A Guide To Fully Managed Property Investments + 44 (0) 1708 922 222 info@sterlingwoodrow.co.uk www.sterlingwoodrow.com 1
Contents Introduction 3 4 6 8 13 14 17 18 19 21 Introduction Facts & Figures The Returns Where To Start Buying and Selling Process Reasons to Invest Do s and Don ts Sterling Woodrow s Role Summary Disclaimer Property investment strategies have expanded and evolved over the years and nowadays going down the traditional buy-to-let landlord route is no longer as attractive as it once was. Many successful landlords built their property portfolio from scratch using a regular buy-to-let strategy, but in recent years there have been changes to regulations and the imposition of additional legal responsibilities that make becoming a certain type of property investor less desirable. These days property investors don t need to be old-style landlords. The process can be simple and hands-free with a variety of fully-managed property investments available. Switched-on investors are now looking at these hands-free alternatives that still allow them to own the property and generate cash flow, without the added hassle of having to administer the process. For example, HMO s were historically a way to ensure an increased rental yield from a rental property, but these days HMO s have a lot of regulations and legal requirements, such as landlords needing to secure a permit, which is time-consuming and extremely hands-on. If you are a property investor or you want to be, there is now more choice. You can choose a property investment that works for you, instead of you working for the investment. 2 3
Facts & Figures The Changing Property Investment Market Wondering why becoming a traditional landlord is becoming less popular? The figures say it all. In 2015 then-chancellor George Osborne announced a new measure he claimed was in favour of first-time buyers, however he also cut tax relief on buy-to-let mortgages which made buy-to-let investments more expensive and therefore less attractive to investors. 1 Combined with the imposition of stamp duty on second homes, these changes mean some landlords must pay a higher percentage of tax on income, leaving minimal profits. 2 So, whilst traditional buy-to-lets are becoming harder to set-up and administer and with less profits available for all that work, on the other hand, a fully-managed property investment can give you assured rental returns each month, so you know at the end of the year you are getting an assured return on your investment. This makes a fully-managed property investment perfect for first-time investors because they don t need to deal with admin or regulations, nor do they have additional ongoing costs that cut back on their earnings. For example, if the fully managed property investment has a net return of 8% per annum based on the purchase price, you will receive this total amount in your pocket each year. No maintenance, repairs or management costs will be taken out of your assured NET return. You are also likely to have a buy-back option built into the investment assured by the developer, so if you want to sell the property later on down the line, there will be no need for costly estate agent fees, so the exit strategy is also simplified, hands-off and built into the deal from the beginning. A hands-free property investment is popular because it follows a leaseback model developers sell the asset to a private investor and pays out rental returns, then, after a set period, they buy the asset back at an assured higher price than the original purchase price. This gives the investor a regular rental income and assured capital appreciation. 1. http://www.telegraph.co.uk/personal-banking/mortgages/budget-2017-does-mean-buy-letlandlords/ 2. http://www.thisismoney.co.uk/money/buytolet/article-4352946/landlords-start-lose-taxrelief-week.html 4 5
The Returns Let s look at how this might work out form a financial point of view; A purchase price of 60,000 with an 8% NET return would give yearly income of 4800 If the buy-back option was activated after 5 years at 110% that would mean that as the investor you would receive 5 years of rental income; 4800 x 5 = 24,000 Plus the proceeds from the sale; 60,000 x 110% = 66,000 So, on an investment of 60,000 an investor could expect to receive 90,000 over a 5-year period with rental income and a buy-back. After 10 years the buy-back would be as much as 125% above original purchase price I ll leave you to work out the returns from 10 years or rental income plus a 125% buy-back 6 7
Where to Start Choosing a property and location - How Sterling Woodrow benefits you The Properties Fully-managed property investments are different to traditional property investments like buy-to-lets as they cater to modern tenants and to modern investors. Many new developments in the private rented sector are off-plan luxury apartments, these are attractive to desirable tenants such as working professionals, young couples, and small families. As well as residential buy-to-lets, other fully-managed property investments include student accommodation, care home and hotel investments and whilst all target a different type of tenant and hence location, as far as the investor experience is concerned they are very similar. Investors just finance the investment and then sit back and collect their returns there are no requirements for investors to get involved with any management, maintenance, tenanting or administration of their unit. Many of these investments are off-plan. Off-plan means that the property has not been built yet, the development has been planned and is in the process of being constructed and the developers have started selling the plots prior to completion. Why would you want to buy a property that isn t built yet? There are two main reasons; firstly, the off-plan price will be below the true market value at completion. That means that investors get instant capital appreciation upon completion. The second reason is that these developments are popular with investors and if one waits until completion it is likely that they would all be sold already. So off-plan purchases are a way for investors to ensure that they get a unit in a development and also means that they can buy at a discount and their investment is likely to increase in value upon completion. Location It is important to consider location because it is vital to choose to invest in an area where tenants actually want to live. Locations that have good transport links and that are home to new development such as shopping areas, cinemas, restaurants and other amenities will be more attractive to tenants and therefore the rents and yields will be higher. For residential property, areas in the north of England will typically return more profits due to lower purchase prices. For example, large cities such as Manchester, Liverpool, and Leeds will offer higher yields than London. Purpose-built student accommodation (PBSA) is booming because of student housing shortage and increased student numbers in major university towns and cities again the best locations is where the under-supply is most acute, giving investors an investment in an area where that type of housing is in high demand. Fully-Managed Property Investments Fully managed properties as mentioned are completely hands-off. This means that duties involving managing the property such as; tenant sourcing, maintenance, repairs, call-outs and collecting rent are not required to be carried out by the investor. The developer will have a management company they can rely on who can take care of these duties without taking money out of your pocket. This means that you can be from a different part of the UK, or even overseas, and still earn an income from your UK property investment. In addition to the property itself being fully-managed once you have purchased it, Sterling Woodrow will also manage the research process on your behalf too. We have already researched locations, developers and management companies for a broad range of property types and so are able to offer our clients investments in the best locations, with developers and management companies who have proven track-records in delivering profitable property investments to investors, making the whole process completely hands-free and done-for-you. 8 9
Most of these investments will have an assured rental yield for a number of years, plus a builtin buy-back option significantly above the initial purchase price, so as well as being hands-free investors have assurances in regard to return on investment. This means that as an investor all you need to do is write the initial cheque for the investment and then just sit back and collect the rental income everything else from researching location and developers to managing the property to exit strategy is completely done for you. Financing a fully-managed property investment If you want a fully-managed residential buy-to-let you can raise capital with a mortgage if you are not a cash buyer. Buy-to-let mortgages have different requirements and rates compared to regular residential mortgages. 3 Student accommodation, care homes and hotel investments do not qualify for a mortgage they are classed as commercial investments as they are businesses and therefore not eligible for residential buy-to-let mortgages. However, in comparison to a buy-to-let property, the cost of the investment is much lower and so they are geared towards cash buyers. There are no ongoing maintenance or management fees as the management company will be incentivised by the developer, so investors receive the full NET yield with no deductions. Therefore, in contrast to traditional property investment strategies, you won t need to factor in any outgoing expenses. Residential buy-to-lets will also have 3% stamp duty costs and there is also a capital gains tax to be paid on any capital appreciation upon exit of the investment, but as commercial property investments care home, hotel and student property investments are exempt from both stamp duty and capital gains tax. There are solicitor fees for every investment. Although by using the recommended solicitor, costs for fully-managed investments can be reduced and wait times speeded up. 3. https://www.which.co.uk/money/tax/income-tax/guides/tax-on-property-and-rental-income/how-rental-income-is-taxed 10 11
The Buying, Renting and Selling Process Before 1. Once you have identified a development that you d like to invest in Sterling Woodrow will begin the investment process and reserve you a unit on the development. Reservation fees from 5000-6000 per unit. Around 15 20% of this is the admin fee, the rest is deducted from purchase price. This is refundable if you change your mind. 2. Many fully-managed investments are off-plan to allow higher discounts and better rate of capital appreciation. Whilst the property is being completed, you need to pay the deposit or initial fees (varies between 25% - 50% of the property price before completion then the rest after completion). 3. You can hire a solicitor to exchange contracts, however most managed investments come with a recommended solicitor which will be cheaper and quicker. 4. After exchange, full payment has been made and completion, you will earn your assured rental income very quickly sometimes immediately, depending on the terms of the deal. During And After 5. Generally, you will receive your net rental yield quarterly (e.g. 8% net per annum for a 100,000 investment will give you a total of 8,000 every year, 2,000 quarterly, 665 monthly) 6. Depending on the investment type (care home, hotel, buy-to-let, commercial, student) the contract length with the developer and management company will vary. Can be from 3 10 years. You can choose to keep your property for the entire contract or sell it after a few years. 7. You can also choose to keep the property after the contract ends. You can either renew the contract, hire your own management company and pay those fees out of pocket, or manage the property yourself. 8. You can use the buy-back to quickly and easily flip your property for at least 110% and up to 125% of the initial purchase price. Usually buy-back clauses kick-in after the 5th or 10th year. 9. After selling you can invest in another property using profits or keep profits for retirement. 12 13
10 reasons why you should invest in Fully Managed property 1. Perfect for property beginners A fully-managed property investment is hands-free, so no property or management knowledge is required. If you are a beginner it is a great way to earn and learn, whilst you build your property investment knowledge. 2. Assured rent (high yields achievable, regular cash flow) Our developers are so confident they give investors an assured rental income, so whether your unit is tenanted or not, you will receive the rental yield giving you regular cash flow. 3. No ongoing costs A fully-managed service means that no management or service costs will be taken from your NET yield, unlike traditional property investments where you hire a management company which requires monthly fees. 4. No management required Unlike a traditional property investment, you won t have to manage it, or find and pay someone else to manage it for you. With regular property investments owner-investors are responsible for repairs, tenants and maintenance, plus any legal issues that may arise, however fully-managed investments are completely hands-free and so take the hassle away from you. 5. Invest in any location You no longer need to find a property in your local area. You can take advantage of lower purchase prices and higher yields in other areas across the UK by choosing a fully managed property investment. Overseas investors can benefit from this also and conduct all their business from their home country and not have to worry about management issues. 6. Save time If you have a full-time job, a family to care for or you are already a busy property investor, you don t need to take time out of your day to look after the tenants or property or deal with admin. 7. Save money Most of our developments are off-plan, allowing us to negotiate the best deal with the developer to give our clients the investment at a discounted price. 8. Easy exit You can take advantage of the built-in buy-back options where you can easily sell the property back to the developer for an assured higher price for an easy exit. You could also go back through us to sell the property at any time. Or keep the unit and keep collecting the rental income. 9. Easily build/diversify your portfolio Our portfolio managers are skilled and knowledgeable, allowing us to work with you to build and diversify your portfolio with easy, hands-free property investments. 10. Fully-managed investments are found in various property sectors The lease-back, fully-managed service can be applied to a variety of property investment sectors. We provide hands-free investments for buy-to-lets, care homes, student accommodation, hotels and more. 14 15
Do s and Don ts for fully managed property investments Do s: 1. Choose a good property agent, like Sterling Woodrow, and make your investment through them. We will have done our due diligence on developers to find you the most profitable investment available throughout the country, saving you time and money. 2. Be open to other locations. We can source lucrative investments from across the country. Ultimately if it is fully-managed, location of investment property in relation to location of investor is irrelevant indeed many of our investors are overseas. 3. Optionally, you can visit the property to see what it looks like for added peace of mind and the location around it. If it is still being constructed, wait until it is close to completion. Don t: 1. Don t choose a property just because it s close to you, may find higher returns elsewhere). That s what fully-managed investments are for, you don t need to be at the property or deal with tenants. 2. Don t put your eggs in one basket. You shouldn t limit yourself to traditional buy-to-lets when building a portfolio because the property market is volatile and buy-to-lets aren t the only option anymore. Care homes, hotels and student accommodation are not tied to the wider residential market, so you can spread your financial risk with these investments. 3. Don t let a bad experience hold you back. Investors will often attempt to convert a buy-to-let property from scratch and feel discouraged after the costly and timeconsuming process, but fully managed investments bypass all the hassles. 16 17
Sterling Woodrow s Role Summary Sterling Woodrow are a property investment company and provide clients with a number of advantages when it comes to investing in fully managed property investments. To begin with we do all the research on behalf of our clients, selecting the best properties based on; Location Assured yields Developers Quality of building Fully-managed property investments are growing in popularity because of the success investors experience. High returns, stable income, capital gains and equity are possible with a fully-managed property investment. No experience is required so it is perfect for beginners and experienced investors too as you don t need to invest your valuable time in admin and upkeep. Fully-managed investments can be short-term or long-term, giving you flexibility. They are also quick and easy to exit. Using our years of experience in the industry we know exactly what it takes to identify a winning investment we only work with developers with a good track record of delivering for investors and are focused on offering our clients only the most profitable opportunities out there. We help first-time investors through the process by dealing with the developers directly and taking all the stress away from you, the investor our aim is to make the process of purchasing the property as smooth and easy as possible. As well as dealing with the administrative aspect we can also offer clients preferential rates due to our bulk-buying power and the fact that we have long-term relationships with many developers, therefore bringing investment opportunities to our client base at the best possible price before they are offered to the general public. 18 19
Disclaimer Conditions Apply. Sterling Woodrow Ltd is not authorised or regulated by the Financial Conduct Authority under the Financial Services and Markets Act 2000 ( FSMA ). The information contained in this guide does not amount to a financial promotion for the purposes of section 21 FSMA. This guide is provided for general information only and nothing contained in the material constitutes a recommendation for the purchase or sale of any security. Although the statements of fact on this guide are obtained from sources that Sterling Woodrow consider reliable, we do not guarantee their accuracy and any such information may be incomplete or condensed. Also views expressed in this guide are based on research materials available from sources considered reliable. Views are subject to change on the basis of additional or new research, new facts or developments. The investment risks described herein are not purported to be exhaustive, any person considering an investment should seek independent advice on the suitability or otherwise of the particular investment. Investment products are not bank deposits or obligations or guaranteed by Sterling Woodrow Ltd or any of its affiliates or subsidiaries unless specifically stated. Investment products are not insured by government or governmental agencies. Investment products are subject to Investment risk, including possible loss of principal amount invested. Past performance is not indicative of future results: prices can go up or down. Investors investing in investments denominated in foreign (nonlocal) currency should be aware of the risk of exchange rate fluctuations that may cause loss of principal when foreign currency is converted to the investor s home currency. All applications for investments products are subject to Terms and Conditions of the individual investment products. Customer understands that it is his/her responsibility to seek legal and/or tax advice regarding the legal and tax consequences of his/her investment transactions. If customer changes residence, citizenship, nationality, or place of work, it is his/her responsibility to understand how his/her investment transactions are affected by such change and comply with all applicable laws and regulations as and when such becomes applicable. Customer understands that Sterling Woodrow Ltd does not provide legal and/or tax advice and are not responsible for advising him/her on the laws pertaining to his/her transaction. Sterling Woodrow Ltd has no involvement or personal interests in any of the investment opportunities offered to clients through our consultancy. This is not an offer to participate in a collective investment scheme as defined in section 235 of the Financial Services and Markets Act (2000). 20 21