Investing via Property Investment Platforms

Investing via Property Investment Platforms
February 1, 2019 Hugo Fairey

In recent years, landlord investors have been hung out to dry after a wave of tax and regulatory changes. As a result, traditional methods of property investment, like buy-to-let, are becoming outdated and the principles upon which these methods were based may have become less relevant.

All this has caused landlords to question their underlying rationale for investment and pushed them to look elsewhere for returns. One new method of accessing property investments and reduce risk via diversification is through a new wave of property investment platforms.

However, as the methods we use to invest in property change should the principles of investment also adapt to the modern age? Find below a list of some questions to consider when investing in property in the modern era.

What type of investment are you investing in?

This might sound like an obvious question. But, for a start, understanding the difference between property loan and equity investments is essential for managing your expectations. With a loan investors normally undertake less risk in return for a fixed return, in an equity investment often the risks are higher as are the potential returns.

Do you understand some of the jargon used by property investment platforms?

Like any industry, there are some words and abbreviations often used. It would be advisable to have an understanding of these before you make any investments. Click the terms below to follow the links to their definition:

Gross Development Value (GDV)

Internal Rate Of Return (IRR)

Loan To Cost (LTC)

Loan To Gross Development Value (LTGDV)

Loan To Value Ratio (LTV)

Do your due diligence on the platform…

Does the platform have a good reputation? Is the platform regulated as required? Are the funds you invest held in escrow until the raise is completed? How is the investment structured in relation your part ownership of the investment, and what security to do have against the assets?

…do your due diligence on the numbers and statements…

Check & confirm that the numbers are correct. Have these figures been independently audited? Can all the statements within the investment documentation been independently verified? Many platforms will provide links to reputable sources to back up their statements.

…and do your due diligence on the deal!

What is the fund you are investing in trying to achieve? Is the investment adding value to the property or are they relying on capital appreciation to produce returns?

Another aspect to contemplate is whether investors have a charge (and whether it is a 1st or 2nd charge) on the assets/property. In the event something goes wrong with the investment this may help secure your initial investment.

Suiting your strategy

Not adapting your strategy to satisfy the investment helps safeguard that you always understand what you are investing in. Some additional questions to ask are:

How will this help you achieve your investment goals?

Are you buying on numbers or emotion?

How much might you make from the investment?

Will this investment help diversify your portfolio?

What are the tax implications of this investment?

Invest for a length of time and at a level of risk you are comfortable with and have a contingency plan.

Most investments on property platforms now have a choice between a fixed or estimated term; be sure that you are happy with your money being tied up for the duration of that term and whether this could be longer.

Finally and most importantly, it is essential that you are comfortable with the level of risk that your investment has, and that you do not financially overexposed yourself. Having a contingency plan in the event of the investment underperforming would also be advisable.

 

Disclaimer: This blog post sets out personal opinions which are not capable of being applied universally; following them will not guarantee success. The content is not intended to be a substitute for professional investment advice. Always seek the advice of a qualified independent investment advisor with any questions you may have regarding any of the above. Not all the above will apply to your investment circumstances.