Investment summary

The House Flipping Alicante Project comprises the segregation and transformation of a premises into four apartments. These properties are in a residential area in the Campoamor neighborhood, the heart of Alicante. 

Based on a Value Add strategy, a house flipping project will be carried out, i. e., the conversion of a commercial unit into four apartments by repurposing the property. After the refurbishment, such a strategy will allow us to obtain attractive assets radically different from the existing ones. After selling them, investors will have the opportunity to generate a positive return on their investment. Given that it is the first project we are launching in the Valencian Community, the project represents an attractive new business opportunity. 

The project is now under construction. The developer team contracted a bank loan for €51,000 to purchase the premises, which is to be canceled. 

The asset covers 225 sqm, on which four apartments (56 sqm each, approximately) will be developed. These loft-type apartments include a living/dining/kitchen area, a bedroom, and a bathroom. All are exterior. 

NOTE: due to the real estate nature of the project, once the company reaches 100% of the objective, the project will conclude (there is no possibility of "overfunding" up to 125%). 

Stock images. They do not refer to the final state of the project. 

 

ECONOMIC SCENARIOS 

According to the criteria of the CNMV (Spanish Securities and Exchange Commission), two additional scenarios must be included, in addition to the moderate scenario proposed by Fellow Funders for Equity projects, to show potential variations in the business plan. 

The unfavorable scenario contemplates a 15% increase in construction costs and a 20% decrease in the selling price. 

The moderate scenario reflects the costs and returns as proposed by the developer and analyzed by Fellow Funders. 

The favorable scenario considers a 10% increase in construction costs and a 10% increase in the selling price. 

Location

Market

According to Fragua (Atlas RE), the area of influence has a 45.93% for-sale rating. There are few available properties in the area, with a greater preference for one or two-bedroom apartments. 

The conducted market study indicates that the selected area is of average prices, low supply, and low liquidity, resulting in a low stock turnover. The population's effort rate is low, and the supply and demand volumes seem to be slightly unbalanced by demand excess. 

According to the household income and the level of university studies, the socioeconomic level is moderate. The population is middle-aged and high density. 

This study indicates that there is little supply of new housing, meaning that the average price includes both new and second-hand homes. For this reason, the average selling price range varies between €1,155/sqm and €2,810/sqm. 

Given the differences in the condition of the properties, conservation plays an essential role in the area. On average, the difference when improving the properties is 53% of the price.

The perimeter presents the habitual characteristics of a residential area, being cheaper the price per square meter of the larger apartments than that of the smaller ones (shown in the attached graph). 

---

Financial plan

The project requires a total investment of €373,533. Out of the total needed capital, private investors will provide €365,000 via Equity Crowdfunding. On the other hand, the developer will provide the remaining €85,000 from its own resources. An initial reserve fund of €76,467 will be set aside for possible contingencies. 

Investors will become shareholders together with the contribution of the developers in the Special Purpose Vehicle (SPV). 

 

---

The following forecasts are mere estimates that may vary depending on the economic, social, and other circumstances that may arise during the life of the project. 

---

 

---

Real state scoring

Our Scoring relies on a transversal evaluation of the business, evaluating the different metrics that we obtain from our financial analysis, its structuring, the possible intrinsic and extrinsic risks, the analysis of the environment, and the developers' experience. According to this analysis, the project obtains a A- rating. 

• Project: The construction is already underway, so the execution risk is considerably reduced.

• Capital Structure: 81% of the total investment will be provided by Fellow Funders investors. The remaining 19% will be provided by the team of developers. 

• Developer: The developer team has extensive experience in the sector and specializes in this project, strengthening and mitigating this risk. 

• Market: According to the market study, there is a high investor attractiveness due to the scarce supply of this new construction asset. 

• Financial Risk: The project does not have financial leverage. Therefore, together with a consistent break-even point in the sale price, the financial risk is very limited. 

---

Project steps

The investment term will begin when the Capital Increase is formalized. 

---

Operation coverage

Once the capital increase finishes with the new partners from the crowdfunding round, the investors will own the majority of the equity of the Special Purpose Vehicle created for the business, turning into the owner of the assets. 

---

Risks

• Variation of Execution costs: the Execution costs are analyzed by the project developer. However, they can always suffer variations due to conditions not foreseen beforehand. 

• Technical or Execution Problems: in any work or project, technical or material execution problems may arise which, due to their nature, are not foreseen and may cause delays in the deadlines as well as cost increases. 

• Administrative procedures: projects always rely on their regulatory and administrative suitability. However, they can always be affected by circumstances beyond the control of the developers and the project that may imply delays in deadlines or increases in administrative fees. 

• Variation of sale or rental prices: the price of the assets for sale or rental may be subject to upward or downward variations depending on various market factors. The project's developers have experience in these markets. They will be who will act following the situations that may arise to maximize profits and minimize risks. 

• Liquidity: there may be market situations in which part of the investment takes more to liquidate. In this case, the company will take the appropriate measures to resolve them as quickly as possible. 

• Changes in financing conditions: bank financing conditions may vary depending on several factors. However, the European Central Bank forecasts point to a long period of low interest rates. 

• Political instability: regulation in Spain depends on many administrations. There may be political changes that could lead to changes in town planning, tax or administrative regulations. 

• Loss of capital or unexpected monetary return: the return on investments may be lower than expected since all future analyses bases on business expectations and may vary. Therefore, the risk of not obtaining this return and losing part or all of the invested amount always exists. 

---