Could this be the Best Property Investment Opportunity Available Today?

It’s a bold title, but I really do believe it.  Simple, out of the box thinking by clever people has probably produced the property investment opportunity to beat all others.

Sure, you can invest in bricks and mortar by buying a property, putting a tenant in it and collecting the rent each month.  Nothing wrong with that.  If you choose correctly, you’ll make a return of somewhere between 4% and 8% each year and hopefully get some capital growth along the way.  Brilliant.

However, there is another way.  There has been a lot of talk about Joint Ventures (JV) over recent years, and I believe they are now ‘coming of age’.  They used to be as simple as giving someone your cash, and they would apply their skills set, buy a property, carry out whatever work was required then either sell it or rent it out; each sharing the profit 50/50.

A joint venture is ‘a business arrangement where 2 or more parties pool their resources for the purposes of accomplishing a specific task.’  

There is a small army of people who will offer to take your money and invest it and share the profit, but there are a number of hazards here.  The immediate concern is ‘who is this person’?  What is their background, track record, what resources do they have, what is the exit route, what are they likely to buy, and can you trust them?

Investors have been put off Joint Ventures because they can lose some control by letting someone else make all the decisions, yet the investor holds the security (or the mortgage) and if things go wrong it is their credit record that takes a hit.

The other stumbling block of course is division of profit, and it is this that is often the deal breaker.  Why would you share what little profit is made each year with someone else, when you continue to hold the mortgage and take all the financial risk?  Trust me, if things go wrong, you’ll be left to sort out the legal mess yourself.  The other partie will be long gone.

And do you really need someone-else to help you buy a property and stick a tenant in?  Let’s face it, it’s not difficult, in-fact it’s one of the most simple legal processes we’ll ever voluntarily put ourselves through.

So what are the options?

There are a number of options here.  Let’s just say that if you were to put your money into a UK Residential Property Fund, then you are in effect doing a joint venture with ‘an entity’ and hoping to make a return.  Incidentally solid property funds tend to deliver about 6% to 8% per year.

Standard buy to let returns are (as mentioned above) in the region of about 4% to 8% per annum, and there is the hope of capital growth, however returns can be eroded by maintenance and mortgage costs, as well maintenance costs.

You have to ask yourself, ‘what really are the benefits of a Joint Venture’ and think hard about what it is you want to achieve.  Does a JV really do what you want it to?  And what else is available in terms of other businesses that help you get on the buy to let property ladder?

Some Joint Ventures are now becoming so sophisticated they have the potential to seriously outperform traditional buy to let investments!

Up until recently Joint Ventures have been a pretty boring way to slowly make money, and they do (to some degree) work.  But the industry has moved on, and a new breed is emerging.  We can trace the roots back to the Financial Services industry.

Fund managers, Independent Financial Advisers and their legal teams and support staff all work in a highly regulated environment where the rules to raise money are ruthlessly enforced by the Financial Conduct Authority.  The rules they follow are complicated and exhaustive.  But, once they have an appropriate legal structure in place and begin to raise money, the results can be worth-while and everyone benefits.

In addition to this, the recession has forced property developers to look at new ways to raise the cash they need since the banks ran out of money and no longer supported property development, so they turned to the financial services industry for help.  I say ‘forced’ because the money they raise from private investors on a Joint Venture basis costs them more.  Where a bank would lend them money at say 6% per year previously, a private investor will demand more; perhaps even a share of the profit.

Apply some clever thinking to the very basic fund structures and systems used in the financial services sector, and translate that to the buy to let joint venture as we know it, and you can potentially accelerate the profit back to the investor and see enhanced returns in a relatively short space of time.

We all know property is for the long-term, but there are people who don’t like their capital tied up for long periods, but want to get exposure to the property market.

The new breed of Joint Ventures are carefully structured to maximise the profit back to the investor, in that they are efficient in terms of the tax they pay, but also add a level of security of funds.  They are definitely armchair investments and offer the potential to seriously outperform standard buy to let returns.

Why can’t I access this opportunity?

This type of opportunity is restricted to those who physically have the cash to hand, or access to their cash within a short space of time.  These projects are strictly limited to a finite number of people, who understand what they are investing in and can move quickly to secure their place.  Unfortunately not everyone will understand it, and not everyone will be ready to invest.  There are only so many projects ready to go at any one time.

 

Regards,

Mick Rawlinson

 

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Why Peer to Peer Lending is Growing So Rapidly in the UK, and How That Effects the Property Industry?

What is Peer to Peer Lending?

Back in the days before the recession began to impact on the UK economy, money was fairly free to access on the high street at the banks and online. People and business could be confident that if they applied for a loan they would have a great chance of being accepted and that lending rates would be fair or perhaps even better, cheap. But we live in a different world now and the financial landscape has changed dramatically. Lending has been restricted to such a degree, people and business can’t access the money they need to just survive and they are turning to ‘Peer’ groups to source the funds they need; so Peer to Peer Lending is becoming more popular.

Peer to Peer lending is a simple concept in that a friend or a family member will lend you some money. It’s quite normal for friends and family to help start a business by ‘lending’ money to their relatives or friends. The process is usually informal, involves minimal paperwork and often is agreed on a ‘hand-shake’. However, the concept is evolving and becoming more formal to absorb the demand for borrowing by business. A relatively new concept is evolving called ‘Peer to Business’ lending.

What are the Benefits for the Person Lending the Money?

There are benefits to both parties involved in the transaction. If you want a home for your money you will probably take it to a bank and put it in a ‘high interest’ bearing account. Actually, what the bank then do with your money is lend it to someone else and make a profit.

Sadly, there is no such thing as a ‘high-interest’ account nowadays; high street bank rates are very low and savings are being eroded by inflation. So, as an alternative, individuals are looking further a field for opportunities to attract a better rate, and are turning to ‘Peer to Business’ lending for better returns. For example a high street bank may give you 2% or 3% interest on your funds, whereas lending to a business could be more lucrative and return to you 6% or more.

What are the Benefits to the Borrower?

Equally, on the other side of the fence, businesses now have another source of potential Lenders. No longer are the high street banks their first port of call. The downside to borrowing from the bank is often the insane amounts of paperwork associated with applying for a loan. Small businesses have enough on their plate running the business and really don’t have the time to jump through hoops going through an extended application process for the banks.

Businesses tend to like the informal approach associated with ‘Peer to Business’ lending because it is more flexible, in that there is room to negotiate on terms. For example a property development business may want to borrow monies and pay on an interest only basis over a definitive period (often long-term) and at a sensible rate, whereas an estate agent business may have just short term cashflow needs and are prepared to pay a higher rate.

What are the Risks of Peer to Business Lending?

Like all things to do with money, ‘Peer to Business’ lending carries some risk, most notably that depositing money in a current account will normally be afforded some protection by way of the Financial Services Compensation Scheme, which will cover your loss if the bank fails (usually upto £85,000). You don’t get this protection with ‘Peer to Peer or Business’ lending.

Equally, banks will generally ask the business to secure the lending they take by offering up their assets as security, or even give a personal guarantee. This sort of arrangement isn’t normal where ‘Peer to Business’ lending occurs. So if the company you lend the money to goes under or fails, you may be the last person entitled to what is left; the taxman or the banks may be entitled to their money first.

You pay your money, you take the risk. The greater the potential return, the more likely it will be at a greater risk.

Who are the Biggest Winners?

It’s fair to say that the industry to be hit hardest by the lack of debt finance has been property development. All the government initiatives of late to kick-start the housing market have been in favour of the big house-builders, leaving the small developer, in particular to go without.

Yet the opportunities available to the small developer are fantastic and there are plenty of them. Commercial Agents have an abundance of development sites on their books, but the Developers’ just don’t have the funds available to them to complete the projects.
So, they are turning to ‘Peer to Business’ lending to help fund their projects, and are prepared to pay you for your help.

As always, do your due diligence.  If you’d like to know more or just chat further about the opportunities available at the moment, please call me on 0794 152 678 2 or email mick@bastienjack.com

Best wishes,

Mick Rawlinson

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