Cash:stock ratio

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  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    How about this? Does it have any competitors?


    The TM Hearthstone UK Residential Property Fund is purely focused on providing access to the UK’s largest and most familiar asset class – residential property.

    The fund is Regulated and Authorised by the UK Financial Conduct Authority (FCA) for retail investors.

    Hearthstone allows you to invest in the UK housing market – without having to purchase and manage the property yourself.

    The fund is eligible for ISA, SIPP, Offshore Bonds or direct investments and you can also transfer your existing ISA. Start today from as little as £1,000 or £50 per month.
    Free the dunston one next time too.
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
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    That would seem on the face of it to be a good alternative to being a landlord.

    The issue if you held it as a general investment, might be that as a fund its underlying assets are illiquid, if there is a house price crash and you wanted to get your money out would you be stuck? So might be a poor choice for the OP?
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
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    AnotherJoe wrote: »
    That would seem on the face of it to be a good alternative to being a landlord.

    The issue if you held it as a general investment, might be that as a fund its underlying assets are illiquid, if there is a house price crash and you wanted to get your money out would you be stuck? So might be a poor choice for the OP?

    If you were really being a landlord, you'd very likely want to use mortgage finance to gear up your returns in line with what most of your competitor landlords do. Then when your void periods and property related costs hammer your gross yield down to 3% (as this fund achieves) you are at least getting that 3% and any capital gains on a larger pool of assets.

    The problem with doing it via a fund such as this, you have to pay the find management fees and rest of the OCF out of your net property yield which further consumes the income from the properties. The yield remaining for you to take then ends up being lower than current CPi, CPIH and RPI levels. So really you are just left with an ungeared capital gain which attempts to mirror national house prices.

    You are right of course that liquidity is a problem in an open ended fund such as this. The fund targets 85% of its assets to be tied up in the properties at a point in time (though may of course be higher or lower depending where they are in a buying or selling spree. So if in a couple of years you want to cash in and buy your own property, but that summer the owners of a quarter of the fund also want to exit at the same time, there is only enough cash and liquid assets available to meet 15/25ths of that demand. So they will have to restrict redemptions while they try to sell 10/85ths (~12%) of the houses and flats they own around the country. You could be waiting a long time.
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
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    Does this fund not use mortgages to gear its purchases? I haven't looked into it.
    And many LLs will use an agent who might take 10-20% so possibly not much different to a fund ?
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    Open a cash LISA. Why take the risk? Skipton BS will have such an account open from June.
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
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    AnotherJoe wrote: »
    Does this fund not use mortgages to gear its purchases? I haven't looked into it.
    Gearing is tricky and systemically risky on an open ended fund. You would tend to see that more on closed-ended investment companies and REITs with stable portfolios. An open-ended fund only has that stability if it has a massive cornerstone investor who is definitely definitely in it for the long haul.
    And many LLs will use an agent who might take 10-20% so possibly not much different to a fund ?
    The fund will use agents as well, they are investing across the country and the fund manager isn't going to go around vetting tenants and arranging for the leaky taps to be fixed. So the agency / property management company costs still exist.

    The additional costs include a 0.9 percent fee for the fund manager for selecting the portfolio's holdings and arranging what to buy and sell (which is a quarter to a third of the net rental yield after property costs) and then the costs of actually running the fund - admin, accounting, audit, investor reporting, legal fees etc etc - the usual components of OCF.

    And those elements of OCF will inherently be quite high per pound of NAV on a smallish fund like this which is only £50m in size (e.g., a £30-40k running cost would be nearer a whole percent than half a percent of the NAV of the investment portfolio -which in itself is lower than the £50k fund size because of the need to keep a large cash buffer due to the illiquidity of the assets).

    Clearly the 1-2% of OCF is buying something you couldn't do for yourself, as few of us have the means to go and construct a diversified portfolio of 160 residential properties up and down the country. But it doesn't leave much yield for the investor.

    Thrugelmir is right that if both you and the prospective property qualify for the LISA, that would be a no-brainer for some of your savings as the returns can't be beat.
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
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    Thanks BH very instructive as usual.
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    AnotherJoe wrote: »
    The issue if you held it as a general investment, might be that as a fund its underlying assets are illiquid, if there is a house price crash and you wanted to get your money out would you be stuck? So might be a poor choice for the OP?

    That's a very powerful objection.
    Free the dunston one next time too.
  • Cogs44
    Cogs44 Posts: 15 Forumite
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    Playing devils advocate to the general consensus (I probably agree with Malthusian's 2 versus 5/6 year arguement above):

    If you put it 100% in stocks, and there is a massive crash, then would you really want to buy a house straight away after? Or would you want to wait a couple of extra years for house prices to bottom out?
  • smiddle3
    smiddle3 Posts: 82 Forumite
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    I'm in a similar position to OP but without the strict 2/3 year timescale to buy. Considering putting 50% of current savings in equities and allocating 50:50 of future monthly savings to cash:equities as per Monevator article:

    http://monevator.com/what-should-a-new-investor-do/

    Still unsure whether owning property is right for me and don't want to stay out of investing any longer than I have/need to while I decide. Thoughts?
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