Peertopeer

Eight reasons why I moved out of peer to peer investments

I realized I never actually went deeper into my reasons for fully leaving peer to peer. So here are my reasons why I decided to cease investing in peer to peer and only invest in real estate and the stock market.

#1 Its not actually passive

What I realized that with some sites you need to keep a constant eye out for negative news messages about the LO’s you invested in. Sometimes you can read in the news a Loan Originator is going bankrupt, and a few days later it gets suspended from the secondary market. You will want to sell your loans off from that originator before this happens.

#2 It’s hard to distinguish between scams and honest sites

While I do feel some peer to peer sites are easier to spot as scams some are much harder. Sites where the projects don’t match up, or where Loan Originators are kept a secret. I was invested in Kuetzal, Envestio and Monethera. While I got out in time out of Monethera and Envestio I was not able to get out of Kuetzal in time. Looking at it back now of course I should have spotted Kuetzal as a scam.

But other sites were much harder to decide on if they are scams or not. Take Grupeer who went into default for me for example. Are they a scam? Even up to this day after not paying for 90 days they keep up appearances. In any case they were listed on explorep2p which usually only listed credible peer to peer sites.

#3 There is a high liquidity risk on most p2p and p2b sites

Some of these sites have a secondary market but that does not necessarily means it functions correctly. When shit hits the fan and everyone wants to get out, even a secondary market will not help. Some sites don’t have this at all, and they offer investments for 24 months. That’s a very long time to wait when things go wrong.

#4 Investors money might not be separated from the company’s money

When I asked to wire the money on my virtual Grupeer account in March, Grupeer answered me that due to delays in transfers from the Loan Originators they could not transfer it. BUT it was already on my account. That means that the company money and investors money was all together in one big pool. And I am sure that Grupeer was not the only p2p site doing this. It’s not regulated, so they are not required to do it. We need to trust in the goodwill of the p2p site.

The mail I got from Grupeer that made me suspect that investors and company money were not separated

#5 You are also investing in Startups

Most p2p and p2b sites around are actually small companies. So in a way you invest in Startups. Statistically you should know that a startup in the Finance industry has a 42% chance to fail, so this is already a huge risk you are taking just by wiring money. In theory you still have a claim on the loan you invested in directly with the business or loan originator. In practice its quite hard to recover that stake as you have no collateral.

So forget about all these blogs that say you need to diversify! You really shouldn’t, you should be investing in the biggest p2p sites only and stay away of the smaller sites run by a handful of people.

#6 They don’t need to start off as a scam to become one

I’m sure a few of the p2p sites are starting off with the idea that they would set up an honest system. However when the company gets in trouble its quite tempting to start using investors money as your own, or create fake loans or loan originators to get extra funding for your site. Of course that’s not legal, but the temptation is there and there is no regulation to check if they are behaving as they should.

#7 I lose to much sleep over it

When the stock market crashed 30% in February / March 2020 because of Corona I never lost one night of sleep over it. While when Kuetzal stopped functioning, I remember in December 2019 I was awake all night. Even though I had 20 times more in the stock market. The idea that I fell for a scam was just extremely painful.

#8 It feels that even peer to peer loans are P2B loans

On some platforms where you can invest in many different loans, my original thought was that if the LO ever stopped paying I would still have a claim to the loan. After a few Loan Originators got into troubles because of Covid, its very clear that my claim is not on the person that I actually took the loan from but on the Loan Originator itself. So instead of investing in 1000’s of loans I was actually just investing in 30-40 businesses.

Conclussion

In conclusion I no longer feel comfortable to put my money into peer to peer. For me the high risk / high reward has mostly turned out to be high risk. Normally next year there would come some European regulation. This could actually be good for the sector in the long run, but mostly for the investors who will feel more confident simple rules (like keeping investors money seperate), are being followed.

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Peertopeer

Taxes on peer to peer investments in Europe | Your guide to taxes!

When you search the internet its extremely unclear how peer to peer income will be taxed. Sources that do give you answers are sometimes rather answers for local tax laws and are not applicable in your country.

I always display my income tax This is exactly the reason why in my monthly portfolio blogs I always show my income without the 30% taxes I am paying in Belgium, subtract it in my goals update.

I want to avoid that my readers need to go trough what I went trough and that is why I created the ultimate guide on tax laws for peer to peer!

What kind of taxes apply to you?

The first thing you need to find out is what kind of taxes apply to you. There is not one tax rate but three tax rates that can determine how high you will be taxed.

Resident taxes

Resident taxes are the taxes in your country of origin. Depending of the country you live in these can be taxed high or low. In my experience they are usually higher then the second type of taxes, because its much harder to optimize these taxes. Basically the only way to get rid of them is to move to another country! That is a challenge as most countries have either high taxes or a bad job market.

Taxes in the peer to peer platform’s country

The second type are the taxes you might need to pay in the country where the platform is located. These taxes are actually less likely since most investors platform try to optimize their location to be in a low tax zone. Its not a coincidence so many platforms are located in the Baltic states. The withholding taxes of Latvia and Estonia are 0%, so settling here will give the platforms a big advantage. Although the low regulation in those countries might play some role as well.

Taxes in the borrowers country

The third part that might apply is the taxes in the country of the borrowers. If your contract is not with the platform but directly with the borrower (or loan originator) then you might need to pay interest there. In such a case I would expect that the interest goes directly from the borrowers account to yours, and I think this is not a likely situation.

European map of resident taxes

In case you do consider to move country then hopefully this map will help you decide where to go! Additionally should you want to know more about the tax situation in your country then this should give you some idea.

disclaimer “I am not a tax specialist. I interpreted resident tax information at external sources (noted bellow). Please let me know if something is not accurate.”

Now its not all black and white. In this map I usually took the worst possible case but actually for several countries there are excellent exceptions. For Portugal for example if you move there for another country the first 10 years you pay no taxes in your peer to peer investments. For UK there is some tax benefits you will get when investing in peer to peer. I got the information at PWC who are usually fairly accurate, however I do not exclude I misinterpreted anything. Bellow is a table with more detailed information per country.

[table id=5 /]

Do platforms withhold taxes?

I looked at over a dozen platforms and I found that almost none of the platforms are actually charging taxes.

In case of platforms located in the Estonia and Latvia this was to be expected since they fall under a 0% tax rate there. But I am a little bit surprised about platforms located in other countries. Inquiring about this usually got me the same reply that they are not withholding taxes and you should look into your resident taxes. Questions about why this was the case did not get me a fulfilling answer to be honest. I am not a tax expert unfortunately but I would want at least the platform to know why I should not pay any taxes in the country they are located. If its because they fall under a zero tax rate somehow then just make sure you can answer that when your investors ask.

[table id=6 /]

How are the platforms helping us out?

If we just have to write down the profit we have at the beginning of the year and write it down at the end of the year for all our platforms it can be very cumbersome. At least for the normal people outthere who do not check their Mintos account daily, and who do not write down the exact profit they made at the end of every month.

Lucky most peer to peer platforms have at the very least a way to get out the information you will require for the Tax Authorities.

Crowdestor

Crowdestor does not have a tax report, but you can get the information from the “Transactions” screen. Here you can enter a date and you can select “interest payment for project” for example as filter. You can then export it to PDF or excel, that should be enough as evidence. One improvement here I can think of is a multiselect list on the transactions type.

Grupeer

Grupeer allows you to download an income statement report from the overview screen. This should be more than enough to do your taxes.

Grupeer is currently generating the top income for me so its really useful they have this income statement.

Mintos

Mintos allows investors to get a Tax report in the account setting. The report is very basic (unless you live in Germany, Estonia or Latvia) and shows just some basic data. But it should be more then enough to report your taxes:

Basic income statement for Belgian taxes

The funny thing is the site mentions that there is a special report for Estonia, Germany,.. but when I requested the report for Estonia it looked 100% identical as the Belgian report, but anyway as I said its more then enough.

If you haven’t tried Mintos yet then make sure to check out my Mintos review to find out if this could be something for you!

Iuvo Group

Iuvo Group has a very good account statement screen where you can get information you can supply to the Tax authorities. You can see the yearly profit and download the information.

NeoFinance

I had to mention NeoFinance here. As its a regulated platform there is a 15% withholding tax they charge. Now you should now that as a foreign investor the first 500 EUR of investing is tax free. After that there is a 10% tax rate.

I have been trying to figure out how to get these taxes back but so far I have not. NeoFinance is actually working actively on the case. They have a very nice website with a lot of information here, but this one crucial part is lacking. After many mails and some very tiresome talks on facebook they did see that this was a gap in their information and NeoFinance is working on improving the information for investors. When they do I will update this section, and even though its only 8 EUR I need to retrieve still I plan to go to the process to make it easier for you guys.

PeerBerry

In the statement screen PeerBerry gives you a good overview of the profit you made last year. But you can’t export the overview only the full transaction list (which is a bit much imo). Perhaps you can take a screenshot and attach it to your taxes. Then again you are usually not obliged to add evidence unless they specifically ask for it. Not in Belgium anyway. Just writing down the interests should be enough.

What about other platforms?

I might add more platforms here later, but I believe by now it should be clear to you how you can retrieve the information. If you find something strange or special about any peer to peer platform (tax related) then let me know and I will add them here!

Where can I find more information about resident taxes?

The absolute best source is still your Tax Authorities. While I’m not familair with Tax Authorities in other countries I do ask many questions to the Belgium Tax Authorities, their answers are just as good as those from an accountant. I have asked them about peer to peer and ETFs. The earlier you ask the right questions, the earlier you can plan for investments where you pay less taxes.

Another source that is very reliable, and that was also the main source of my research is pwc. It holds Tax information for pretty much any country and will have good information, especially if you live in the EU you can count on up to date and accurate information. Check them out here!

In a future blog I want to add some examples about specific countries, but already a dozen hours or more went into this research and that kind of research would be considerably more difficult. Have you already reported taxes in your country? Please let me know with some screenshots or photos if possible, then I can add this here to make it easier for others in the future.

I am interested in more in depth and valuable content!

If you are then subscribe and follow me on my FIRE journey. Follow my successes, my failures and my research so you dont need to go trough the mess I had to go trough! I hate to say it but I wish I would have read my blog 5 years ago already, this would have given me such a better start in life!

Peertopeer

The 27 Mintos Loan Originators I choose to invest in

I really take my time to set my auto-invest settings. If you don’t have much time you could choose B or higher originators as I suggested in my Mintos Review earlier, and use Mintos diversification settings, however there are some originators you want to avoid, and the Mintos diversification settings are not always as diversified as you might think.

In the end you will need to decide on your own settings based on your Risk profile, however this might provide some guidance on what to look for.

If you are not sure yet what Mintos is exactly then read my Mintos review and find out.

My Mintos Investment strategy

Before we begin I do have a few requirements. Any Loan originator in my portfolio answers these requirements.

  • Interest rates need to be above 10%
  • Only Loan Originators that provide Buyback guarantee
  • No Loans from Kosovo or Denmark (due to local regulations)
  • Mintos Loan Originators need to have either interest on late payments or penalty for late payments
  • I did not find any Loan Originator of C+ or lower that interests me, so they are not mentioned here
  • My strategy is aimed at minimizing risk, but I do take in some risk to get better returns

Points to watch out for

Very high interest rates

Its better not to blindly chase a high interest rate, but always stand still and ask why this high interest rate is offered. It might be that the Loan Originator offers the Loans at a higher interest rate himself, so can afford it, but it might also be that the Loan Originator urgently needs cash. Which is not a bad thing necessarily, but you must always ask the right questions when investing.

Financial Statements

Mintos Loan Originators

A lot of loan originators also use old Financial statements. While still showing only 2018 financials are suspicious but can still be somewhat forgiven, still using 2017 financials is for me a red flag and a reason to not only stop investing but also a reason to consider to sell. Also always look if Financials are audited. If they are not audited we are trusting the Loan Originator to provide proof.

[table id=2 /]

So that totals my 27 loan originators. Keep in mind Mintos currently has 65 Loan Originators. Its hard to know that if you would blindly select all 65 originators if you would come out on top after 5 years. You would have a higher interest rate, but for sure you would also have a higher rate of default. If you diversify but you take in to much Loan Originators with bad ratings then you diversify in a bad way, and greatly increase your chances of defaults.

Mintos Diversification settings

I also do not like the default diversification settings Mintos has. It does not hold into account how many sub – origators a Loan Originator has, and it fails to account for the Risk / Return that Loan Originators bring.

These are the default Diversification with my settings:

Did you notice the big stack in the side taking up 25% of my investments? Horrible! The stack here is Finko, and as you have seen I have deselected most sub – originators from Finko, but still Mintos is treating it like I have them all selected. Additionally a few others are given a higher percentage then I would given the risk that comes with them.

I have contacted Mintos to not only point out this issue, but also to ask that my diversification settings are not overwritten every time I add a new Loan Originator. Mintos is getting a lot of new Loan Originators these days, which is great as a few are really good enough quality to make part of my portfolio, however it is a lot of work to rebalance the settings every time.

With my own settings inserted I get a much better balance. I no longer have any Mintos Loan Originators higher then 15% and those who are higher then 10% have good Financial Figures.

You can find the difference in the bellow table:

[table id=3 /]

My Mintos Portfolio

And how is it working out for me?

My Mintos account balance

First I should point out the following points:

  • I have a second strategy on the secondary market containing 3% of my portfolio. I only buy loans with discount here and I have a higher requirement
  • I have another strategy containing 6% of my portfolio on the secondary market. This strategy is now disabled
  • About 5% of my portfolio has been manually invested. Mainly to combat cash drag
  • My strategy sometimes changes, so I have loan originators that I removed from my auto-invest strategy in my portfolio, although I do not sell the loans unless the financial situation of the Mintos Loan Originator drastically changes
  • I have a total of 9700 EUR invested so far and a return rate of 11.38%. I know many have a higher return rate then me, but they are also willing to accept more risk.

Generally I am quite happy with my diversification and I feel every month it is slightly improving and getting more to the place where I want it to be at.

Final Words

Sources

I should mention the bellow sources that I use a lot when deciding on what Mintos originators to invest in.

What would you do differently?

I am not perfect, I am sure improvements are possible, or you have a different preference. I am very eager to read what kind of strategy you follow, or what you like / do not like in my strategy. Leave a comment bellow and let me know!

Peertopeer · Uncategorized

Should you stay in Envestio or move out? | Why I moved my money out

Updated on 12-01-2020 with reason #7

After about a month of carefully consideration I decided to move out of Envestio.

It was not an easy decision. Envestio was giving me a very good interest rate, with no missed payments. On my monthly report sheet it was looking very well. But there was some changes at Envestio recently that me and many other investors became uncomfortable about.

I constantly re – evaluate my investments to see that the revenue is still worth the risk and so should you! Its not the first time I am making a change and it will not be the last. My readers are always informed first when I decide something, altough this does not mean you need to do what I do. Every person needs to decide for themselves if they think the return is worth the risk.

This will not move me away from investing at all. I will be re-allocating investments mainly to Mintos (75%) and the rest to ETFs (25%).

Four recent changes why I got my money out

Change #1: a new CEO (Rittsman)

When a young company has a change in leadership it’s always a reason for concern. You can expect that you will want to know why leaderhship was changed, and mostly what the new CEO is about. What are his values, and what makes him the right person to give your money to. Because these platforms are often about rust. You expect this person to be trustworthy of your money.

I already commented in my previous portfolio blog post that I was very concerned about this as he was involved in selling a Pertetum mobile.

When asked about this by an investor called Philipp, Rittman claimed that there were actually Powerplants up and running. So he kept the claim that there was nothing wrong with investing in anything that can create energy from nothing.

Another blog asked more information to the CEO he got the following (read the full blog here):

So basically here the CEO is saying that he was selling energy coming from nowhere for a hobby. When asked to clarify more the following was answered:

So now it went from defending the organisation, to a hobby (where he wants to point out he was not so involved) to working as sales.

While its not possible to say if there is a fire, I can see some smoke.

Change #2: a new address

Envestio changed it’s adres on its website to what looks like a mailbox.

When you do a google search you can see there is 25(!) companies registered at the address. I have seen no official statement from Envestio on why they changed address and if this is a temporary measure. It could be an indication of financial problems.

Change #3: drop in revenue

While all throughout 2018 and up to half of 2019 Envestio has been making more and more profit in Q3, according to this report Envestio had a drop in revenue Q3 2019. While if Envestio goes bankrupt in theory you still have a direct claim on the projects, its clear that it will take a long time to get your money out, and you will not get as much as you would have. That doesn’t mean it will happen, but again you need to weigh the revenue with the risks.

Change #4: the secondary market is very crowded

Yes this did affect my decision. The large amounts of money that was leaving Envestio was a reason for concern. Because even if I trusted a CEO who was selling energy that came out of nothing, and trusted the financial situation of Envestio, any bank will fail when a ton of people take their money out. The amounts are also becoming bigger and are staying longer.

This could also be an indication of a healthy secondary market. Before it was always empty, while if you compare with Mintos there is always sales on the secondary market.

What the market does not show:

  • Are people moving money out of investments that finished?
  • Are people still bringing in new money?

Only Envestio has this information and we just need to do a guesstimate. To be honest the above information is publicly available and I see it go by on twitter, blogs and facebook groups.

Reason #5 its clear that projects take much longer to get funded

While before a project on Envestio was funded in a few hours, now it takes many days. The projects added on the 7th of January are not yet funded on the 11th of January (time of writing). However I do see the amounts that can be invested go down, so there is people who still have confidence in the platform.

Reason #6 I got more cautious after the Kuetzal scam

I admit it, when losing 4% of my p2p portfolio overnight with Kuetzal (ok its not sure yet I will lose it all, but right now I am giving it a 60% chance of total loss) I got a lot more careful. As a beginning investor making money seems more important sometimes then keeping your money safe. I changed a lot, and noticed there is Risky and safer p2p investments. Even if the safer give less interest, in the end they have a big chance to come out on top.

Reason #7 Envestio’s sister companies are renamed

Geen fotobeschrijving beschikbaar.

One of the sister companies contains the collateral of the loans. So where is the collateral going? When we look closer we find that the new owner Alexander Novohatski has been mostly involved in companies that were deleted, creditors were harmed or tax collectors were harmed. You can view this here. Almost like he is a guy that they are putting in charge of dying companies,

There have been no announcements about Envestio about this change and that in a period that transparency is crucial in the peer to peer world.

Reasons to stay in

While there are some reasons to move out, and I have, the decision was not easy. I could have made the wrong one. I could think of some reasons to stay in..

Reason #1 Envestio is working on more transparency

Envestio is working on more transparency. I admit this is a rumor I heard, but from a good source, that Envestio is working on creating loan agreements for every investor for their investments, giving you a better legal claim in case anything happens. It would be a change for the first half of 2020. To be honest I hear this the day after I initiated a buy back otherwise I might have stayed in a bit longer to find out what exactly it was about.

Reason #2 Buyback is working excellent

When I did do the buy-back it went surprisingly smooth. The money appeared instantly on my Envestio account and after doing the withdrawal the money was on my bank account in 1-2 days. That shows to me that even after a month of people pulling their money out, they do not have any cash flow issues yet.

Reason #3: The projects still get funded

While its slower then before (not surprising given all the news of the new CEO and then the scam at Kuetzal), both new projects and projects listed by investors leaving the platform are still being funded. That shows that there is still confidence in the platform.

Reason #4 Interest rates remain attractive

A 15-20% interest rate is attractive. Its very hard to deny that. And we can see that projects never seem to miss payments. Is that because of master due diligence / project selection of the Envestio crew?

Reason #5 I did not see any hard evidence that made me conclude Envestio is a scam

You can be sure that the 100s of investors scammed by Kuetzal are now being extra cautious when investing. They have searched on information on many of the projects and mailed a few of them. So far they have found no indication that there is fake projects around.

Why I modified my investment strategy

The amounts I am investing in platforms is always an indication of the confidence platforms give me. You can see Mintos and Grupeer to be very high (percentage wise) in my portfolio, so as a starting investor I would recommend you start there.

I generally consider the lending platforms (Mintos, Grupeer, PeerBerry, Iuvo Group, NeoFinance) to be lower risk then the platforms where you invest in projects (Crowdestor, Monethera, TFGCrowd).

I do like a bit of Risk, but Envestio was keeping me up at night, and that is usually not a good indication that I should stay in.

In total I made 20 EUR loss going in Envestio because of the 5% buy back fee. So almost break even, and I am fine with that.

So what should you do?

Based on the above you could go either way. If you like high risk / high return and can turn a blind eye to the rumors around the current CEO then Envestio still might be a platform for you.

To those who do decide to stay in I really wish the best of luck! I hope that Envestio will continue to give you the returns you search for.

If you, like me, made the decision that the risk is to high for the potential gains then consider to look at different platforms to put your money in. Mintos or Grupeer for example, who give a lower return but in my opinion also a lower Risk.

I wanted to inform my readers asap of my decision to move out. Afteral I am aware that the fact I am investing there can convince some of my readers to do the same, so you should be the first to know if I decide to end my investments there.

Remember in the end its your money and your responsibility to always do due diligence.