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Why A Guaranteed Real Estate-Backed Loan Could Be Your Best Option For Regular Passive Income

Written by
BigFundr Team
Published on
June 3, 2024
January 31, 2024

This article was written in collaboration with DollarsAndSense.sg

Passive income has always been an allure for investors. Unlike active income, which requires an exchange of time and effort for money in traditional employment or even a side hustle, passive income can be earned with minimal ongoing effort.

While there are many ways to earn passive income, including through bonds and dividend stocks, many of you in Singapore may gravitate towards rental income from investment properties if given a choice.

And it’s not surprising to understand why. Singapore has a long history of property price appreciation.

Property Investing Comes With Its Own Risks

Just like any other investment, property investing also carries risks. For a start, Singapore properties are very expensive, and you may only ever be able to invest in a small number of properties — i.e., putting all your eggs in one or two baskets.

In trying to realise your dream to invest in a property, you may inadvertently stretch your finances. This could mean becoming overly dependent on the monthly rental income to finance your property loan or being overly optimistic about continued large price appreciation.

The reality is that most retail investors are not real estate specialists and may invest in properties that do not enjoy any price appreciation. Even in today’s red-hot property market, there are many instances of properties selling at a loss.

Turning To Overseas Property Investing

While overseas properties tend to carry lower sticker prices, they do not automatically translate into better or lower-risk investments. In fact, you may be at a greater disadvantage due to your lack of familiarity with the location and future potential of the overseas property market.

On top of this, maintaining an overseas property can be more complicated. Besides requiring an overseas bank account and home mortgage, you likely have to rely on a local property agent to not just rent out your overseas property but also for upkeep and guidance on local documentation work like taxes.

What you ultimately cannot ignore is that overseas property markets are not the same as Singapore’s – which has benefitted from a stable political and economic landscape. You need to be savvier property investors, with a deeper understanding and experience, to succeed in an overseas market.

Outsourcing The Expertise To Invest In Overseas Properties

In today’s technology-driven world, you have access to alternative means for property investment opportunities. One of them is BigFundr, an MAS-licensed investment platform that focuses on guaranteed, real estate-backed loans.

Founder and CEO, Quah Kay Beng, has more than 25 years of experience in real estate investment and asset management. He started BigFundr with the vision to help retail investors access diverse real estate-backed loan opportunities that were previously only available to institutional investors or high-net-worth investors.

The team at BigFundr does this by sourcing for real estate-backed loans across Australia, the United Kingdom (UK) and Singapore. These opportunities have to pass stringent credit assessments by both BigFundr and Maxi-Cash*, as well as external loan managers.

Once vetted, these curated real estate-backed loans – termed Deals – are listed on the BigFundr platform.

To determine if you should invest in a Deal, you can download detailed property factsheets from the platform. BigFundr has also appointed an independent cash administrator to administer investors’ funds on your behalf. This means that investors’ funds are never co-mingled with the platform’s funds, which adds another layer of safeguard to your investments.

Even after you make an investment, the independent cash administrator will only release the funds to the borrower upon certain construction milestones being met and verified by another third-party quantity surveyor. Again, this safeguards against funds being misappropriated on the borrower’s end.

Once the investment is made, you start earning monthly interest, which will be credited to your BigFundr account, and you are free to withdraw at any time.

Guaranteed To Satisfy Your Desire For Stable Passive Income

In the first place, BigFundr caps the Loan-To-Value (LTV) of its loans at a maximum of 70% of the property value to ensure that investors’ funds are safe. This buffer is to account for devaluations in property, especially in the scenario of default, giving investors greater peace of mind that you will get your funds back once the real estate is sold off.

Investments made by BigFundr are actually loans with real estate as collateral. In the unforeseen scenario that the borrower goes into liquidation, BigFundr’s loans are structured to have the first legal right to be paid back upon the sale of the real estate.

Moreover, BigFundr also receives a personal guarantee from the borrowing entity. This means that BigFundr can seek recourse from the borrower itself if there is any shortfall on the loan during the liquidation process.

BigFundr works with some of the largest fund management companies, with loans between $1 billion and $3 billion under management in the various property markets, to source for Deals. At the commencement of each Deal, BigFundr attains a guarantee from these fund houses to buy back the loans at an agreed time.

While the liquidation process may take a while to finalise, BigFundr’s investors enjoy full guarantee provision by Maxi-Cash* on their principal and interest. Regardless of how long the liquidation process may take, Maxi-Cash* will immediately step in to repay your principal and interest payments.

These safeguards give investors greater confidence in the timeline for your investment and interest payments, regardless of how long it takes or whether BigFundr can recoup the entire investment amount from a property sale.

With the additional 4 layers of assurance from the investment guarantees and investment returns currently exceeding 6% nett p.a., investors have an incentive to diversify from both more volatile investments, such as stocks, as well as safer investments, such as fixed deposits and Government T-bills.

Since many of its Deals are overseas-based, BigFundr also hedges all currency exposure for the entire term of the loan. That’s why investors do not have to worry about currency fluctuations – and all investments are transacted and repaid in Singapore Dollars.

Start Earning Regular Passive Income From Guaranteed Real Estate-Backed Loans

To date, BigFundr has successfully funded a mix of more than 22 residential, commercial and mixed-use developments worth more than $80 million with a 0% default rate. These Deals typically mature over a period of 6 to 12 months.

Since BigFundr started in Oct 2021, it has steadily increased its interest rates to keep up with the rising interest rate environment. Current Deals on the platform are paying an interest rate of more than 6% nett p.a.

The strategy to earn a regular monthly passive income is to diversify your investments across various Deals offered by BigFundr. And you could keep repeating this cycle of reinvesting your funds upon maturity for continued passive income. This way, you also get to spread your risk across more investments and be able to consistently invest in new Deals based on the latest market rates.

As you can start investing with as little as $1,000, BigFundr has effectively stripped away cost barriers to earn a regular passive income from investing. BigFundr has also structured Deals to ensure that investors receive regular interest income on a monthly basis, rather than semi-annually or annually.

Since BigFundr’s targeted Deal returns of more than 6% nett p.a. are currently higher than fixed deposits and provide more stability than equity investments, investors can now diversify into investing in bite-sized property loans to earn bigger returns while enjoying their 4 layers of guarantee on your capital and interest.

*Maxi-Cash Capital Management Pte Ltd, a wholly owned subsidiary of Maxi-Cash Financial Services Corporation Ltd, an SGX-listed company.

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