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.