There’s one clear winner in Australia’s property boom, and that’s the banks. That is the view of AltX founder Nick Raphaely.
Almost ten years ago, Nick spotted a compelling opportunity to match untapped sources of capital supply with surging demand amongst property-backed borrowers and developers.
“For investors, it’s become harder to find yield in traditional asset classes like Australian government bonds, which now offer just 1.5%,” says Nick. “But what if you could be the bank in this red-hot property market? That’s what AltX is designed to do.”
His platform effectively operates as a marketplace. One that could connect a retiree on the Sunshine Coast with a new apartment development in Mosman, or a farmer in Wagga with a commercial Sydney CBD property opportunity. Investors get regular income via interest payments – and confidence their capital is secured with a mortgage. Borrowers get faster access to funds, when timing is everything.
Taking a piece of a growing pie
In May 2021, the value of new investor housing loan commitments rose 116% year on year, according to ABS data. And with the average term deposit interest rate just 0.3% with the big four banks, their margins are pretty healthy – despite historically low mortgage rates.
With bank credit approval timeframes blowing out in the face of extraordinary demand, there’s still a sizeable gap to fill. That’s one reason non-bank lenders are on the rise – especially for major deals. According to commercial mortgage brokers Stamford Capital, 71% of Australia’s lenders (including banks) expect non-bank lenders to increase commercial investment loan activity this year. And their share of the pie will only continue to grow – consultancy firm Plan1 estimates non-bank and private lenders will need to pick up more than $50b of commercial real estate debt funding needs by 2024.
“So here’s the thing banks probably don’t want investors to know,” says Nick. “If you’re an Australian wholesale investor, you can be that non-bank. You can reap the upside of a property boom without actually having to buy or sell bricks and mortar.”
Instead, investors put their money into the property deal itself – via private real estate debt.
“Private real estate debt provides loans to commercial borrowers who require funding, and provide a first mortgage as security.” explains Nick. “Investors are effectively the bank, and in return receive regular fixed income as interest on the loan.”
For these types of transactions, terms are typically 12 to 18 months. And that shorter window tends to suit private investors too.
Democratising access to deals
“Until recently, investors would be ‘invited’ to help fund a private real estate deal. That meant knowing the ‘right’ people – a secret club for the chosen few,” explains Nick. “We decided it was time to democratise access to those types of deals.”
Just as marketplaces have connected private cars to commuters and private homes to holiday makers, AltX now makes private investment opportunities accessible to every Australian wholesale investor.
“As the connecting platform, AltX vets every deal to make sure it meets our robust criteria,” notes Nick. “We get the first look, and assess the strength of the asset securing the loan, the borrower’s experience and income, and their exit strategy.”
Those deals cover land, commercial and residential property. Every day, AltX investors can review available offers on their smartphone, or via the portal (www.altx.com.au). The minimum investment is just $50,000, and it can be executed in minutes.
Nick says his team’s due diligence gives his base of over 850 investors a lot of reassurance.
“If we aren’t comfortable putting our own money into the deal, we don’t fund it. It’s that simple.”
And it works. Since 2012, AltX has funded more than 900 loans valued at $1.85 billion. Right now, they have over $700 million in investor funds under management.
An alternative route to diversification
For investors seeking the golden trifecta – reliable returns, lower capital risk, and diversification – the opportunity is just as clear. AltX investors receive returns between 4% and 8%, depending on relative risk. And they’ve had 100% of their capital (and interest) returned.
“The world has changed, and the way we transact has changed,” says Nick. “Yet financial markets remain fixed on traditional portfolio mix structures that just don’t deliver on investor expectations – especially when interest rates are likely to remain low for some time. We need to think outside the box when it comes to diversification.”
Real estate has traditionally been the asset that reduces exposure to downside risk – with predictable yield. But it has disadvantages too. You need a large capital base to effectively diversify real estate assets, transaction costs are high and it takes time to buy and sell.
Real estate debt, secured by first mortgage loans, is an alternative strategy. But you do need to know what you’re getting into.
“Before you commit to a private mortgage lender, check how long they’ve been in business and their track record with regulators,” suggests Nick. “You want to know they’ve isolated risks correctly. And of course, it’s always better to work with someone who has skin in the game – not just deal spruikers.”
With an in-house property research, loan management and collections team on side, investors can access lending opportunities with a lot less time and effort. And that’s another good reason to not only be the bank – but potentially beat the banks at their own game.
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