Fractional property ownership in a SIPP

tdowson

I am looking at investing in a hotel room. The deal is that I invest £20,000 and this buys me a 1/10 fractional ownership in a suite. I then get a guaranteed income of 12% so £2,400 for 10 years, and 15% £3,000 for 11-15 years. So total ROI is £54,000 over 15 years. If I assume inflation is 3% for the 15 years, then in todays terms the ROI is about £35,000, which is about 176%, or 11% p.a.
There is a buy back guarantee of the full £20,000 invested at any time after year 4 and £30,000 after year 15.
I need to get the legal docs and check any small print, and check for management fees or hidden future costs. But if the figures are right, then they look worthwhile to me.

I am wondering whether to put this into a SIPP or just invest normally?

My questions are:
a) are there any questions I need to ask?
b) if I put it in a SIPP, the up side is that I don't have to pay in the full amount. But what is the downside (apart from the cost of setting up the SIPP)?
c) Is the property then locked into the SIPP. If I sell the property under the buy-back, then the money has to stay in the SIPP? Does the annual income also have to be paid into the SIPP and stay in there? If so I assume I need to open a separate bank account that the money will get paid into, and not withdraw any of it?
d) Is any investment or cash in a SIPP subject to the same rules that I think apply to normal pensions, you can draw down x% when you are x years old, and the rest you must buy an annuity?

So far I have avoided pensions because I don't like the idea of having to buy an annuity.

Thank you for any answers.

bigadaj

Sounds dodgy, who is providing the guarantees on the returns, and what does the small print say about conditions under which the guarantee would be paid.

Providing guarantees at this level of return is very suspicious as reliable returns above say 6% are rare, and even then the is risk to capital

thenudeone

There is such thing as a "guaranteed" return of 12% or 15%. The guarantee is only as good as the company set up for the investment, whose success depends on wide range of factors. Be very wary.

As far as a SIPP is concerned, I have used a SIPP to buy "exotic" investments (in my case unlisted shares) thought Curtis Banks, who were very helpful.

The fees on a bespoke SIPP like this are likely to make it very expensive for a £20k investment. Most providers will charge £££'s initially plus an additional annual fee for exotic investments; on top of the normal opening and annual SIPP fees (each both £££s).

They will do some reviews to ensure that the investment doesn't break HMRC rules as far as they can see.

Selling exotic investments in a SIPP is troublesome because of the need to avoid any suggestion that you've engineered it as a way to get funds out of a pension (yes - it is possible, but fraudulent). Finding a buyer for an investment like the one you suggest will be difficult, IMO, if you ever wanted out.

If it was sold, the funds would stay in the SIPP initially, which will have its own bank account. You can't touch it.

But once it was sold, the funds in the SIPP could be transferred to another pension scheme or turned into an income like any other pension (AFAIK).

Linton

You have asked some of these questions (well one any way) in the Savings forum. Werent you convinced by the scepticism there?

System

Are you buying an actual piece of freehold property, or simply a share in a hotel venture company?

If the company went bust and the hotel was blown up by a bomb, would your 1/10 share of the freehold still be recorded at the Land Registry?

atush

I have heard of very many cases of these 'hotel rooms' being either scams, or unprofitable and unsellable afterwards. In fact, some of our major banks are sitting on a lot of loans towards some of these hotel rooms that are now worthless.

Avoid.

grey_gym_sock

this kind of thing is not really property ownership. if you own a property, you have the option of sacking the letting agency and appointing another 1 or doing it yourself. you're really providing finance to the company running a hotel, via something like a preference share, but probably with less clearly defined rights than a real preference share.

tdowson

Linton wrote: »

You have asked some of these questions (well one any way) in the Savings forum. Werent you convinced by the scepticism there?

Yes I am being wary. I was exploring the SIPP as an option to reduce the actual amount of cash I need to put at risk.

I am waiting for the full documents to go through them in detail and see who is behind the guarantees and what the small print says.