6. Why the long term is good
The good thing about starting to invest is that you always arrive at a good time. Don’t get me wrong: the most skilled investors are able to see the moment, jump… and reap substantial benefits. But most of us can only hope to counter the ups and downs of the market – and our own inexperience – with patience. That is, with time.
If you are starting out in the world of investing, you have to have savings and not be in a hurry. As economist Paul Samuelson, winner of the Nobel Prize in 1970, said: investing “should be like staying and watching the paint dry or the grass grow. If you’re looking for thrills, take $800 and go to Las Vegas.” There are two reasons why this is true. The first is that it is very difficult to beat the market. The second, that in the long term you always win.
That’s why it’s a good idea to start early, for example, today. Since in the long term the market always goes up, if you had started investing 20 years ago today you would have multiplied your money. And, in addition, thanks to compound interest, a small profit grows at an exponential rate over the years. Have you lost? You will understand it immediately with an example.
Imagine that you invest 1,000 euros in a product that offers a 5% annual return. After 12 months, you will have 1,050 euros. In year 2, that 5% will be applied on a higher amount, so your 1,000 euros will have become 1102.5. In year 10, the compound interest will have increased your 1,000 euros to reach 1,628.89 euros. It’s like a snowball: it’s getting bigger faster and bigger.
Deadlines in Urbanitae
And how are the deadlines in Urbanitae ? In real estate crowdfunding there are two main types of projects: those that follow a capital gains strategy ( equity projects) and those that follow a debt strategy (loan projects). There is a third class, which is actually one of the former: rental projects, which are usually structured via equity. But that’s what we’ll talk about in another post.
Equity projects are usually quickly identified by their term. It is rare for them to go below 20 months. However, loans can perfectly be projects 15 or 12 months ahead, or even less. Why? Because they are completely different.
In an equity project , Urbanitae investors become partners of the developer. Therefore, they tend to enter a more initial phase of projects and are exposed to greater risks. For example, that the works are delayed, that the license takes longer to arrive, that the houses are not sold … For the same reason, returns are usually higher.
All this can also happen in a debt project. But they do not condition profitability. As happens when you ask for a mortgage, what the bank requires is to repay the loan in a timely manner. When Urbanitae investors lend their money to a developer, he is obliged to return it once the deadline has expired, and with the agreed interest. It doesn’t matter if in that time he has done well, very well or regularly.
In Urbanitae, more than 80% of the financing corresponds to equity projects . We are, in fact, the only real estate crowdfunding platform specialized in this type of projects. Although we have made less debt, with the launch of our developer loan in the last quarter of 2022 we expect to increase this line of our business.