General Risk factors:
This website may contain statements about future financial and operating results and other developments and forecasts, all of which are forward-looking or subjective assessments. All of these statements are based upon estimates, assumptions and presumptions that crowdhouse considers appropriate at this stage. Before deciding for an investment in a property based on available documents, we recommend you to become familiar with the risks of real estate investment.
Real estate investments are long-term investments. Investment performance depends on several economic, legal and fiscal factors, which may vary during the investment period. Forecasts of future results may not capture all the economic, fiscal and regulatory developments, even with conservative calculations.
Real estate, like any other form of investment, are subject to significant value fluctuations and carry unforeseeable risks. In extreme cases, even an entire loss of the investment is not excluded.
The real estate investment fund should always be seen as a part of an investment strategy, that takes into account, in a comprehensive and balanced way, the individual investment objectives, such as retirement, long-term wealth accumulation, realization of steady yields, security, return and liquidity, and that can only be optimized by combining with other types of investments (diversification).
If necessary, you can consult a financial or legal advisor that you trust.
The following risk factors need to be considered carefully:
a. Impact of economic conditions
As any investment, real estate investment in whatever form, is subjected, to general economic conditions, such as economic growth, inflation, interest rate fluctuations and the attractiveness of a location, this at a national and international level. With a deterioration of economic conditions, the demand for residential properties and rental space may decline at any time. This could mean that rental income and sale returns could decline.
b. Risk assessment
The property valuation is made at a date of reference and is subject to the risk that the determined values cannot be realized upon sale. The future development of the relevant rating factors is subject to uncertainty. Even if the evaluation follows professional guidelines, it is associated with the risk that the determined values cannot be realized with the sale, since the price depends on the market conditions at the date of realization. This is influenced by the economic situation, the interest rate, the vacancy rates of the existing properties and in general by supply and demand. In addition, any fiscal consequences of a later sale of the property are not taken into consideration in the evaluation. The applicable taxes on the sales may however reduce the earnings of the sale of the property. Eventually, it cannot be excluded, that a subsequent evaluation results in a lower value than previously determined.
c. Changes on the Swiss real estate market
The real estate market is subject to cyclical fluctuations of supply and demand from time to time. For instance, the supply of rental space can strongly increase in certain area with the realization of new construction projects, and can constitute an overcapacity of rental space or marketable real estate. Overcapacity of residential and commercial properties can lead to a reduction of rental income and of the property prices or valuations, as well as to an increase in the vacancy rate. With a possible collapse of the entire real estate market and the impaired depreciation of owned property, it would be necessary given the circumstances, that the investors inject immediately new equity capital. A property with a higher leverage may be more exposed than properties backed by more equity.
d. Market risk concerning rental income
The recurring revenues consist mainly in rental income of the property. It is possible that the rental income cannot or not entirely adjusted to the interest rate level. This may adversely affect the liquidity of a real estate investment. There is also the risk that the vacancy rate increases and that in the event of a change of tenant leases can no longer remain at the same conditions than before. Rental income can also drop by the changing solvency of tenants. This creates the risk that return distributions are lower than planned. crowdhouse is however very cautious in the selection of investment properties, to select real estate that are very easy to rent and offer attractive rents. No guarantee can yet be given for any property that the rental income will progress and evolve in accordance with a specific pattern. Rental revenues are directly exposed to changes in the Swiss real estate market.
e. Force majeure
The action of elements of force majeure (for instance natural disasters such as earthquakes, storms, war or terrorist events, sabotage, etc.) can adversely affect the value of investment property and therefore the business, financial condition and results of property despite appropriate insurance policies.
f. Contaminated soil
According to environmental legislation polluted sites can affect negatively the settlement of a construction project as well as existing buildings, technically, operationally and financially. At the time of purchase and of evaluation, unknown, later occurring contamination can never be ruled out. It cannot therefore be excluded that renovations may be necessary and that new capital may have to be raised.
e. Fiscal risks
Should tax regulations, legislation, practices of fiscal authorities, agreements with fiscal authorities (tax rulings) change in the future or the current practice be revoked, this may have a negative impact on the business, financial and earnings situation of every property investment. Hence previous fiscal years, not yet definitively assessed, may be affected.
f. Factors influencing the location
The real estate market is subject to location factors and property performance can vary significantly depending on the location. Location factors of a region can deteriorate severely over time, for instance due to a crisis of an industry heavily concentrated in a region and thus adversely affect the performance of a property.
i. Financing and interest rate evolution
In order to optimize the return on equity, the purchase of real estate with crowdhouse relies, in some cases on a very high leverage compared to other industries. The financing costs of single property investments depend therefore partially on interest rates. It cannot be excluded that the financial institutions change their credit policy, which could have a negative impact on the refinancing. Interest rate changes, mortgage rates in particular, can impact negatively the cost structure and adversely affect the financial and earnings situation. An unhedged increase in mortgage rates may heavily worsen the profitability of a property. There is a risk that the rental income become no longer sufficient to cover all expenses and may need additional funds in the form of new equity capital. Should such a capital increase or capital raising not be possible or very difficult to reach due to a real estate crisis or other factors, there is the risk of an entire loss for the investor. For this reason, the properties shown on crowdhouse are financed through fixed rate mortgages with a fixed term of at least five years or through libor mortgage with long-term hedging of interest rate risks. Thus, the interest rate risks are reduced to their minimum. A rise in mortgage rates may increase the cost of investment property, which can lead to a change in the gross return. However, rents in compliance with the current tenancy law are linked to the development of the mortgage rate, resp. reference rate. Basically, an increase in the mortgage, resp. reference rate causes an increase linked to the rent (in living areas). A change in interest rates may also affect the demand for investment properties. In a worst-case scenario property rights can be lost (auction sale of the property or financing bank acting as principal).
j. Real estate construction, repair and maintenance
Despite careful pre-examination, unforeseen maintenance and renovation costs can occur. Repair and maintenance of existing properties may require substantial investments, that generate income, if any, only after a certain time and possibly require further equity capital. Would renovations or repairs be necessary, in an extreme case, there would be the risk of no distribution of return. With higher costs, it can happen that during the entire duration of the investment no return can be distributed and that even further equity capital may have to be injected.
k. Economic depreciation
Infrastructure, environmental and regulatory factors in the immediate or distant surroundings of the property investment - as urban planning, roadworks or for example the definition of flight routes - can lower the return of such a property, because the property cannot or no longer be rented under the same conditions or a significant capital expenditure has to be made to ensure the letting.
l. Property risks
Depending on how old is the property, the building quality and the type of use, there is a risk of potential hazards that emanate from the building and can cause personal injuries or material damages. While such risks are usually covered by appropriate insurance, it cannot be excluded that certain damage may still have financial consequences for the investors.
m. Concentration risk
When investing in individual properties, there is a concentration risk of one or more of the risks described, which can influence negatively the results of operations and the financial situation of the property, may require the injection of new capital and reduce or event stop the distribution of yields. Consequently, it is recommended to optimize the risk by investing in several objects if possible.
n. Limited liquidity real estate market
Both when buying and selling a property or shares of the property, the Swiss real estate markets is characterized by limited liquidity specifically for properties located in certain regions. This may adversely affect the property prices. The short-term purchase or sale of a property or shares of a property can be impossible with the market situation or possible only with important price concessions and in extreme cases lead to an entire loss for the investor.
o. Subject to legislative developments
Future changes of communal, cantonal, national and international laws and regulations can have an impact on real estate prices, costs and revenues and thus on the operating results and the value of the property. In Switzerland, real estate investment is regulated in particular by federal, cantonal and communal regulations and laws in the areas of tax, tenancy, land use planning, construction and environmental law and purchase of real estate by persons living abroad. It cannot be ruled out that changes in the regulatory environment may adversely affect the development of a real estate investment. There is a risk that investors are not authorized to acquire the investment property or that the approval process takes more time than expected. This can especially happen if not enough detailed information can be provided, that no person living abroad are involved in a property according to the Federal Law BewG, SR 211.412.41 and the Regulation OFL, SR 211 412 411. Although crowdhouse shall make every effort to make all the detailed documents necessary to acquire the property available to the competent authorities, there is still no guarantee for the smooth running of request and / or a possible approval. In this case, the purchase of the property could not be carried out and the investors would receive your paid up capital on an escrow account in full.
This list is not exhaustive.