Horses For Courses

We have come across people who like the idea of investing in property, but want to avoid the hassles or perceived hassle associated with holding a Buy To Let property. They avoid purchasing property but always want to know about the deals. They are stuck in no man’s land, in limbo.

One investor asked me many years ago regarding starting a fund; and he said he would be very interested in this type of investment rather than investing directly.

Each has its benefits.

With a fund you are divorced from the decision making process of what to purchase. This can be a good thing or a bad thing. It’s a bad thing if you don’t know about the market in which the property is being purchased and still give your opinion based on your limited experience.

Property involves a wide spectrum of activities in many varying locations with many different angles. There are some investors who do lease options, others who focus on HMOs, some who only specialise in student accommodation.

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So when you cast your opinion on a market in which you have no or limited prior experience you can actually be doing yourself injustice.

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Last week we wrote about a property in Dorset Sq which was in Marylebone, this property was exchanged on last week Thursday, later than we anticipated. In this example the property did not make sense from looking at the numbers, for instance there is a property currently on the market which is in the Square priced at £745 per sq ft. We were purchasing at £1,200 per sq ft, so this on the surface does not make sense.

The client trusted our opinion based on previous transactions and our local knowledge. Our opinion is by December of this year this property will sell for £1,500 per sq ft. We are happy to go on record with this prediction.

This particular client has had the benefit of working with us on previous transactions and therefore was happy to go with whatever our recommendations were. Many clients will not have had this experience, they may be coming to us for the first time.

Therefore a structure whereby security of funds is not an issue, meaning it is handled by a proper FCA (financial conduct authority – which used to be the FSA) authorised company, and the property purchasing is being done by people who have an intimate knowledge of the market they are working in and a proven track record, and the interest of this structure is aligned with that of the investors, is worth considering. This then translates to investing into a property fund which has the above ingredients.

In a nut shell there are only three things to consider when looking at this route. Firstly and most importantly, is your money safe? The second – is the investment going up? If so, by how much? The past track record is an indication, but it’s only indicative, after all the past doesn’t always equal the future. And thirdly when will you get your funds back?

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This suits the person who is time poor, and wants no extra hassle whatsoever. Property ownership can be lucrative if done in the right manner and with the right advice.

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But in whose interest is it to give you advice? The agent’s aim is to sell their properties often by any means necessary; they do not get paid by you, they are paid by the seller. A dog is only loyal to the master who feeds it. And often only for the time it’s being fed.

We have had many horror stories, only last week one client came to see me who had invested in off plan student accommodation in Bradford, only to discover the developer owns the majority of the development and also manages it himself as well. Talk about a vested interest. The service charges they were receiving were strangely skewed only to their apartments and not the developer’s ones. The properties tended to be rented out in terms of priority too. The developer’s properties would first get filled and then everyone else’s.

Needless to say they weren’t very happy and consequently have appointed the Leaseholders’ tribunal to look at the case.

The same client also purchased something off plan in Derby, again there were issues. Naturally he was put off by any property investments whatsoever.

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Yet with the same token, property is a safe asset class. It cannot fall to zero, you’re making money not with your money but mostly with someone else’s money, namely the banks’ money.

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It does rise, in the medium and long term. It gives you a steady monthly income and future capital growth is almost assured. For these reasons he has come back to the same conclusion despite his previous bad experiences; property is where it’s at.

There is another investor who currently has his money tied up in a project sourced by us in Hampstead, he had previously invested heavily in Margate when this seaside town was no longer a favourite getaway. Consequently the Hotels were being sold off wholesale, these were bought and used as HMOs whilst planning came in for flats, then they were converted and sold. Sounds like a good plan till the credit crunch hit. When I met him he had a property where the mortgage was in the region of £800k and the valuation was £350k. I think this quote applies here: you don’t know who’s swimming naked until the tide comes in!

When we were sourcing ex council properties for our clients in Central London, some feedback we got was that this is a honeymoon period and the government cap would cause a flood of these properties to be put on the market. The logic behind this assertion was only the government rent was fuelling the purchase of ex council properties. At this time you could purchase a three bedroom property for £350k and have it rented for £820 per week, in short you would invest £100k and receive £25k clean of all charges. A no brainer. Did this happen? No. On the contrary prices have been rising almost month on month. Why?Demand for property comes from a wide and variegated segments.

The fund idea especially appealed to our Bradford/Derby investor, there was no hassle, no decision making apart from whether to invest in the fund. The money is kept securely, ok no one can predict the future, but the asset class, property in central London is a solid one. The track record is solid.

Comparative hands off investments just aren’t offering the returns. Broadly speaking if you keep your money in the bank it is probably shrinking day by day, eroded by inflation. Services are also being stripped away which aren’t measured by the RPI index, such as healthcare and education, so the cost of maintaining your family’s lifestyle will cost more in the future, this trend is likely to continue.

Of course there is the investor who watches Homes Under The Hammer and wishes to roll up his sleeves and go alone. Such a structure is clearly not going to appeal to this type of investor, not for the bulk of his money anyhow.


 

Suresh Vagjiani

Sow & Reap

A Property Investment Company

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!Tips of the Week

The mantra for property is always Location, Location, Location! Property in a good location will attract quality tenants, give strong capital growth and will resell quickly.

Remember always to see an investment from the markets’ eyes and not your own. This is how you can make money out of it.

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Suresh Vagjiani
Suresh Vagjiani
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