BigFundr review: 4 things to consider before investing in it

Another day another interesting investment product with eyebrow-raising returns for Singapore retail investors.

This time I’m looking at BigFundr and its advertised ‘low-risk‘ property loan deals offering returns of 6%+ to investors.

Now I have to say, in my 12 years+ of investing, I have never seen any investment product offering returns of 6%+ be considered as low-risk. Thus, BigFundr’s marketing message definitely caught my attention.

So in this article, I will be taking a deeper look into BigFundr, namely what is it all about, how it generates the advertised returns, its track record and finally the associated risks that investors should be aware of.

What is BigFundr and how are the returns generated?

So first up, what exactly is BigFundr?

Put simply, BigFundr is a lending institution that provides property-backed loans to small and medium property developers.

Now you might ask, why would these property developers not approach banks for their loans but turn to BigFundr instead? Well, the answer is that these small and medium property developers are deemed to be too credit-risky from the perspective of banks.

In the wake of the 2007/08 Global Financial Crisis, with the collapse of mortgage-backed securities, a host of financial regulations have been imposed on banks when it comes to disbursing property-related loans and credits. This is underpinned by what is known as The Basel Framework.

In short, banks have to consider the credit-rating of the borrower, the borrower’s ability to repay and also other factors like loan-to-value ratio and risk-weighted analysis calculations, before disbursing property-related loans.

As most small and medium property developers would have a credit risky profile, this naturally excludes them from the considerations of banks. This is where financial institutions like BigFundr step in and provide tailored services to these otherwise ‘underbanked’ developers.

With a better general understanding of BigFundr, let’s now consider how exactly the advertised 6%+ returns are generated.

How investor returns are generated

Periodically, BigFundr would have property deals that investors can choose to invest in from as low as S$1,000. Such deals can range from structural additions or acquisition of existing properties, to wholesale construction of new properties.

Investors would receive monthly interest payouts from their investment in these property deals and their initial investment back at the end of the deal tenure. The end of the deal tenure would likely coincide with the exit strategy of each property deal.

Judging from the relatively small amount of funds required for each deal, BigFundr most likely does not fund the full amount of property loan. Evidenced from the latest Collingwood deal, we can see that the proposed note offering is only a fraction of the total loan amount.

The other interesting aspect of the factsheet is the wording used.

As seen from the Collingwood factsheet, BigFundr invests in the loan notes issued by the issuer. At best, this means that BigFundr co-invests together with the issuer in the property loan. At worst, BigFundr is basically subscribing for the debt instrument of the issuer.

Also, BigFundr most likely does have some stake in each property deal. Looking at the recently concluded Collingwood deal, we can see that the proposed note amount was up to S$5 million but the offer was already fully funded at S$3.952 million.

It would have been good for BigFundr to include this detail in their website. At the very least, it would provide some clarity to prospective investors.

Nonetheless, after the deals are fully funded, BigFundr would transfer the monies they received, after hedging it, to its trustee (DBS Bank Singapore). These funds are then periodically disbursed to the property developer upon completion of certain property development milestones/targets based on the property deal. The entirety of funds would only be fully released to the developer upon completion of the property.

The 6%+ returns that investors see in the property deals is basically derived from the interest charged on the loans to the property developers.

In an interview with YouTuber, Kelvin Learns Investing, BigFundr’s CEO mentioned that their lend rate is at least 10%+. This means that investors’ returns are about 60% of the interest received on these loans.

How safe is BigFundr?

As with all investments with 3rd party companies, it’s always important to consider how safe your funds are with them.

This aspect of safety I feel can be split into two different portions:

• 1) How safe are investor funds with BigFundr? And
• 2) How protected are investor funds from potential losses?

Safety of investors’ funds

As BigFundr is a MAS-regulated entity with a Capital Market Services licence, they have been screened by MAS to be a proper company at the point of licence application.

Additionally, in relation to investor monies with BigFundr, they are also kept separately with the appointed trustee (DBS Bank Singapore). This means that BigFundr’s own company cash is held separately from investor monies.

In the unfortunate event of BigFundr going bankrupt, investor’s monies would still be safe, though it may not be accessible till the finalisation of legal proceedings or acquisition by another party.

Nevertheless, this does not mean that investors monies are capital guaranteed, as there could still be losses arising from investing in BigFundr’s investment products. This is where part 2 of the assessment of safety comes into play.

Protection from potential losses

To protect their investors from potential losses, BigFundr has what they term as 3 layers of protection.

These layers of protection are as such:

• 1) First legal claim on real estate – In the event of a borrower default, the underlining property would be sold and BigFundr and its fund managers have first dips on the sale proceeds as they are the main lenders.
• 2) Guarantee by borrowers – All loans disbursed by BigFundr are personally/corporately guarenteed by its borrowers. This means that in the event of a default, BigFundr has the right to seek legal recourse should there be a shortfall in the remaining loan amount after liquidation of the property.
• 3) Buy-back provision – BigFundr has agreements with fund managers to buy back the loans at an agreed time. According to BigFundr, these fund managers have assets under management (AUM) of at least AUD$1 Billion. Hence, in comparison to the AUM of these fund managers, their BigFundr’s loans exposure is considered to be relatively minuscule.

In addition to the above 3 layers, BigFundr also has a 12-month contingency period to fix any repayment issues. During this period, investors would also receive an extra 1% interest per year.

To wrap up the protection from potential losses, BigFundr also states that each property deal go through rigorous background checks and the maximum LTV on its loans would be capped at 70%. The remaining 30% of property value would be equity from the borrower itself.

What is BigFundr’s track record?

While having safeguards from potential lossess are important, it’s also important for investors to consider the track record of the company itself. This is even more crucial for companies that are not publicly-listed as such information disclosures are rather scarce.

According to BigFundr, it has a 0% default rate on its loans since 2021.

While a 0% default rate is impressive, investors should note how it is derived. As per BigFundr’s website, its default rate is defined as such:

Please note that this regulatory default rate definition is as at 31 December of the year of disbursement but excludes loans disbursed in previous years and defaulted in subsequent years.

This basically means the default rate for each year is only based upon the loans disbursed for that particular year. It does not account for defaults of previously disbursed loans in earlier years.

If you ask me, I think such a definition of the default rate is rather misleading and does not show the true picture of how well BigFundr’s investments are performing.

Besides considering BigFundr’s investment track record, it is also prudent to assess the skills of its management team. This allows investors to see if the mangement team has an expertise in the real estate sector or not. After all, this would have a direct impact on the assessment of the type of property deals BigFundr chooses to finance.

Of the entire executive team of BigFundr, only its CEO has experience in the real estate sector.

If we were to look at the CEO’s LinkedIn profile, we can see he had experience working as an asset manager and managing director at previous real estate companies.

Whether this means anything with regards to investing performance remains to be seen. At the very least, the CEO has the necessary experience in doing risk assessment and evaluation of BigFundr’s future potential property deals.

The risks of investing with BigFundr

As with all investments in the market, it is always prudent to assess the associated risks that comes with it. This is in spite of how ‘low-risk‘ an investment product may claim itself to be.

Borrower default

Due to the structure of BigFundr’s property deals, investors are ultimately providing debt to property developers. Thus, the biggest risk to investors would inadvertently be the financial health of these property developers.

While BigFundr has in place the 3 layers of protection + a period of contingency where investors are paid extra interest, there is still the amount of legal charges to account for and the amount of time investors’ funds would remain ‘stuck’ with BigFundr should a default occur. This may result in an opportunity loss for investors to invest their monies in other investment instruments that may provide higher returns over the long run.

Furthermore in times of market crisis, the outright sale of the underlining property might not be enough to cover the loan amount due to depressed property valuations.

Additionally, eagle-eyed investors would also note the subtle similarities of BigFundr to mortgage-backed securities (MBS) in the past. BigFundr’s CEO was quick to distance themselves from MBS by stating in the video interview that there is no co-mingling of bad loans with good loans and that every property deal is scrutinised closely and laid out transparently in the property factsheet.

Nevertheless, it is still worthwhile to note that prior to the 2007/08 financial crisis, MBS were deemed to be ‘safe’ investments too as the thinking was that a full mortgage default would be unlikely. That thinking worked well until financial institutions started granting mortgages to credit-risky clients and the subsequent crash of the property market.

Hence, besides the risk of borrowers’ default, investors also have to consider the quality of the properties that they are investing in through BigFundr.

Unattractive properties

Given that BigFundr’s exit strategy for most its property deals is through a full sale of its borrower’s completed projects or through a refinance, the quality of properties that BigFundr chooses to fund is inherently important.

Should there be less or poor demand for BigFundr’s borrowers’ property projects, it becomes that much harder for BigFundr to exit these properties and return their investors’ invested principal upon the end of a deal tenure.

While BigFundr does not display the locations of the properties in its deals, they do provide some images of it during the funding phase. Judging from the latest deal that was recently concluded, we can see that the property looks like a small suburban building.

A lot of the property details (from current leases to its location) can also be found in the property deal’s description.

Additionally, looking through the deal descriptions of the past few property deals, a lot of such deals are for the construction of residential properties or small scale logistical properties.

In the video interview, BigFundr’s CEO further stated that they are keen on lending to residential projects. Hence, it is likely that residential property projects would continue to make up a bulk of BigFundr’s future property deals.

Now if you ask me, small suburban buildings can be a hit or miss at times. This is because leasing interest would be highly dependent on local businesses or residents in the town or suburb they are located in. They also lack the traditional pull of bigger residential or commercial properties.

Property market trends

Besides the borrower risk and property risk, prospective investors also have to consider the general trend of the property market. Currently, most if not all of BigFundr’s property deals thus far have been in Australia. Hence, I will be using the Australian housing property market as a reference.

Looking at the new housing loan commitments in Australia, it does paint a rather rosy picture.

We can see that the amount of new loan commitments have been on a steady incline, be it for owner-occupied or investor residential properties. This indicates that the housing market continues to be seeing healthy demand.

Residential vacancy rate also remains at rather low levels despite it slightly rising in 2024. This indicates that there continues to be leasing demand in the Australian market.

This bodes well for BigFundr’s resident property deals (should they remain in the Australia market) as it would likely result in easier exit plans, which also equates to investors receiving back their invested principals as expected.

Nevertheless, while the Australian market seems to remain healthy, we do not know how long this may last. Also, it might be prudent for investors to consider the housing market based on cities instead as that might tell a different story and have a more direct relevance to BigFundr’s individual property deals.

There would also be a need to consider the intricacies of other market in other countries as BigFundr has indicated they are keen to explore future deals outside of Australia.

Counter party risk

Remember how I mentioned in an earlier part of the article that BigFundr invests in loan notes of the issuer? This actually brings an additional layer of risk to investors.

What happens if the issuer or the fund managers, who are supposedly the 3rd layer of protection, are the ones that face financial issues? Would BigFundr be able to fully redeem what it has subscribed for initially?

While these loan notes are secured with an interest in the First Mortgage Units, it is unclear how much of these units BigFundr is entitled to, given that they do not fund the entirety of the property loan. There is also the need to consider additional legal expenses too.

Hence, prospective investors might want to write in and enquire to get a clearer picture of BigFundr’s arrangement with its fund managers.

Concluding thoughts

After considering all aspects of BigFundr, I personally feel that the 6%+ returns do not really justify the risks involved.

Not only do prospective investors have to take on borrower and counter-party risks, they are also exposed to the ups and downs of the property market. Furthermore, their funds are also locked up in each deal for at least 6 months or more. This could prove costly in a black swan event or a sudden downturn in the property market.

Personally, I would rather invest in more liquid investments such as individual REITs or REIT ETFs. As a comparison, the Nikko AM Straits Trading Asia ex Japan REIT ETF current provides a yield of 5.84% (as of 27th Dec 2024).

While it is lower than the 6%+ returns that BigFundr offers, investors can easily liquidate this ETF should the need arise and their risk is also much more diversified. Add on the fact that there is also a prospect of capital appreciation too, something which BigFundr does not offer.

Now if you still want to invest in BigFundr, I would say do not put too much of your funds into it. Also, it should really only be a consideration after you have allocated funds to more liquid investments. Like all investments, due diligence should be conducted and I would definitely not consider BigFundr as a low-risk investment.