Is Housers the next default?

I just started investing in EvoEstate, I did not do any platform review because I usually wait at least one year and see how it works before expressing my findings. The founders are supposed to be expert in the sector and I wanted to invest in what they invest (plus the Heavy Finance loans as described in my previous post…but wait, did not you say you wait a year before writing about a platform? Sometimes I get carried away, if they opportunity looks good to me). This morning I stumbled on a very well done post about the problems with Housers (unfortunately it is in Italian), I went to check and…yes, some of the EvoEstate skin-in-the-game loans are in Housers…nooooot great.

I do not remember when I read the first time about H, it was years ago. It was one of my fastest paaaaaaaass because of two (very personal) heuristics. The serious one:

• the returns are low

As I wrote endless times before, anything below 10% hardly compensate the risk of default; if you are wrong, you are not missing anyway a great opportunity. Plus they have lot of hidden fees and taxes for investors (I checked again now after years and seems that the advertised returns are higher).

The somehow less serious one (even if it works as much as the other):

• they operate in Italy

I am Italian, I have great friends and lot of nice memories back home but if we discuss business, I simply prefer to look somewhere else. Again, I am not saying that every business In Italy is a bad investment, it is just suboptimal: you can find better returns for the same amount of risk, so why bother? Part is due to the legal environment, part to people inclinations, part to the culture. If you add that the rest of Housers projects are based in Spain and Portugal…if I was Housers CEO I would have added Greece so at least I had all the PIGS (yes yes, the OG was Ireland and not Italy, I know).

Beauty is in the eye of the beholder

As my D&D Dungeon Master used to say. Housers website has a nice and enticing layout, plus the idea to give retail investors an easy access to buy-to-let properties is a good one: knowing how Italians are obsessed with real estate investing, I can understand why this platform had some success. I tried to find some evidence without any hit but apparently in 2017 Housers raised 900k on CrowdCube at a pre-money valuation of EUR c50mio! To put it into context, EstateGuru was valued less than EUR 30mio and Mintos less than EUR 70mio in 2020. This is to say that with some, even small, changes in the platform, I would be probably here to describe how I lost money and not how a dodged a bullet.

I cannot really comment on the Housers project profitability because I never invested; from a quick research on EvoEstate secondary market, all Housers deals seems to be on time or slight delay, but this might be due to the research and vetting the EvoEstate guys did on them. From what I read in the post I linked and in other reviews around, the picture for Housers direct investors might be more grim.

One of the reasons why Housers is in trouble is related to its founder and former CEO: his management of Housers – the company was not the most responsible, he took a lot of debt and did not repay it on time, he did not paid invoices, he did not develop ‘ancillary’ but critical part of the platform like customer service or project documentations. Other shareholders tried to oust him and that’s when the shit hit the fan: they tried to ‘Saverin‘ him and the fight obviously went to court, which is something you want to avoid when the company is unprofitable and you have to constantly raise money to keep the lights on. Add some fines from the Spanish Regulator for bad management and…voila’ omelette parfait.

What Mr Brusola, Housers founder, did is more the rule than the exception in the start-up world. Fake it till you make it.

And so?

This is a perfect example of the risks I insist you should consider when you invest in these platforms. A risk that has anything to do with p2p, its borrowers, interest rates and the economic environment. A risk that is really hard to quantify and to measure because the elements to make an informative judgement are shared only with the company Board, and sometimes not even there. A platform might lose money and be completely fine (think about Amazon when it was reinvesting all the cashflows to grow the business); a platform might have a profit and be on the verge of collapse (they stop to invest in R&D, customer service or…cook the books?).

You have to approach these investments with your eyes wide open. And try to get compensated for ALL the risks you take, the evident one and the opaque one. What works for me does not have to work for you but you need a comprehensive risk management framework. Take Kristaps Mors: I do not agree with him when he says that is better to invest in three platforms, where you did all the possible due diligence, instead of ten. I do not agree with him when he says that you should not invest in Viventor. Yet I think his process is valid and I find what he writes really informative. As I find those bloggers that do interviews and ‘visits’ to the platforms full of bulls**t, because they never ask the important questions, they are just a marketing stint FOR the platforms, repaid by links and cashback offers.

In this sense, I find the following excerpt from the latest Howard Marks Memo quite on topic:

Importantly, Graham and his less famous co-author, David Dodd, characterized bond management as a “negative art.”  What did they mean?  In general, bond investors’ return is capped at a yield that stems from the promised interest payments and payoff at par upon maturity; that’s why it’s called “fixed income.”  The upshot is that all bonds bought at a 6% yield will return 6% when held to maturity if they pay.  Bonds that don’t pay, on the other hand, will produce losses of varying magnitudes.  Thus, oversimplifying, you improve your performance in bonds not through which paying bonds you buy (since all 6% bonds that pay will have the same return), but through what you exclude (that is, whether you’re able to avoid the ones that don’t pay).

Howard Marks

Equally, the real success in p2p investing is more driven by the platforms that you avoid: the frauds, the scams, the busts. Kristaps point is easy to understand: if you invest in a low number and you do a deep research on them, it is hard that you will end up empty handed. My counter-argument is that I do not have the time to do that type of research, and even if I had it sometimes it is pointless because you can never know what is going on behind the scenes. That is why my platform portfolio is bigger AND I never allocate more than 1% of my Total Net Worth to any of them.

What I am reading now:

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