“40% of entrepreneurs featured in the Sunday Times 100 Rich List have earned their fortunes through property investing”

Types of Investments

Investing in property involves the purchase of residential and/or commercial property or land and either renting it out to tenants or selling it on for a profit after improvements have been made in order to increase its value. Property investment can quickly become highly lucrative and can be conducted on any scale, from simply purchasing ‘Loan Notes’ or ‘Property Bonds’ from as little as a £5,000 commitment, to buying a 2nd property and or to building a business consisting of multiple properties. In fact the biggest property owners in the UK (David & Simon Reuben) have built a portfolio worth £15 billion.

For further information about Investment and Property Types, read below:

NB. The information on this page is relevant to property in the UK.

Property Ownership

The majority of Property Investors build their portfolios on a Freehold or Leasehold ownership basis with the primary reasons for investing in property being to create wealth in the form of capital appreciation and a positive net income yield. (after finance/maintenance/management costs etc). Income is created by renting the property to tenants. Property ownership details are recorded and detailed on the property deeds and registered at the Land Registry.

Property Ownership - Fully Managed (FM)

Fully Managed Property Ownership schemes are becoming increasingly popular with developers and offers an effortless opportunity for Property Investors to benefit from owning property whilst the developers (or appointed management company) are liable for dealing with tenants and the maintenance of the property. It is a great way to learn and build a property investment portfolio if you are new to Investment Property Ownership. It is also perfect for Property Investors who have full time job, a non property related business to run, a family to care for or for those who are already busy property investors, as with Fully Managed Units, you won’t need to take time out of your day to look after the property or its tenants.

Property Ownership - Assured Rental Income (ARI)

Some developers also offer developments with a contractually assured rental income. This guarantees the rental income for the owner regardless of whether the property is tenanted or not, which ensures an instant equity income and regular cash flow. The tenant will pay their rent to the developers (or the appointed management company) with the guaranteed income being forwarded to you the owner on a monthly basis. Typically a Property Investor should expect a net yield of around 6% of the purchase price.

Property Ownership - Life Tenanted (LT)

Life Tenanted properties allow the investor to purchase prime residential property at significantly below the RICS vacant possession valuation with typical discounts being around 45% depending on the specific property and its tenants. The reason for the significantly discounted freehold purchase price is due to Life Tenanted investment properties being occupied by a ‘Lifetime Tenant’, (or tenants in the case of cohabitating couples) who is (are) over the age of 60 and will have purchased a Lifetime Lease (the cost of which will be proportionate to the cost paid for the freehold by the investor) on the property that you are a freeholder of. This means they (Lifetime Tenants) have the right to live in the property, rent-free until they pass away or move into permanent long-term residential care. At this point, the majority of LT property investors find short hold tenants as per usual.

Why Are Life Tenancies Created? - A Life Tenancy gives people aged over sixty the chance to live in a property that may otherwise have been outside of their budget. By purchasing a Lifetime Lease and becoming Life Tenants means that they can enjoy the benefits ranging from moving to a better or preferred area, paying off debts to releasing money in their retirement whilst still having the security of a property for their lifetimes.

Why Are Investors Buying Life Tenancies? - Life Tenanted Investment Properties are highly versatile investments. Due to it being the responsibility of the Life Tenant to maintain the property, (similar to a commercial lease) being such low maintenance property investments they are seen by investors as something that can be purchased and left to grow in significantly in value with very little time commitment. Also, Life Tenancy Investments are exempt from the increased 3% Stamp Duty which is now payable on standard Buy 2 lets with only the standard Stamp Duty rates being payable.

A typical Lifetime Tenant will be 65 years old and will have paid 45% of the value of the property for the right to reside in it for his/her lifetime. The Investor will have paid 55% for the Freehold and just like purchasing any freehold property will own the property deeds and be registered as the owner with the Land Registry.

Property Loan Notes

Property Loan Notes enable developers and construction companies to raise capital by allowing retail investors to part fund property developments in the form of lending money through structured formal loan agreements. Capital loaned via Loan Notes is typically secured in the form of a charge registered against owned assets which often also includes property deeds at the Land Registry. It should be noted that as with any investment, there will be varying levels of risk.

A Loan Note will usually have a fixed term contract period (typically between 1 year to 5 years) and your loaned amount will be returned at maturity. Also, they will often have renewal options. Furthermore, a Loan Note may have early exit clauses and can also typically be resold (subject to demand) during the contract period.

A Loan Note will usually guarantee a periodic Interest rate payment (on a monthly, quarterly or yearly basis) and may vary depending on the duration of the loan. An example detailed below:

Year 1 - Interest rate paid = 6%

Year 2 - Interest rate paid = 8%

Year 3 - Interest rate paid = 10%

Year 4 - Interest rate paid = 12%

Year 5 - Interest rate paid = 14%

Loan Notes offer an ideal pathway for investors who want to take a hands off approach to the benefits of investing in property by not needing to associate with the complexities and or literally not having to get their hands dirty with the actual development work and or not needing to deal with any possible associated challenges that sometimes materialise with tenants.

Considered to be a simpler alternative to buying free/leasehold property outright, Loan Notes are similar to stocks and shares but with far lower volatility and significantly more security. Other benefits include not being liable for Council Taxes, Stamp Duties, Insurance Premiums, Maintenance Fees, Estate Agents Charges etc.

Details specific to each Loan Note structure will be contained in the Loan Note Information Memorandum / Security Trust Deed that is specific to each development. Each Loan Note has a Security Trustee who holds the various security interests created on trust for the Loan Note lenders. Each Loan Note has a contract that outlines the legal obligations of the borrower and will include a set of contractual penalties, including the right to sue or seek arbitration, if the borrower fails to meet or otherwise defaults on their financial obligations.

With Loan Note investments available from £5,000, they are also ideal for new and or small property investors who have a desire to enter the property market without the requirement of finding significant capital sums.

Property Investment Bonds

Property Investment Bonds enable developers and construction companies to raise capital by allowing investors to part fund property developments in the form of buying share capital. Capital invested into Property Bonds is typically secured in the form of a charge registered against owned assets which often also includes property deeds at the Land Registry. It should be noted that as with any investment, there will be varying levels of risk.

The features and benefits of Property Bonds are similar to those of Property Loan Note Investments and as specifically detailed below:

A Property Bond will usually have a fixed term contract period (typically between 1 year to 5 years) and your invested amount will be returned at maturity. Also, they will often have renewal options. Furthermore, a bond may have early exit clauses and can also typically be resold (subject to demand) during the contract period.

A Property Bond will usually guarantee a periodic dividend/yield payment (on a monthly, quarterly or yearly basis) and may vary depending on the level of investment. An example detailed below:

Invest: £1 to £19k - Annual Return = 6%

Invest: £20 to £50k - Annual Return = 9%

Invest: £50 to £99k - Annual Return = 12%

Invest: £100k to £1m - Annual Return = 15%

Investments above £1m are considered to be Joint Venture opportunities and can sometimes yield significant returns.

Property Bonds offer an ideal pathway for investors who want to take a hands off approach to the benefits of investing in property by not needing to associate with the complexities and or literally not having to get their hands dirty with the actual development work and or not needing to deal with any possible associated challenges that sometimes materialise with tenants.

Considered to be a simpler alternative to buying free/leasehold property outright, Property Bonds are similar to stocks and shares but with far lower volatility and significantly more security. Other benefits include not being liable for Council Taxes, Stamp Duties, Insurance Premiums, Maintenance Fees, Estate Agents Charges etc.

Details specific to each Property Bond structure will be contained in the Property Bond Information Memorandum / Security Trust Deed that is specific to each development. Each Property Bond has a Security Trustee who holds the various security interests created on trust for the Property Bond investors. Each Property Bond has a contract that outlines the legal obligations of the developer and will include a set of contractual penalties, including the right to sue or seek arbitration, if the developer fails to meet or otherwise defaults on their financial obligations.

With Property Bond investments available from £5,000, they are also ideal for new and or small property investors who have a desire to enter the property market without the requirement of finding significant capital sums.

Real Estate Investment Trusts (REIT)

A UK Real Estate Investment Trust (REIT) is a UK publicly listed company specialising in property investment that has to conform to higher standards of governance and risk management. In return, the REIT doesn’t have to pay corporation tax on rental income or increases in value on the properties held however UK REITs (which must be based in the UK) must distribute at least 90% of the rental income to investors through a dividend (which you can opt to re-invest), and be listed on an HMRC recognised stock exchange.

As of 2019 there was over £50bn of property investment in UK REITs including with companies such as British Land, Land Securities and Schroders.

Joint Ventures

Typically, a Property Developer will require a minimum of 10% capital investment in order to raise money from Banks, Institutional Investors and Retail Investors. In order to be able to proceed with developments a Property Developer will seek to raise cash through Joint Venture partnerships with Investors who typically have anything in excess of £1million to invest on a 12 to 36 month cycle. With significant returns ranging between 15 up to 30%, and equity secured against the developments land / asset value, Joint Venture schemes are a popular strategy for HNW investors.

If you are a high net worth or an investor or an institutional investment company that wishes to explore joint venture property development investment opportunities, investreet are able to introduce you to our development partners so to make a confidential enquiry Contact Us now.

Lease Purchase Options

During the term of a lease option, the investor agrees to lease the property from the seller for a predetermined rental amount. The investor pays the seller option money for the right to later purchase the property and portion of the monthly rental payment typically applies toward the purchase price. Nobody else can buy the property during the lease option period. The investor cannot generally assign the lease option without the seller's approval. The investor is not obligated to buy the property.

Lease Options do vary in regards to the specifics of agreements however fundamentally the principles are the same in as much that the buyer occupies the property with a view to ownership at some point in the future in accordance with the agreed contract term. Contracts are also referred to as: Rent to Buy (RTB), Rent to Own (RTO) & Option to Buy (OTB

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