Crowdfunding Property: Why Don’t Banks Buy Their Own Property?

Because Lending Based on Past Performance is Far Safer

“Past performance is not an indicator of future returns”

How many times have you seen that important caveat on investment advertisements?

Past performance is not an indicator of future returns, right? With P2P Lending It Can Be

What happened in the past is no indicator of what may happen in the future. Well, that is absolutely true if your predictions for the future are based entirely on guess work like most investments actually are. The capital price growth of properties, the ability to let a property, the income from rental, inflation rates, voids, management costs, maintenance and repairs – the list of guesses needed to price the ‘hoped for’ returns on an investment property purchased for rental and capital growth is very long indeed.

To qualify these investment decisions the past simply cannot be used as an indicator for the future returns on investment. This is why regulators the world over insist that advertisements carry this disclaimer. But the same is not true of bonds or other contractual obligations. The future return on investment of a contractual return should always be the same as stated in the contract. That sounds a little obvious, but sometimes the obvious needs a little thought.

For example, if a contract states that the borrower will pay 10% per annum for 9 months then the lender knows from the outset exactly how much return he or she will get. Of course, if the borrower were to default then the contractual rate might not get paid. That is why lending institutions the world over seek collateral to a value higher than the loan in order to ensure that, in the unlikely event that a borrower defaulted on their contractual payments, the asset (in our case a property) can be used to recover the loan and any interest due.

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