SIPP investment in Property

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  • Also Zagfles I just read that post thanks. In that thread one of the experts said
    Last time I got a call like this I asked the sales person if they were interested in getting 10% tax exempt from a legitimate UK investment. Next time I may mention investing in care homes. Same thing, a VCT. If they don't bite on that maybe they will go for student accommodation in Cardiff at 12% taxable. A P2P property development loan.
    . Was he joking or are those good investments?
  • zagfleszagfles Forumite
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    Well the guy selling this to me said that these sort of companies dont lend from banks for 2 reasons. 1. The loans take months to organise with the banks and 2. The banks always want some of the equity of the finished development so this along with the higher interest rates that the bank charges for these types of loans means the company ends up paying pretty much the same. Thats what he said
    Sounds like utter drivel. They may want security, you know, like a mortgage, in case of default, but equity? For a loan? That's not how banks do business. Do you have a mortgage? Does your bank want equity in your house?
  • edited 9 June 2018 at 5:36PM
    zagfleszagfles Forumite
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    edited 9 June 2018 at 5:36PM
    Also Zagfles I just read that post thanks. In that thread one of the experts said . Was he joking or are those good investments?
    Anything paying 10-12% is going to be risky. If anyone thinks they can get that sort of return without taking a significant risk is, frankly, stupid. Note - it's not necessaily a scam, plently of genuine speculative investments, but nothing pays those sorts of returns without risk. Usually the type of investments only suited to experienced investors who are happy to take a punt with a small part of their investment and don't mind losing some/all of the their capital. Definitely not something for a small investor to invest all or a significant part of their savings in.
  • MalthusianMalthusian Forumite
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    Also Zagfles I just read that post thanks. In that thread one of the experts said . Was he joking or are those good investments?

    The "joke" is that there is no need to invest in newly-launched unregulated outfits to get high returns as you can get similarly high returns from longer-established and FCA-regulated schemes - they just happen to be more upfront about the risk.

    Jamesd was mostly listing investments you can find on pick-your-own P2P platforms (apart from VCT). Many of them are just as risky as the likes of Dolphin Capital, but P2P platforms at least allow you to spread your capital over dozens of them with little effort. And P2P platforms are regulated (although that counts for very little).

    A very new investor should not be going near them; they are for people who are bored of steady returns from mainstream diversified tracker funds and want to chance their arm in pursuit of high returns and don't mind writing off possibly all of their capital.

    Out of interest, who is selling this investment to you?
  • edited 11 June 2018 at 9:36AM
    MalthusianMalthusian Forumite
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    edited 11 June 2018 at 9:36AM
    Well the guy selling this to me said that these sort of companies dont lend from banks for 2 reasons. 1. The loans take months to organise with the banks and 2. The banks always want some of the equity of the finished development [...]

    The actual two reasons are that a) the banks won't give them any money b) the banks won't give them any money.

    It is interesting you mention equity. I recently saw a prospectus for another unregulated ultra-high-risk minibond (no relation to Dolphin) offering interest of 7% per annum over 3 years, which stated that the project was seeking to develop an asset worth £55m with potential for it to be worth £133 million on completion. This of course was presented in the prospectus as a selling point.

    The prospectus did not dwell on the following: assuming the bond investors were providing the £55m to buy the asset, if the investment was successful the bond investors would have risked £55m to get £11m, and the owners of the scheme would pocket £66 million minus the cost of the development having risked nothing. Perhaps the debt/equity structure was different and the owners had put in some of their own money, but if so it wasn't disclosed in the prospectus.

    In the absence of a substantial investment from the equity shareholders, the risk/reward structure of the scheme is heavily slanted in favour of the owners of the scheme and against the 7% bondholders. The reason I am talking about this unrelated investment scheme is that I strongly suspect that most of these schemes have a similarly skewed investment structure.

    So although I generally agree with what Zagfles said, there may be a grain of truth in the bit about equity. Anyone who was asked to invest in one of these schemes and understood the risks would say one of two things: either 1) "No" 2) "I'm not going to invest in this micro-cap start-up company for 7% per annum, I want equity". Ever seen Dragon's Den? Ever seen a Dragon say "I'll invest in your start-up business for a return of 7% per year"? No, it's always "I'll invest £10,000 and two shillings for 20% of the company." The unlimited upside potential of equity is necessary to make the economics of start-up investing work; to ensure you can make enough on your successful investments to compensate for the ones that go bust.

    Zagfles is correct that the banks generally don't go in for start-up investing but there are plenty of other financial institutions that do (e.g. VCTs). These institutions wouldn't touch something like this without equity.

    Reason 1 is garbage if he's talking about Dolphin Capital. The company's been going for five years. What's the rush to secure further investment?
  • zagfles wrote: »
    Anything paying 10-12% is going to be risky. If anyone thinks they can get that sort of return without taking a significant risk is, frankly, stupid. Note - it's not necessaily a scam, plently of genuine speculative investments, but nothing pays those sorts of returns without risk.

    This particular investment is a loan note which, having read the advise here, I can see is risky. How risky is undetermined? This company says it does full due diligence before offering any investment. In fact, all the companies that I have information from claim to only offer investments that they have completed vetted and are they are happy are low risk.
    Malthusian wrote: »
    Out of interest, who is selling this investment to you?

    Keystone Property Group and there are many more around offering similar returns/investments.
    Malthusian wrote: »
    Jamesd was mostly listing investments you can find on pick-your-own P2P platforms (apart from VCT). Many of them are just as risky as the likes of Dolphin Capital, but P2P platforms at least allow you to spread your capital over dozens of them with little effort. And P2P platforms are regulated (although that counts for very little).

    The reason I asked whether he was serious about these types of investments eg student accommodation in Cardiff is because I have considered similar investments too. I decided against pbsa because I didnt like the exit strategy. But I am considering these:

    A purpose built block of apartments which has a dual occupation licence eg students and professionals and is right next door to a new state of the art hospital. 8% Net Rental Return for 3 years

    A serviced holiday apartment south england. 10% net rental income for 5 years then 12% net rental income for 5 years.

    There are also sites where you can diversify by investing in their portfolio of properties starting from £500 and your risk is spread across all the properties. Net rental returns around 8%

    Or there are sites where you can have a fractional investment of one property in a development, thereby enabling a smaller investment.

    Now all the companies that I have information on claim to have done the due diligence on your behalf and most of the investments have two tier security on your investment (although obviously still not without risk). Am I to believe them?

    Is investment in property on a hands off buy to let basis a good investment? I would, in some cases, own the apartment/studio so surely investment in bricks and mortar is good? Comparisons of local property markets is carried out.

    There are many companies now offering hundreds of these types of investments. Am I to rule them all out? How do I decide which has the least risk?
    Malthusian wrote: »
    It is interesting you mention equity. I recently saw a prospectus for another unregulated ultra-high-risk minibond (no relation to Dolphin) offering interest of 7% per annum over 3 years, which stated that the project was seeking to develop an asset worth £55m with potential for it to be worth £133 million on completion. This of course was presented in the prospectus as a selling point.

    The prospectus did not dwell on the following: assuming the bond investors were providing the £55m to buy the asset, if the investment was successful the bond investors would have risked £55m to get £11m, and the owners of the scheme would pocket £66 million minus the cost of the development having risked nothing. Perhaps the debt/equity structure was different and the owners had put in some of their own money, but if so it wasn't disclosed in the prospectus.

    In the absence of a substantial investment from the equity shareholders, the risk/reward structure of the scheme is heavily slanted in favour of the owners of the scheme and against the 7% bondholders. The reason I am talking about this unrelated investment scheme is that I strongly suspect that most of these schemes have a similarly skewed investment structure

    I have no doubt the owners/developers have their own backs well and truly covered but what if this type of investment works for both them and the investors? What if this is the new way forward for less wealthy investors to have a piece of the pie in terms of investments into huge projects where previously only investors who could afford the whole development?
  • Malthusian wrote: »
    The "joke" is that there is no need to invest in newly-launched unregulated outfits to get high returns as you can get similarly high returns from longer-established and FCA-regulated schemes.

    Could you advise me of these please?
  • Daniel54Daniel54 Forumite
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    Just a heads up,but the registered office of Keystone Property Group is a virtual office mail box address in Bloomsbury.From Companies House,they appear to have only one director.

    https://beta.companieshouse.gov.uk/company/10493173/officers
  • MalthusianMalthusian Forumite
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    This particular investment is a loan note which, having read the advise here, I can see is risky. How risky is undetermined? This company says it does full due diligence before offering any investment.

    Presumably they will be happy to pass you their full due diligence report with an exhaustive analysis of their monthly management accounts, the feasibility of their future income projections, and the legal checks on the underlying properties and any security involved in the loan?

    Because I worked briefly in due diligence and this is what due diligence means when it comes to corporate lending.
    In fact, all the companies that I have information from claim to only offer investments that they have completed vetted and are they are happy are low risk.
    If they claim that these ultra-high-risk unregulated investments are low risk then that is reason itself to disregard anything they say on any subject.
    10% net rental income for 5 years then 12% net rental income for 5 years.
    Which is it? If it's rental income then it's not "10%", it's dependent on how often the property is let and how much renters will pay. If it's a 'fixed' or "guaranteed" 10% per annum then it's not rental income, it's a loan security. Your return depends on the financial strength of the company and the rent is only of secondary relevance. Which company is offering the 10% and what is their debt cover ratio?
  • Malthusian wrote: »
    Which is it? If it's rental income then it's not "10%", it's dependent on how often the property is let and how much renters will pay. If it's a 'fixed' or "guaranteed" 10% per annum then it's not rental income, it's a loan security. Your return depends on the financial strength of the company and the rent is only of secondary relevance. Which company is offering the 10% and what is their debt cover ratio?

    Sorry I was not clear its 10% for the first 5 years then 12% for the next five years. There are absolutely no other costs during this period. Basically you buy an apartment/bungalow or similar on their complex. They guarantee the return in the form of rental income. This is not just based on rental income from your property but from the rental of all the units in the whole development. It is possible to sell your property at any time, or continue to use their rental management services beyond the 10 years if you wish but there is no guarantee of rental income beyond the 10 years. They recommend yield compression if you wish to sell the property within the 10 year period. In brief from all the contact I have had with them this is what the promoters (Emerging Property) say about the developers/investment.

    "Buyers receive an immediate 10% NET fixed income (years 1-5), with inbuilt yield growth to 12% NET for the remaining 5 years of the initial fixed income agreement. You begin earning from day one, with all income predetermined, contracted and fixed in place for 10 years. A1 Alpha Properties (Leicester) Ltd’ is the main parent company behind all our UK mainland investments.

    This is a 17-year-old award winning UK based development company with a diversified zero-leverage portfolio of high cash flow commercial assets. These include student property developments, retail units and serviced apartments.

    I understand that they are by far the most experienced developer in their sectors, and unlike most, this developer has zero bank exposure. They also have full NHBC registration and have in fact been NHBC accredited for over a decade now, actually winning an award from them in 2005.

    We secured exclusive access and partnership with this developer in 2012. Since then, we have delivered almost 3000 units to investors. All units have been offered on the same basic investment structure, fully cash funded by investors, and are now all fully managed by the developer’s own management teams. Likewise, they manage and own the freeholds of all their developments.

    It is worth noting that most of their properties and assets are held within limited SPVs. These are set up to handle the risky construction, refurbishment or sales stages of each project. "

    This is an example of an investment I was particularly interested in, but the principle appears to be relevant to many investments being offered nowadays, be it student, care home or similar. So, in effect, it appears to me that I would be buying a buy-to-let property but without the hassle of management, maintenance fees etc. So isn't that a good investment?

    BTW. Where do I find out their debt/cover ratio?
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