has rules and pays out in reasonable time) is damn good! Even with a flawed PF and a probable return of, say, 4.5% that's not bad. 4.5%-5.5% return before tax is less than or at inflation if you are higher/top rate payer though. It definitely doesn't pay to borrow @ 2% to earn 4.5% unless you can reduce you tax liability somehow (e.g. Isa, sip or via vcts or similar) or are a none or basic rate tax payer.
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pikestaff
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Post by pikestaff on Sept 14, 2017 15:44:54 GMT
That assumes you can find a developer who's wants to complete the project. For something simple (e.g. housing) that probably won't be a problem, although it might take a little time. But if the project failed because there is no demand for what's being built, then the asset is only going to be worth the land value less the cost of clearing the land. Yes, a very good point. The MT Paisley residential language school is a good example here, where its only the borrower's own belief that there is a demand for a language school in the first place. This is in complete contrast to say "Mr DA" SPV's on TC for assisted living apartments where he has agreed heads of terms between the local authority and the housing association (of which he is a director) for the appartments before embarking on the development project. If the SPV was to fail, there is still the (notional / implied) demand from the local authority for the assisted living apartments to encourage a.n.other to take the project over. Agreed, and I'm wary of commercial developments generally (though a big fan of Mr DA's SPVs). However, the example I was commenting on specifically said houses. Even with houses you need to understand whether what's being built fits the market and most importantly whether it's the kind of property where demand should hold up in a recession.
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shimself
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Post by shimself on Sept 14, 2017 16:17:07 GMT
There's been at least one loan on AC where the valuation of completed dwellings has been shown to be utterly wrong (to the point where some lenders - moi inclu - suspect criminal deception). I definitely try to find out how much our actual property changed hands for last and when (which obv should be on the standard valuation report but actually isn't for no good reason that I can think of). I don't like valuations where the surveyor isn't from the local area.
AC do actually have qualified people on the board, um can't remember the phrase but qualified receivers, people who deal with bankruptcy. I think they do a better job than most, but there will be losses. And of course the property market could take a dive, in which case vaulation schmaluation.
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Post by stuartassetzcapital on Sept 15, 2017 16:59:35 GMT
...I'm also wary of the headline LTV figures. A lot of them are based on Gross Development Value. Trivial example: if I loan £1m to build houses that would be worth £2m, on land that's currently worth £500k, then AC would give an LTV of 50% (£1m/£2m) rather than 200% (£1m/£500k)... 200% would be wrong because the loan is advanced against expenditure as it is incurred. The worst case is probably if the developer goes bust half way through and the market's tanked. Exposure (amount advanced) say £500k. Value of land with half-finished property uncertain. It might be less than £500k but things would have to get very bad before that was so. Ilustrative example: if the cost to complete is £750k including a margin for the new developer and the expected selling price is now £1.5m (a 25% drop) the land would be worth £1.5m - £750k = £750k. AC's LTGDVs are usually more like 70%. If we change your example to have an expected selling price of £1.4m (LTV 71%), the value of the land in my illustrative example, assuming the same 25% drop in expected selling price, would be just £1,050k - £750k = £300k. Not so healthy but I think that's a realistic indicator of our risk. Actually the loan book is running at under 60% average and even new lending each month is well under 70% and the weighted average is actually close to 60% LTV on day of drawdown.
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pikestaff
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Post by pikestaff on Sept 15, 2017 17:20:44 GMT
200% would be wrong because the loan is advanced against expenditure as it is incurred. The worst case is probably if the developer goes bust half way through and the market's tanked. Exposure (amount advanced) say £500k. Value of land with half-finished property uncertain. It might be less than £500k but things would have to get very bad before that was so. Ilustrative example: if the cost to complete is £750k including a margin for the new developer and the expected selling price is now £1.5m (a 25% drop) the land would be worth £1.5m - £750k = £750k. AC's LTGDVs are usually more like 70%. If we change your example to have an expected selling price of £1.4m (LTV 71%), the value of the land in my illustrative example, assuming the same 25% drop in expected selling price, would be just £1,050k - £750k = £300k. Not so healthy but I think that's a realistic indicator of our risk. Actually the loan book is running at under 60% average and even new lending each month is well under 70% and the weighted average is actually close to 60% LTV on day of drawdown. Thank you. If I re-do the simplistic example with an expected selling price of £1,667k (LTV 60%) a 25% drop would reduce the selling price to £1,250k making the land worth £1,250k - £750k = £500k which exactly covers the amount advanced. Coincidence or not?
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Post by stuartassetzcapital on Sept 15, 2017 17:30:36 GMT
Development loan risk is somewhat complex as it involves regular advances through the construction and against works completed and certified usually by a monitoring surveyor. We look at day one LTV of the value of the land versus the first draw and want that to be a sensible % and in addition to that the end result value (GDV) needs to be sensible versus the loan advanced. The two key valuations are the land value before construction and the final scheme value. There are many many other issues to manage along the way and that's why we have seen so much noise on development loans in the P2P space when companies unfamiliar with developments start funding them. We have a sound and experienced team and stand by our results to date.
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