As people look to property investments to complement their pension fund arrangements we are seeing more investors seeking a hands-off approach to their property exposure. In some cases a hands-off approach will equate to reduced returns in general, because the day-to-day management is undertaken by a third party, but not always. We will now take a look at some of the opportunities available in the “hands off” property investment market.
The Internet has created a growing and influential new investment strategy in the shape of property crowdfunding. In general you will find the property investments finding their way onto crowdfunding websites are relatively small in size and looking to avoid what can be hefty finance charges when using traditional financing methods. For those looking for a little more risk there are opportunities to invest in property projects at varying degrees of development. In theory it is possible to seek “seed funding” opportunities in property crowdfunding or you can go for the more mature developments where the risk is reduced as is the potential return. You security in this scenario is a share in the underlying project company in line with that noted in the offer documentation.
Hotel Room Investments
The hotel room investment market is an interesting opportunity to acquire the use of hotel rooms the length and breadth of the globe although in many circumstances you will not actually own the bricks and mortar. This market revolves around investors acquiring a percentage of a hotel with a forecast return based upon your share of hotel room income. Historically this is a market that has attracted controversy but new regulations now offer greater protection for investors and have cleared the market of unscrupulous third parties from years gone by. In general you will see assured returns of 15%+ per annum with many offering indicative capital redemption terms should you want to cash in your investment in the future.
If you are looking for a hands-off property investment with as much security as possible there are opportunities aplenty using a joint venture approach. In this particular instance you would provide for example finance which would allow another member of the joint venture “team” to use their construction management skills to complete the development. In order for this to work there would need to be a legally binding agreement detailing the role of all parties, their liabilities and their share of profits.
If you were providing finance for a project it would be sensible to request that your funds are secured with a first charge over the property. At the end of the day, if the project goes to plan then your capital will be safe whether the development is sold or refinanced. Adding a first charge simply gives you added security and more incentive for your joint venture partner(s) to complete the project on time and on budget.
Equity finance is a very interesting way to bring two parties together to complete a property development. In essence one party will have the idea (and the land/property) while the other(s) will offer finance for a share in the underlying project. This type of property investment is very commonplace amongst small to medium-size projects where traditional finance options can be expensive if they are even available. So, this added degree of risk often equates to a higher than average target return with many projects offering a potential gross return of 20% per annum.
One such organisation which is bringing together property developers and investors, via its equity finance platform, is LandDevelop. This is a company which ensures that projects placed on the platform and offered to members are legitimate and as secure as possible. The company is approached by many small to medium-size property developers looking to raise funds for their projects but not all will make it through the review process. Each one goes through a very strict vetting system with all of the figures checked and double checked and all legal paperwork in place. An investment pack is then put together for potential investors to peruse at which point they can invest a minimum £100 per project – with a potential gross return per project of 20% per annum. Regular updates and reviews will follow and members will be made aware of new and exciting opportunities in the future.
Ask LandDevelop a question in our dedicated Equity Finance Platform.