Lend money to commercial property owners who rent out shops, office and industrial space, and who even operate student and other residential property accommodation.
Relendex is a new peer-to-peer lender that allows you to lend to commercial property owners. The Real Estate Lending Exchange – Relendex – enables you to lend against business premises, and also commercially-operated residential properties worth at least £500,000. To be clear: small-time buy-to-let landlords and homeowners need not apply for a Relendex loan.
All the loans are secured against shop, office, industrial and leisure properties that are rented out by the owners. The rents earned are used to pay the interest on your loans.
You can read details of each loan on the Relendex website, and see professional valuations and title reports. All the loans are secured, which means that, if your borrower stops paying its bills, you could get your money back if Relendex forces the borrower to sell its property to pay off its debts.
Interest is paid to you quarterly and you need to pay tax on it through your tax return.
At present 20% of the interest is withheld for HM Revenue & Customs in advance, although Relendex has applied for relief on this. That's possibly because, according to Relendex, pension companies are going to be lending pension savers' money through its service. In that event, you might have the opportunity to lend through a pension, which means you won't have to pay taxes on the interest you earn.
Through a pension, a 5.25% interest rate will be the equivalent of a taxable rate of more than 6.5% for a basic-rate taxpayer, and nearly 9% for a higher-rate payer. You'll have to pay the pension provider's costs on top though, so it will work out less than this.
How much does it cost?
The borrower pays an arrangement fee, which is typically 2%. Relendex charges the lender, by taking some of the interest. You can expect it to take around 1% or perhaps more. If your money is lent at 7%, for example, you could receive 6%.
Getting out of your loans early
Unlike other peer-to-peer services, with most Relendex loans the money you lend – the capital – is not repaid until the end of the loan; it's not repaid gradually at the same time as the interest payments. This could be a plus point, since you don't have to keep reinvesting your capital as it's gradually dripped back to you.
You can get out of the loan early, however. As with other peer-to-peer services, you can re-sell your loans through Relendex's website at no cost if you need to get your money back. At first the loans will be re-sold at the same value that you put in, but later, depending on demand for the loan, you might receive more or less of your starting capital back to leave the loan early. Thus service will be available from Q4 of 2013.
This will probably depend on, among other things, how many lenders are competing to take over your loan and on how interest rates on new loans compare.
Here's a simplified example: if new loans have interest rates of 4.75% and you were getting 5.25%, lenders buying from you might be willing to give you back slightly more money than you invested in order to ear a better interest rate.
Borrowers can repay their loans to you early. Relendex charges them a penalty for this. You, the lender, receive most of this penalty, which could be the equivalent of, say, 0.85% of the loan part that is repaid early.
If you lend through Relendex, you need to pay in at least £5,000 to open an account, and you have to contribute at least £1,000 per loan. This differs from the more established players, which let you lend as little as £10 to individual borrowers to spread out your risks. However, you could spread the risk more by lending to different types of borrowers: those renting out office space and those renting out retail space, for example.
As with Zopa and several other peer-to-peer services, you can lend automatically in order to build a more diverse portfolio more easily. You can set a minimum interest rate you want to lend at, and choose what risk ratings you'll lend to, based on Relendex's own criteria. You can also set the length of time you want to lend for.
Risk controls
Relendex ensures that you are paid your interest from property rents before the borrower – the commercial-property owner – gets the difference.
Relendex refers to its “highly experienced property lending team”, including former senior lending officers with Rothschild Banking Group. It specifically mentions Peter Johns as chairman, who it describes as fomer Head of Banking at NM Rothschild.
Relendex says it holds your unlent money in a segregated client account at Royal Bank of Scotland, Guernsey.
In the event that a borrower defaults, lenders will get to vote on the action to be taken. Those who have lent the most have the largest say in the matter.
Unlike most investments, you currently have no protection under the Financial Services Compensation Scheme when you invest in peer-to-peer loans, although that's likely to change soon for UK-based services. Relendex is based in Guernsey and it's not part of a Guernsey compensation scheme either. You also can't complain to any financial ombudsman, as peer-to-peer services are not regulated yet, though that is due to change in April 2014.
Consider all your options
There are other ways to invest in commercial property, such as through property investment funds or commercial property bonds. It would be too much to try and cover those here, but you should investigate them, since they offer a different balance of risk and rewards, and the types of risks are a little bit different.
You should also consider completely different investments. Putting your money in a savings account has lower potential rewards, but the risks are lower. You could save for a deposit on a property. You could invest in shares or in further training for your own career. Or you could invest your money through a different type of peer-to-peer lender.
Compare peer-to-peer lending products
More on peer-to-peer lending from Lovemoney:
Ratesetter: how ordinary people can lend to save
Peer-to-peer lending set to be regulated
FundingKnight: new peer-to-peer lender offering 11.4% returns