Working with Passive Investors to grow your Business

publication date: Sep 3, 2010
author/source: Guest article by Sarah Walker, Platinum Property Partners

Working with Passive Investors to grow your Business

Property Investment Return

While the days of ‘no money down’ deals may be gone, ‘none of your own money down’ deals are well and truly on the rise.  Increasing numbers of professional property investors are taking advantage of low interest rates on savings and underperforming pension plans and partnering with well-capitalised individuals who are looking for a better and more secure return on their money than they can currently achieve through more ‘traditional’ investment vehicles.

The buy to let market is widely reported to have had something of a rollercoaster ride over the past couple of years, but the truth is that sophisticated investors have continued to make market-beating profits from property through the recession, with some having seen increased levels of cash flow.  Investing in HMOs for working adults has proved to be one of the best ways to maximise returns, and leaders in the field have been achieving pre-tax profits of well in excess of £1,000 per month, per property, with yields of 15%+.  The caveat is that doing it right is capital intensive, and to buy, refurbish and furnish this kind of 5-6 bedroom HMO in much of the country can take around £100k of investment. 

So while we investors all believe that 2010 and beyond presents a superb opportunity to invest in property (using tried, tested and proven HMO models) the one big problem for investors is how to raise sufficient investment to buy property in the first place – when you have insufficient personal funds to pay for deposits, refurbishment and other costs.

There are still quite a number of people out there who are convinced (and convincing others) that buying property NMD is possible, but run any of those schemes past a reputable solicitor and you’re highly unlikely to find them giving it a green light.  The most sensible (and legal) solution for property investors is to enter into a business deal with a passive investor – through either a joint venture or a carefully structured loan agreement – to create a real win-win for both parties. 

The beauty of this kind of business partnership is it can be tailored to suit the passive investor’s requirements in a number of different ways.  The high cash flow means you can afford to pay them monthly interest, sometimes at three or four times the rate they’re getting in the bank, and if you as the property investor know your local market’s economic fundamentals well and are buying wisely, an equity share for the passive investor can allow you to benefit ongoing from all the cash flow.  Some people choose to do a combination of the two...but however you structure it, you win because you haven’t had to put in any capital, and the passive investor wins because they’re getting a much better return and have the security of an asset they can ‘kick’ – their investment is tangible.    

And that’s probably one of the greatest attractions for the passive investor: the security.  Provided you can show them you have a solid, proven model for acquiring and operating the property as a profitable investment, they can be pretty certain their money’s safe.  It’s common knowledge that all markets have cycles and the opportunity now in 2010 is so much more attractive and strong that it was in 2007, 2008 and 2009 because we’re at, or close to the bottom.  You do need to prove that you can achieve good levels of cash flow, though, because it typically takes between three and ten years to build a meaningful portfolio that will lead to the first stage of financial freedom and pension security – you can’t count on significant short or even medium-term growth right now. Anyone contemplating property investing in 2010 needs to focus on where the market will be between 2013 and 2020 as that is when the real benefits of starting to invest in 2010 will happen.  With history showing that  the UK residential property market cycle takes around two decades, this really is the most fantastic opportunity for well-capitalised investors to get on board.

Platinum Property Partners
0845 293 2877

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