Understanding credit offerings on addy: your guide to common questions

This guide answers your most frequent questions as you learn more about the credit space.

What is addy Credit?

addy Credit is a new product that allows you to invest earlier in the development process. You are able to loan money to a developer or issuer in exchange for monthly interest payments.
How does this differ from the investment opportunities normally available on the addy platform?

Equity real estate investing earns returns through rental income paid by tenants or from selling property whereas credit real estate investing involves issuing loans or investing in mortgages or mortgage-backed securities.
Is there more or less risk associated with this type of deal?

Because of the way debt investments are structured, you take on less risk. The loan is secured by the property, which acts as an insurance policy for repayment of the loan. If the property owner or sponsor defaults, you can recoup all or some of your losses through foreclosure.
What happens in the event of default on the mortgage?

In the event of a default, the borrowers generally will be charged penalties. If the manager of the deal determines the borrower is unable to make payments, the property may be foreclosed on, giving the lenders the right to sell it and recoup their investments.
How frequently should I anticipate a payout?

Every deal is different- please read corresponding documents pertaining to each deal.
What does ROI and IRR look like for these kind of deals?

Every deal is different- please read corresponding documents pertaining to each deal.
What is LTV?
Loan-to-Value (LTV) is a financial term used to express the ratio of a loan to the value of the asset being purchased, typically in the context of real estate. It's calculated by dividing the amount of the loan by the appraised value or purchase price of the property, whichever is lower. A lower LTV ratio indicates less risk to the lender, as it suggests the borrower has more equity in the property. Conversely, a higher LTV ratio indicates higher risk.
How does addy do due diligence on these kind of deals?

addy conducts due diligence on credit deals very similarly to how they are conducted on equity deals. addy looks at the plan, the exit strategy, costs, appraisals and environmental reports, as well as other supporting documentation. A big difference between equity and credit is that for credit deals we also like to make sure a guarantor is on file. A guarantor’s net assets would exceed the amount of the loan.
What if I want to exit from a credit deal early?

You must remain in a credit deal until its completion, there is no early exit mechanism.
Can I lose all my money?

All real estate investments are considered high risk, and you could lose your investment.
What is a commercial first mortgage investment?

A commercial first mortgage investment refers to an investment in the primary lien on a commercial property. In real estate financing, a first mortgage is a loan that has the first priority or lien position on the property, meaning that in the event of default and foreclosure, the lender holding the first mortgage has the first claim on the property's proceeds.
How does investing in a fraction of a commercial first mortgage work?

Investing in a fraction of a commercial first mortgage typically involves participating in a real estate crowdfunding platform such as addy. Similar to the equity side, investing in addy Credit gives you the ability to participate in a loan provided to issuers. For any earned interest, you would receive it commensurate to your percentage of loan ownership.
What are the potential risks involved?
1. Potential for property value fluctuations
2. Economic Downturns affecting the real estate market
3. Borrower default
4. Lower potential returns: As with other investments, you are exchanging lower risk for a lower expected return.
5. Capped returns: Another downside is that returns are limited by the interest rate on the loan. You have to be clear about whether you’re willing to sacrifice opportunity cost and the potential to earn higher yields in exchange for a safer bet.
6. Exposure to prepayment risk: Mortgagees sometimes pay off their loans early, either by selling or refinancing. Doing so can interrupt the cash flows on your debt investments and shorten the duration of your loan portfolio.
What is the estimated return on my investment?

Debt investments are more predictable regarding the amount and frequency of returns. While every deal is different, it’s not unusual for investors to earn yields from 8% to 12% annually. These returns are typically paid on a monthly or quarterly basis. Nothing is guaranteed and it’s important to consult due diligence material.
Is there a minimum investment requirement?

$1!
How is the investment structured and managed?

Each deal is different- please read corresponding documents pertaining to each deal.
Are there any fees associated with the investment?

While most real estate crowdfunding platforms don’t charge investors to create an account and research debt investments, there’s usually a fee involved to take part. The crowdfunding platform typically receives a percentage off the top before any interest is paid, which can eat into your returns. There may also be a separate loan origination fee that’s passed to you. Click here for more information on loan origination fee.
How is the investment performance communicated to investors?

You will receive frequent updates to your account.