Streetwise Property Alert 14th February 2014

At our seminar, I sat through a presentation by Colin and was deeply impressed by the investment on offer. I asked Dave and Jeannie for more information…

‘Last Saturday’s event featured a very interesting presentation about the investment opportunity in German ‘listed’ buildings. It was also very useful for three members there who have already invested in this opportunity as they were able to confirm that their experience matched with what was being said and they have received their returns as

this investment matches with the theme of the event, an ‘unregulated’ investment which is marketed in a regulated manner, in line with Financial Conduct Authority guidelines. It is also full of ‘due diligence’ information and also identifies the ‘risk’ areas in the investment.

On the plus side, it is an investment that has a five year track record and has completed over 200 projects during this time period. So, it’s not a speculative opportunity, it’s a very profitable business.

To give an outline of what the German ‘listed building’ market is about…the German Government offers significant tax breaks for the renovation of listed buildings. To qualify as a listed building doesn’t just mean that it is of architectural importance, it can also mean that the building is in an important location, e.g. in a city centre, that would benefit from its refurbishment. Particularly in what was East Germany there are thousands of such buildings in the city centres, standing derelict, whilst at the same time there is a need for good quality residential accommodation in these city centre locations. So, the end owners of these properties are able to reclaim 100 per cent of the renovation costs against their tax, which makes them a very attractive investment opportunity.

So, what investors fund is the actual purchase of the derelict building in the first place. This is a very cautious and prescribed process. The developers only proceed to purchase a building to convert to residential apartments when firstly they know that they will be able to convert it to a suitable number of apartments, which will be an attractive proposition to end purchasers and also for the rental market. Additionally and crucially, even before they purchase a building, they will have agreement with a German bank to provide mortgage finance for the end purchasers. Investors’ funds are initially held in a German law firms escrow account and aren’t released to the developer to purchase the building until there is a first legal charge on that building for investors security.

At this stage, when the building has been purchased, the apartments are sold off-plan. When all the apartments are sold, the buyers’ 30 per cent deposits repays the initial investors together with their return. And at this stage the refurbishment work starts.

There is no shortage of buyers for these refurbished apartments. Apart from high net worth German citizens who buy them as an investment and because of the tax breaks, a German Financial Services company has put together a Property Fund which is committed to purchase 100 million euros worth of these properties over the next five years.

So what are the features of this investment opportunity?

The investment and returns are conducted in £ sterling, euros or US Dollars, there are no exchange rate issues.

All funds go through a German law firm, funds aren’t released to the developer until a first charge on the property is obtained.

Minimum 12 per cent return, rising to 15 rising in years 4 and 5.

Option to either take return as income or re-invest for capital growth.

Choice of investment amount, subject to minimum of £10,000, plus choice of investment term, 1, 3 or 5 years.

The investment process is straightforward and clear with no set-up, ongoing nor exit costs.

We have seen this developer’s work at first hand in Leipzig and can vouch for the quality of the locations and the properties themselves. In addition, when the properties are completed, the developer retains their involvement as the management company responsible for the maintenance and upkeep of the building thus ensuring their commitment to the ongoing success of the project.’

Ask for the details – you will not be disappointed and, if you are a serious armchair investor, you will want to invest…

Make It Useable!

Cycle safety is big news. The number of cyclists being killed, particularly in London, is very worrying. And yet a large number still take few precautions.

Encouraging the increasing number of cyclists on city roads to wear a helmet is a difficult task. Some believe they’re not necessary while others find them uncomfortable and bulky to carry around. According to statistics, 92 percent of London’s bike rental scheme users don’t wear a helmet when they ride, but 84 percent believe they’re risking their safety by forgoing  protection. 83 percent cite lack of portability as a reason for not wearing one.

That’s where Morpher comes in. It’s is a piece of bike equipment that provides the protection of a standard helmet while also being collapsible for easy storage and carrying.

Often, the reason people don’t use a product is not because it doesn’t do a good job, but rather that it is difficult or uncomfortable to use, store or carry. Rather than looking to create a better product in your market, your time could perhaps be better spent working on  a more user-friendly one. People will often forego some functionality in return for greater usability.

Streetwise Property Alert 13th February 2014

Welcome to today’s email…

London Prime Central

New research from Knight Frank suggests that prime central London rents rose in January for the first time in 21 months. They rose 0.2 per cent. ‘More senior executives from industries like banking, insurance, shipping and mining are searching for rented property than last year and relocation agents are increasingly prevalent in the central London lettings market as more employees move to the capital from overseas. This trend helped to push the total number of lettings higher by 19 per cent in the 12 months to January.’

‘While there are some generous relocation packages for the most senior people, the purse strings are still tighter than they were before the crash for most staff. This has caused many to seek better value beyond traditional markets like Mayfair and Chelsea and look in areas like Marylebone and Hyde Park Estate.’ We do, behind the scenes, have a small number of specialist services that we have been running for a while; sourcing prime central property is one of them. Please get in touch if you might be interested in using this service.

Spain Gazumping – What?

Just been reading an article by Louise Reynolds of Spanish Property Agency Property Venture. Louise makes some interesting points. I’ll quote one or two, ‘It is worth having your wits about you when buying from the banks. A financial services consumer pressure group in Spain concludes that some banks charge a premium for the mortgage finance, associated with property on their books, as it is not always easy for property buyers to compare lending terms on the open market.’

‘This might not necessarily be the case for overseas property buyers, as they tend to have higher deposits, or come as cash buyers, meaning banks have less pricing leverage. Having said that it is possible some banks may charge more for the property because a buyer is not taking a mortgage. That flies in the face of common sense in many respects, but the finance is where a bank makes its money.’ Let us know if this interests you – we can provide you with details of Louise’s website etc.

Buying Overseas – Baby Steps

If you’re buying overseas, and have not done so before, the first step should really be to read about the market and visit it and just soak up as much know-how as possible. The site is a good place to start in our view. It’s always amazing talking to would-be buyers and discovering there is little or no knowledge of how you buy in the particular country; often, you need to buy via company, require permits, cannot buy in certain locations etc.

I’ve just been reminded of that as I read an article, ‘Buying a chalet in Switzerland, Austria or France isn’t as easy as one, two, ski’ by Emily O’Donnell of private wealth law firm Maurice Turnor Gardner LLP. A couple of quotes to clarify. ‘In Switzerland, the Lex Koller requires foreign purchasers to obtain a permit to purchase Swiss real estate. A limited number of permits are available – at present only 1,440 properties can be sold each year to non-residents and your chalet cannot exceed a certain size (up to 250 square metres of living space).’

‘Thinking of a chalet in St Anton or Saas Fee in Austria? Here the position is slightly more straightforward, for EU citizens at least. But for non-EU citizens, it is still restrictive. It seems that each federal province in Austria has its own rules and in some provinces you must apply for a ‘foreigner purchase permit’.’ Food for thought.

All for now, see you soon.

Curiosity Cash

People are naturally curious…nosy is another word…and there’s many a business opportunity that’s been based on this simple fact. The latest thing we’ve seen is an app from Greece called Peekinto.

As the  name suggests, Peekinto gives the user the opportunity to get a snapshot of someone else’s life via a 12 second video clip. As a user, you can offer yourself up as a provider of such a clip or request a clip from someone in a particular geographical location.

There are practical applications…perhaps you want to see how long the queue is for a concert or what the traffic is like on the M1…but it’s mainly about curiosity. What is someone else doing? What can they see from where they are?

Is there some way you can tap into people’s desire to have their curiosity satisfied or to pander to their voyeuristic tendencies? If there is, you could have the basis of a fortune-making business.

Don’t Look For Business Opportunities

It sounds counter-intuitive, but looking for business opportunities is rarely a good way to find…a business opportunity! So what  should you do instead?

Well the very best way to find a viable business opportunity is to look for problems that require a solution. And the easiest way to do that? Look at problems that you have which don’t have a solution at the moment. When you approach it that way, you can be sure that the problem is genuine.

The big mistake a lot of people make is coming up with a perfect solution to a problem which doesn’t really exist. That’s what tends to happen when you look for opportunities rather than problems. There’s rarely a viable opportunity which doesn’t have an unsolved problem at its core.

Streetwise Property Alert 12th February 2014

One of the areas covered at our Investing In 2014 seminar was in relation to doing ‘due diligence’, so Jeannie thought it would be useful to apply some of what constitutes ‘due diligence’ to a real example and in this instance we’ll use The Convent.

‘If it looks too good to be true, it probably is’ is actually a pretty good starting point when it comes to looking at investment opportunities. So, rather than talking about the features of The Convent investment opportunity, the 10 per cent annual return, etc, let’s look at the potential ‘downside’? We are often reminded that the ‘value of shares can go up and down’, and ‘your home may be at risk if you don’t pay your mortgage’ – when it comes to investments, it is always worth looking at what would happen if things don’t go to plan.

One of the features in the ‘new world’ that the FCA requires is a balanced provision of information, so both the rewards and the risks. So anyone who says they are interested in investing at The Convent will get an Information Memorandum which summarises the investment and also includes a section about the risks that they identify (in the same size print!). This is not necessarily an exhaustive list, potential investors may identify their own risk features.

Put simply, this investment is via shares in a company that will own the freehold of the properties that will comprise the accommodation section of this boutique hotel. The current valuation of these properties is £2.88 million, and the investment raise is £2.1 million. The properties are then leased back to the hotel operator for a 10 per cent return. That’s the opportunity in a nutshell. So what might go wrong? And what might the consequences might be?

The first question that most potential investors have asked is – what if the hotel operator is not able to/does not pay the contracted returns? What security is in place to cover this situation? The starting point is that the company that investors have invested in owns the freeholds of the properties that are being used as the hotel accommodation. So, the decision would be taken by the investors and basically there would be three choices for investors:

To allow the current hotel operator to continue in post.

To bring in a different hotel operator.

To sell up in order to recoup the investment

The success of the third option would depend obviously on market conditions at the time. Currently, the four properties owned by the investors have a combined residential valuation of £2.88 (before refurbishment). They are on separate title deeds so to ease selling as residential properties. The Cotswolds is one of the highest value property areas outside of South East England and the valuations have been prepared by a RICS surveyor and are available as part of the due diligence process.

However, to put this prospect in context. The owner is currently looking to raise £2.1 million, so the 10 per cent return payable is a total of £210,000 each year. Based on 28 rooms at a very conservative £100 per night, The Convent has to achieve just about 20 per cent occupancy to reach this figure. Our experience has been that when potential investors have seen the security that is in place, and that all money goes through solicitors who ensure that this security is in place, and that the figures in respect of occupancy, etc do add up, then they are happy to proceed. As one recent investor, who is very experienced and thorough, said to us ‘I am comfortable with this because the owner is taking most of the risk. He stands to lose all the hotel accommodation’.

Remember, this is a totally passive investment, the investment is in the form of shares in the company that owns the properties, there is no involvement nor input in the operation of the hotel. The key points are:

Minimum investment £10,000.

10 per cent return, paid on a quarterly basis.

Exit at any point after 12 months, but if investors stay in to Year 3 125 per cent of capital is returned, at Year 5 150 per cent of capital is returned.

No set up, ongoing, nor exit costs

Our experience thus far has been that the team behind The Convent has been very open to providing information, answering questions, etc.. If you want to know more please get in touch for an initial brochure. If you do want to receive the full due diligence pack, we will need to speak with you and register you with the owner, so will need a contact number. This is to comply with Financial Conduct Authority’s guidelines on ‘crowdfunding’.’

As ever, email back for more…

Streetwise Property Alert 11th February 2014

Welcome to today’s email of news and views…

Upcoming Market Reports

We are always looking at new ways of presenting information here and are thinking of doing some more four-page reports on emerging markets. Trawling recent reports from industry bodies we note that Emerging Trends in Real Estate Europe 2014, published by the Urban Land Institute (ULI) and PwC, offers some pointers. They name various possible hotspots.

Naming them with some quotes, let’s start with Dublin (where prices are up some 15 per cent or more year on year) – ‘Dublin’s real estate market has been transformed from a no-go location among investors only two years ago, to being one of the hottest markets in Europe.’ Then there is Spain – ‘There are now good buying opportunities in Spain.’

Munich and Berlin are also named – these will benefit from Germany’s position as the economic powerhouse of Europe and from a young, expanding population.’ Berlin is one to watch. ‘Its young population and its growing influence as a European media and technology hub continue to make it an investment hotspot. Prospects for the residential sector are strong and rents in the city have been rising steadily, especially in recently modernised buildings.’ Let us know if you would like reports. Note too that we are introducing members to an investment that profits from modernising buildings in Germany; some of you at the seminar have already invested and are due returns shortly. Please update me.

Investing In 2014 Test

As a former ‘A’ Level Economics teacher, I always incline towards little tests as we go along so you can check your know-how and understanding. So, if you came to the Saturday seminar, have read the notes or plan to invest in armchair investments in 2014, can you answer the following?

What Is PS13/3?

What does it mean?

What is a HMW/SI?

Are you one?

If not, do you know what you can and cannot invest in

I don’t need ‘answers on a postcard’ and there are no prizes, I’m afraid. But, if you are an investor for 2014, you need to be able to answer these to your own satisfaction.

London Hotspots?

We note that Savills director of residential research, Lucian Cook, tips London to drive the UK property market recovery. But note the beneficiaries! ‘The equity-rich markets of London have driven the UK housing recovery. We now expect those markets that will benefit from a dump of capital earned in London to catch the next wave of recovery — places such as Surrey, Brighton and Bath.’

‘Within London the biggest rises in value last year were seen outside the wealthiest areas of Westminster and Kensington and Chelsea — in boroughs increasingly sought-after by professionals priced out of the central areas. The biggest percentage increases were in Hackney (16.5), Waltham Forest (15.2) and Lambeth (14.5).’ Ripple effect? One to watch for sure.

‘MINT’ – The New ‘BRIC’?

Ecnomist Jim O’Neill, who came up with ‘BRIC’ – Brazil, Russia, India, China – is now talking about another group of emerging markets; ‘MINT’. These are Mexico, Indonesia, Nigeria and Turkey. Of these, he suggests Turkey is possibly the star. I think, as with England and London and Ireland and Dublin, where these cities tend to drive the region’s
growth, we need to think Turkey and Istanbul. Over to Jim…

‘In 2000, per capita income in Turkey was just over $3,500 a head but today it’s nearly trebled and you can see this growth and the fruits of it all over the place. In the Istanbul business district, there are huge skyscrapers, new apartment buildings, lots of shopping malls – all symbols of this huge growth. The city is soon going to have the biggest
airport in the world, there’s a third bridge going over the Bosphorus and what’s more, there are no signs of Turkey slowing down.’

All for now, see you again tomorrow.


Hawaiian Energy

We’ve talked here before about turning waste products into profits. Here’s another example.

Hawaiian energy drink company, KonaRed uses a bi-product of coffee production as a key ingredient in its energy drinks. In order to use coffee beans, you first need to strip away the skin. An estimated 40 million pounds of the stuff gets dumped every year in Hawaii alone, and it costs the companies to do it. The fact that there is a company willing to pay for the skins is a double bonus.  This is a great win-win situation. The coffee companies get to make money from something they previously had to pay to dispose of, and the energy drink company have a cheap and ready supply of key raw materials.

So is there a waste product from your business which you could sell for profit? Do you know of a waste product from someone else’s business that you could utilise in a profitable way?

Streetwise Property Alert 10th February 2014

Those of you who came to the recent Investing In 2014 seminar will know I gave away my notes for my introductory speech as and when you arrived. I then ‘ad-libbed’ what turned out to be a 40-minute introduction which meant that David only got about 25 minutes and Jeannie about 10 minutes before the break. Here, for those of you who are interested in investing in property in 2014, is a quick summary of what I talked about…

The Basics

Up to 31 December, pretty much anyone could invest in almost anything property-wise. That all changed on 1 January when the FCA, Financial Conduct Authority, introduced new rules and regulations.

From now on, pretty much anyone can still invest direct in BTL and the like, where the investor owns and controls the investment. But only high net worth and sophisticated investors can buy into most armchair investments; these are where, typically, a developer takes sums from various investors and then runs the investment, paying out returns from pooled funds.

High net worth investors generally earn over £100,000 a year. Sophisticated investors might, for example, be directors of companies with £1m+ turnovers a year. We covered these basics in yesterday’s email, Sunday 2 February. Check that out.

Do You Understand The Investment?

Generally, whether you are a member of the public or a high net worth or sophisticated investor, and whatever you are buying in to, you need to understand how it works; how it is set up, how it operates, how it makes money, how you exit from it.

BTL investments are generally easy to understand, albeit requiring know-how and skill to run profitably.

Armchair investments – and we offer this as an all-purpose phrase to cover all sorts of collective schemes from student accommodation to Costa Rica farmland – tend to be more complex and harder to understand. Don’t understand? Don’t invest!

Risk & Reward

Quite simply, you get low risk and low reward. You get high risk and high reward. You do not get low risk and high reward; although many of these armchair investments suggest you do.

There is nothing wrong with speculative investments as long as you see them for what they are; i.e. there are high risks too. Many armchair investments are more speculative in nature, generally more so than BTLs.

Due Diligence

You need to do your due diligence. Some of you will remember Mick Rawlinson’s laser-precise 89-point checklist that he works through before he invests in anything. If it’s a buy-to-let, for example, what floor is the apartment on?

I use a 101 point checklist; if it’s off-plan, as many armchair investments are, where is the planning permission, for example? You need to see it. If you are investing in something, and the developer states there is a charge on the land for the investors, see the cold, hard proof – where’s the independent documentation?

Jeannie takes a different view, ‘A long list of points of what DD is isn’t what folk want. It means nothing on its own. The usefulness and value comes from putting it (DD) into a wider context and asking questions which orientate people to what it is they are attempting to do and why.’ More from Jeannie and her take on due diligence on Wednesday. That is a must-read.

Use Your Own Lawyer

If you invest in a buy-to-let, you’d use your own lawyer, just as you would with a property purchase where you are going to live in it. The same solicitor does not act for both seller and buyer; conflict of
interest and all that.

When buying an armchair investment, the seller will sometimes say that the deal is so specialised etc that the ordinary lawyer cannot understand it. (What’s that I hear…alarm bells). Jeannie says much the same; if a solicitor doesn’t understand something they are more likely to advise you not to go ahead.

Perversely, that sounds good to me – if a lawyer, with years of property experience, does not understand how the scheme works, presumably a member of the public doesn’t; so don’t invest.

The Bottom Line

What’s your bottom line? I’d suggest it’s this – that you don’t lose your money! So do check to see how secure your money really is. Dave, at the event, talked of a scheme which was promoted as keeping funds in escrow and the developer ran off with all the funds. If you employ your own lawyer – rather than the developer’s one who has a vested interest – you are, I’d suggest, better placed to invest in schemes where your money is secure.

Exit Strategy?

By and large, you make money, or the bulk of it, when you exit the investment. With a BTL, you will make, possibly, a 5 per cent yield but the payback is 10 years down the line when you sell and capital appreciation between now and then does the rest. Buying, running and selling a BTL over 10 years is often easier said than done but the actual investment is clear and straightforward. You sell bricks and
mortar via an estate agent.

That hotel room? The student pod in amongst 100 others? The share in the South American business that harvests that ‘unique’ mineral and maximises profit via exchange rate fluctuations? Not so easy, I’d suggest. If you cannot see a clear and direct exit strategy, you would be unwise to invest.

Too Good To Be True?

An oldie but a goodie. Let’s say…

You’ve been offered an investment in a ‘new’ product in Central America – you’ don’t really quite get the hang of it – that bloke in the suit who presented it made it sound straightforward enough – but you can’t quite get your head around forward contracts.

Thing is though, the returns are the biggest you’ve ever seen (it’s that new and unique). And, even better, your money is totally secure.

You don’t need to ask 89 or 10 questions as part of your due diligence. The agent says they’ve done it for you and ‘it looks really good’ to them.

You don’t need to spend £500 on your own lawyer; the developer’s solicitor is offering a bulk deal for £100 a time.

The money’s in escrow so that’s 100 per cent safe, no worries there.

The developer will guarantee to buy the investment back in 10 years.

Too good to be true? Don’t invest.

Okay, so that was my 40 minute introduction – I went on and on and on so much that David and Jeannie got squeezed out. Jeannie’s speech – her take on due diligence and risk-reward – is available on request. Those of you who attended the seminar will know it was 10 minutes of fascinating information cut dramatically short.

Getting Banned

Two US entrepreneurs, Adam and Ryan Goldston thought they’d hit the jackpot when they invented a Basketball shoe which would help players improve their vertical jump by over three inches. That was until the National Basketball Association banned their shoe. But then events turned in their favour. The story of the banned shoes went viral on the internet. Suddenly everyone wanted the $300 shoes and orders flooded in from all around the world. This is a very familiar story. In the past I’ve heard stories about banned records, books, sports equipment, food, drinks, drugs and lots of other stuff. And the same thing happens time and again….demand goes through the roof once people hear about the ban. People are naturally drawn towards things they’re not supposed to have – things that ‘they’ don’t want them to have. Is this a fact you could use in your marketing? Have any of your products or services been banned – or even been under threat of a ban. If they have, it could be something you could turn to your advantage.