Interview with Jesús Arias

Who is Jesús Arias, and what led you to specialize in crowdlending?

I could start the interview by saying the usual — that I'm an engineer by training, have an MBA, am passionate about personal finance, etc. But even though all that is true and can provide context to my career path and my approach to things, I believe that what essentially defines me is that I am an "Investment Collector" – with a capital "I" and "C"! – a curious investor who loves discovering new assets and platforms, and analyzing, evaluating, testing, and sharing their experiences.

When I started with TodoCrowdlending, back in 2018, crowdlending was still an extremely niche investment method and practically unknown to the general public… A kind of Wild West with almost no information for interested investors… Ultimately, that challenge of "mapping" the crowdlending landscape and its platforms more than five years ago was what – without neglecting my other investments – led me to specialize in the noble art of crowdlending…

Hey! Speaking of investments and crowdlending… One thing I need to clarify before we continue is that I am not a financial advisor, and in this interview, I will only be sharing my experiences, my perspectives, and my personal opinions, okay? Just so we're clear!

How would you define crowdlending in simple terms?

Crowdlending, literally (as the word itself implies, "crowd" + "lending"), is the act of joining with a handful of other investors like you and me ("crowd") to lend money ("lending") to individuals or businesses… and, of course, to earn a juicy return in exchange.

What is the difference between crowdlending, crowdfunding, and other forms of investment?

It's very common to confuse these terms. We can say that crowdlending is a variant or a subset of crowdfunding where the underlying asset is loans… And if that sounds too concise, I'll explain right now…

…All crowdlending is crowdfunding, but not all crowdfunding is crowdlending. There is equity crowdfunding where, with our contribution, we acquire stakes or shares in a company; reward crowdfunding where, with our contribution, we don't get a direct economic return, but rather a reward or benefit associated with the company or project we fund; donation crowdfunding for altruistic purposes, etc. But "loan-based crowdfunding," that is, "crowdlending," is an operation where there is always the figure of the lender (us), the borrower (the company or person we fund), and the loan operation (the loan and its specific terms of duration, interest rate, repayment schedule, etc.)…

Simple, right?

- About Crowdlending...

What are the key factors an investor should consider before participating in a crowdlending platform?

Personally, I believe the first thing a user potentially interested in crowdlending should ask themselves is whether they understand the basic fundamentals and concepts of this type of investment and if they believe, *a priori*, that it fits their risk profile. If crowdlending – as a concept overall – passes this initial check, we could then move on to the next phase, which would be choosing the platform through which to invest in crowdlending.

Here, when evaluating a crowdlending platform, many factors come into play, of course, not just the potential profitability that can be obtained, but above all, factors such as trust, credibility, the management team, the regulatory framework, and the quality of the listed Originators or Projects… All of these, in my opinion, should carry significant weight in a potential investor's decision-making.

What are the main benefits and risks associated with crowdlending, and how can they be mitigated?

Crowdlending has a good handful of interesting things that can make it an attractive form of investment for many: it is usually an investment asset with a low barrier to entry, often below 100 euros and even as low as 10 euros on some platforms. Furthermore, it offers – *a priori* – a potential return that tends to be quite stable over time and generates recurring income at a regular frequency (loan interest is often collected monthly), which means you see the effect of your investment faster and truly "feel" from the very first minute that your capital has been put to work… This can have a beneficial effect, especially for novice investors, when it comes to establishing and consolidating the habit of investing.

But – like all investments – crowdlending, of course, carries risks commensurate with its potential benefits. One thing that needs to be 100% clear, especially for novice investors, is that in practically no form of crowdlending is capital insured, and we run the risk of losing all the money we invest. Furthermore, depending on the platform and the asset we invest in, the liquidity of our investments can be low, and we might not be able to withdraw our capital when we wish.

In my opinion, there are two main risk mitigation tools: Due Diligence, which means studying the platforms, originators, and operations we invest in to select "the best" and discard those of dubious quality, and multi-layer or multi-level diversification, which would almost be a separate chapter...

What level of diversification do you recommend to minimize risks in crowdlending?

...Which I will gladly elaborate on a bit more in this question 😊

To understand diversification in crowdlending, we need to visualize and understand crowdlending as an onion, that is, an entity composed of layers or levels...

At the top level, we have the platforms, which are the companies where we register and that serve as access portals for crowdlending investment. Then we would have -only in some cases- the Originators, which are the companies that issue the loans published on the platforms and in which we invest. Finally, at the bottom level, we would have the Operations, which are the specific loans or transactions in which we decide to contribute capital.

Effective diversification ideally acts at all levels... For example, I invest in several dozens of crowdlending platforms (you certainly don't need that many!, but I'm a bit of a geek), then within each platform I invest -if possible- in several Originators or loan issuers, and finally, within each Originator, I invest in as many Operations as possible.

In any case, we should always understand diversification as a complement to the Due Diligence we mentioned earlier... It's not about diversifying blindly, or diversifying for the sake of it; it must always be combined with a proper analysis of Platforms, Originators, and Operations.

What type of projects typically have the best risk/return ratio in crowdlending?

The type of assets with the best risk/return balance is highly variable, and it's almost impossible to generalize on this matter; there's no simple recipe for success. Personally, I believe it's better to emphasize Diversification and Due Diligence, as we've discussed, rather than becoming a project "sniper" on the lookout for the best investment opportunity... which may never materialize and can indirectly limit the diversity and breadth of our portfolio.

Could you share a success story you've been part of through crowdlending?

Yes, I think the best success story one can offer is their own, right? In my case, I've been investing in crowdlending since 2017 (almost 8 years) with an average annualized net return close to 10%, even considering defaults and a few fiascos and "black sheep," especially in 2020 due to Covid-19.

What common mistakes do you see novice crowdlending investors make?

Well, honestly, quite a few, but nothing that can't be corrected and improved with experience and information.

One of the most common (and most serious) mistakes is to underestimate the implicit risk of crowdlending, equating it, for example, to a deposit or a savings account (because it usually yields fixed periodic returns -interest-) when in reality the risk of crowdlending -as well as its average potential annualized return- is closer in magnitude, for example, to stocks, the stock market we all know.

And then there are the typical mistakes of youth and lack of experience: over-concentrating capital in one or a few operations, investing without properly analyzing the platform / originator / project being invested in, etc.

How has the real estate crowdfunding market evolved since you started, and where do you think it's headed?

In the years I've been in the sector, I've seen an impressive boom in platforms, both at a European level and -even more intensely- at a Spanish level... And the curious thing is that this explosion of companies in the sector, instead of filling the crowd landscape with mediocre platforms, has ultimately been for the better -from the investor's point of view-. In fact, I believe that increased competition has improved the average quality of projects listed on platforms, and that the old platforms that dominated the market years ago have either become extinct or have moved to a completely secondary role, in many cases for the better.

Undoubtedly, tokenization has been -and probably continues to be- the immediate evolution and revolution in the sector and in the near future... But personally, when I think about where the sector is headed, I'm eager to see advanced AI applications, for example -from the platform's perspective- in evaluating and selecting projects to list on their page, or -from the user's perspective- in choosing assets and configuring investment portfolios, not just within each platform but also by integrating and unifying all available participatory real estate investment platforms.

What advice would you give to someone starting to invest in real estate crowdfunding projects?

Be critical. Analyze the available documentation. If you're not convinced, don't invest.

I think it could be summarized in those three concise sentences I just presented. In my opinion, it's crucial to be critical and form your own opinion about the quality of the investment project based on the documentation provided by the platform. If in doubt, it's probably not worth it... After all, there will be new opportunities on the platform and even other platforms with new projects to explore.

Among the entire spectrum of crowdfunding platforms, where would you place Domoblock? What is its differentiating value compared to the others?

In my opinion, Domoblock has carved out a very interesting niche from an investor's perspective, specializing in very short-term projects with attractive return potential. The platform's team handles the entire process, from identifying the opportunity to selling the property, including its renovation, etc.

This combination of short-term and high potential profitability, coupled with the consistency provided by full control over each operation, makes it – from my point of view – a unique platform that can be interesting for a wide range of users interested in real estate investment.

What criteria should an investor consider when choosing a real estate project on a crowdlending platform?

The trinity or "sacred triad" of critical parameters in all crowd projects is PROFITABILITY, SECURITY (project guarantees), and TERM (investment liquidity). Once this initial filter, based on each investor's needs and objectives, has been passed, it's worth analyzing the project's specifics and documentation in more detail and making an informed decision to invest (or not 😉).

What are the benefits of crowdlending in real estate investments?

First and foremost, it removes barriers, bringing real estate investment closer to the retail investor, even if they only have a few hundred euros to start investing. From there, the benefits of crowdlending – when well-understood and well-executed – remain numerous: diversification potential and portfolio breadth, access to detailed information, transparency, regulation, secure payments…

And finally...

What do you enjoy most about your work in this field?

Many things!... Deep down, as the curious investor I am, what I probably enjoy most is exploring, discovering, and trying out new platforms in the sector... But I also love putting on my consultant and beta-tester hat to help develop and improve existing platforms, or my engineer hat to measure, tabulate, and compare all the statistical data of the companies I track in my "infinite Excel" – and which I rigorously record in my statistical report each month. And of course, I also like putting on my communicator hat and sharing my experiences as a "crowd investment collector" on the blog and the YouTube and Podcast channels of todocrowdlending.com... quite a lot, right? 😊

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