The money issue

Houses and real estate are expensive, especially in urban areas. Consequently, a house project needs a lot of money that those planning a project usually do not have. “All good banks and savings institutions offer you money”—so why not borrow from them?
Most banks welcome mortgaging: on the one hand, mortgage notes allow access to the property in the last resort. On the other hand, rental income is a fairly stable source of revenue. Therefore, the risk for the bank is low.

The pitfall of equity

However, bank loans are costly, and the current low-interest period is going to pass. In any case, loans are too pricy considering the aims envisioned by the projects, namely to provide affordable rents for people in need of them. Besides, banks usually give money only to those who dispose of a considerable amount of equity and mostly demand a third of the entire capital expenditure. And this is something people dependent on socially acceptable rents cannot provide, and even the LLCs’ capital stock of 25,000 euros is literally no more than a drop in the bucket.

Direct loans as solidary cash infusion

After all, banks themselves mostly operate with borrowed money, a principle that inspired us very early on to establish a shortcut from the actual money lenders—who can be people like you and me—to the borrowing house projects, according to the motto “better have a thousand friends on your back than one bank breathing down your neck”: private persons or groups who sympathize with the Syndikat’s ideals lend money to house LLCs directly, without taking the long way via a bank. A positive side effect for the lenders is that they know more about what their money is being used for. At the same time, this sort of solidary financing by means of direct loans not only saves capital expenditures and keeps rents at a tolerable level—sicne banks would, of course, want a high profit margin on top of their money. It also helps solve the problem of missing equity for larger bank loans because direct loans are accepted as equity substitution.

In addition, direct loans enable people with sympathy for our idea to support house projects, and those who can afford it often ask for very low interest rates or even dispense with any return at all. At the same time, many refunds are financed not from the rental income, but by the acquisition of new direct loans. This helps to keep amortization costs and rents low.

Risks and side effects

However, direct loans do not come without risks. After all, house projects are not banks and can, therefore, not provide collateral for the full amount of loans. Hence, even though the Syndikat’s idea has proved successful, so far, the risk of failure can never be ruled out (see A project failed).
Those interested in supporting a house project of their choice with a direct loan should therefore not only acquaint themselves with the possibilities this kind of financing offers house projects and direct lenders alike, but also with the possible risks entailed and the respective legal framework. As important as input by direct lenders may be for the success of a house project, whether or not a direct loan is indeed the right form of investment for any individual can best be answered in a personal interview.

In times of increasing regulations of all forms of financing outside of the banking sector, support for Syndikat projects or other solidary-economic initiatives has turned more and more into a political issue. While politicians frequently call for “civic involvement,” those getting involved financially—especially if this involvement happens to be contrary to the interests of a yield-oriented real-estate industry—are let down if risks arise; social, let alone, governmental protection of any kind is not provided for. Thus, regrettably, in our current economic system, solidary support still bears its risks—but nothing ventured,…