- Crowdfunding is a low-cost way to invest in property
- Peer-to-peer lenders receive income even if properties vacant
- Car parking lots, land, hotels offer rich pickings but are risky
The largely unregulated world of real estate has created some weird and wacky ideas for attracting private investors, from car parks and hotel room investments to oil rig developments. We look at some of the current product offerings and give our verdict.
Money Observer rating: 8/10
Crowdfunding is proving enormously popular as a low-cost way to access the residential property market.
Under this system, investors (often young professionals) pool together via the internet to buy a share in a buy-to-let property, receiving regular rental income returns and benefiting from any rise in house prices.
Returns can be anywhere in a range of 5-10 per cent. Investors do not have to stump up a deposit, and ongoing maintenance costs are shared. The downside is that it can be difficult to sell the investment, although some platforms have set up secondary 'exchanges'.
Property Partner lists various modest London properties on its website (propertypartner.co.uk), in which investors can buy a share, starting at £50. It charges an upfront one-off transaction fee of 2 per cent, and 12.5 per cent plus VAT of the rental income to manage the property. There is a guaranteed exit point on each fifth anniversary.
Although crowdfunding has attractions, the charges involved are high for an asset class that is already expensive. For example, if a £200,000 at brings in around £10,000 a year in rent, then after fees at 12.5 per cent and tax at a marginal tax rate of say 40 per cent, the net income reduces to around £4,594.
That puts this buy-to-let investment on a price/earnings ratio of over 43 times. If you were looking at a stock trading on that multiple, you would have to be persuaded that it was a sure-fire winner.
However, crowdfunding can be useful from a capital gains tax (CGT) perspective. If you buy a whole property and subsequently sell it, the entire gain will fall into a single tax year and could exceed the annual £11,100 CGT allowance. But if instead you buy several smaller investments, you can sell them in different years, taking advantage of each year's CGT allowance.
Money Observer rating: 8/10
One way to take the hassle out of commercial property investment is to hand your money to a fund manager.
IFSL North Row Liquid Property fund is both indexed and actively managed, with 60 per cent tracking the IPD index. The remainder is invested in European and US real estate investment trusts (Reits), where the manager takes a tactical stance. The fund currently yields 6.1 per cent. Since its launch at the end of 2014, it has attracted £30 million.
The fund does not have to bear the cost of stamp duty, maintenance or management fees; its ongoing fund charge (OFC) is 0.91 per cent. The index it tracks is based on 20,000 UK properties that are regularly valued, so the unit price will reflect that, creating more flexibility when you want to sell - as distinct from some property funds which are relatively illiquid.
Money Observer rating: 6/10
Peer-to-peer arrangements also use the internet to bring investors together, to lend money to a landlord. The landlord will then buy a property and pay investors regular monthly interest payments, and the capital is repaid at the end of the term.
P2P lender Landbay (landbay.co.uk) offers a 4.2 per cent fixed rate of interest or a tracker rate at 3 percentage points above bank rate, both for three years. The minimum investment is £100. Investors can exit early only if Landbay can find an investor to replace them.
LendInvest (lendinvest.com) lends money to landlords to buy property mainly in London on short- to medium-term loans of one to three years, and also for bridging finance products lasting between one and 12 months. The minimum investment is £1,000. The company says the average net return has been 6.65 per cent over seven years.
Investors don't have a share in the property and won't benefit from any capital gain. However, investors still receive interest even if the property falls vacant. Against this, there is doubtful recourse if the landlord goes bust or disappears.
Money Observer rating: 4/10
Smaller investors may like the idea of investing in a single hotel room, normally bought on a long lease. Commercial property business Group First is developing its first aparthotel in Burnley - a £10.6 million scheme consisting of 134 one-bedroom hotel suites, part of the On The Banks regeneration.
Apartel Burnley has been designed to be used as student lets, accommodation for business travellers, starter flats or an alternative to a budget hotel. It is estimated guests will pay around £75 a night, or lower if a long-term let is arranged.
An additional risk here is the focus on short-term rents, which is more likely to result in vacant property at times. Similar schemes in London, such as Guestinvest's hotel in Westbourne Grove, have failed.
LONG-STAY AIRPORT PARKING
Money Observer rating: 2/10
Similar to the car park schemes outlined below, this scheme offers the chance to invest in purpose-built car parks at airports.
Direct Airport Parking Investment Limited (directparkinginvestment.co.uk) is selling units in a purpose-built car park at Glasgow airport from around £20,000 each. Investors own the title deed and each parking space is managed by an airport parking company. The rental income is 8 per cent guaranteed for the first two years, projected to rise to 10 per cent in years three and four and 12 per cent in years five and six, paid quarterly.
Glasgow Airport was experiencing strong growth in 2014, with 21,000 people a day using it, and it is thought that demand for long-stay parking will outstrip supply this year. A recent RICS report values each space at £30,000, so investors should be up £10,000 on day one.
The company was set up on 2 April this year by Michael John Hadley, so no accounts have yet been filed at company house. Hadley has previously held 11 appointments at nine dissolved companies. On April 13 Terence James Willshere became a director and Hadley resigned.
Willshere is a director of 13 companies, and all bar one (Eec-Capital Market Reports Ltd) have little cash in the bank. This is a good idea, but you would need to look at those title deeds very closely.
INDIVIDUAL CAR-PARKING LOTS
Money Observer rating: 2/10
Investing in individual car-parking lots sounds appealing, as most schemes guarantee a rental income of 8 per cent a year for two years. Investors purchase a parking space and lease it out to a management company, which subleases it on an annual basis.
Platinum Knight, registered in St Albans, has been marketing a car-park project in Dubai that claims to pay 9 per cent a year on average. The minimum investment is around £25,000 for a six-year lease. Intelligent Investment, also known as Intelligent Partnership, based in Richmond, London, offers parking spaces in central Manchester and guarantees a minimum rental return of 8 per cent, projected to increase to 12 per cent from year five.
Even if the paperwork is watertight, the downside to these schemes is that the leases are fairly short-term and the period during which income is guaranteed is even shorter.
If you do find a bona fide scheme, you will still need to be sure that the car-park management operator is up to the job and watch out for car-parking caps set by the local authority. On the other hand, some car parks in prime central locations hold out the prospect of long-term development opportunities. Car park spaces are Sippable, providing they are in a commercial car park.
INVESTING IN LAND
Money Observer rating: 3/10
Landbanking can be a scam, in which investors are persuaded to buy agricultural land at inflated prices that fraudsters have either bought for minimal amounts or do not own at all, as the recent Plott Investments court case demonstrates. However, not all such schemes are fraudulent.
Barnet-based Investment Land UK Ltd (investmentland.com), offers plots in Surrey and Bedfordshire, for example 317 plots of 200sqm in green belt near Biggleswade. The land is offered without planning permission, but in locations that could lead to future development. Plots start at around £28,000 each and could fetch anything from £150,000 to £250,000 with planning permission.
This is a long-term punt, but there is no disputing that the government needs to build three million new homes and that the green belt is no longer sacrosanct.
HOLIDAY RESORTS AND HOTELS
Money Observer rating: 1/10
As we know from fraudulent activity around Sipps, many dodgy schemes involve property of some sort, as it comes under unregulated advice rules. A favourite scam involves so-called luxury resorts in the Costas or the Caribbean, far away from the prying eyes of potential investors. Sometimes investors are shown images that have been photo-shopped to look complete.
The Serious Fraud Office has been looking into Essex-based Harlequin group, which lured around 3,000 UK investors to invest in off-plan luxury properties in five resorts in the Caribbean, including the Las Canas Resort in the Dominican Republic.
Some of the projects have been massively delayed, and there have been legal wrangles with customers requesting reimbursement. Harlequin Hotels and Resorts (UK) Ltd, the UK sales arm, went into administration earlier this year, but the rest of the business is still operational.
This case demonstrates how difficult it can be to know what exactly your investment entitles you to when there is a web of companies, particularly overseas.