In the past decade bricks and mortar have surprisingly been one of the more glamorous forms of investment globally. When compared against the volatility of the stock market between 2000 – 2005, property has delivered excellent returns while securing the investor a prize that is more tangible than stocks. For lengthy periods in the 1980s and 1990s, investors lost the enthusiasm and to some degree lustre for UK property especially when growth performance was measured against technology shares. However when the stock market suffered in 2001 and 2002 UK investors moved to the safety of property and residential and commercial property came back into favour as it is a tangible asset. The investment property loan portfolio considers the investment finance (loan) sourcing for property held within such portfolios.
Some would argue that property has reliably been a smart investment over the long term. However smart finance for strategic property investments and portfolios has not always been readily available to smaller investors. Secured loans and second mortgages have become the mainstay of new finance supporting new property portfolio investments. New residential buy-to-let investments have become very trendy in recent years in support of entrepreneurs building such portfolios. Commercial property as a secondary property investment has also been delivering strong yields and remains a good mix in the investment property portfolio.
Investors continue to switch equity or loan funds into what they now believe is a safe, consistent rewarding sector. Futhermore, many investment funds now boast double if not triple-digit returns consistently over three, five and ten year periods.”
Buying and investing in property is a subjective science but smart investments are derived from smart research into the type of property, location of property, demand for property and calculated return on the asset. Just as important is the source of finance and as stated in the title of this article “Smart investments deserve smart finance”.
A smart investment property loan is one that factors in the key points raised earlier but also considers the short term and long term cost of financing beyond current interest rate charges. When considering the cost of finance (COF) investors should consider the up-front cost of purchasing properties within the portfolio and ensuring there is sufficient equity within the portfolio to absorb challenges to repayments caused through occupancy gaps, unplanned maintenance, interest rate rises and any negative property price changes. Furthermore smart investors should seek flexible finance without expensive sting in the tail exit penalties and plan to swap sources of finance to maximize cost-effectiveness as financial institutions offer promotions.
The strategy of the investment: Most important should be the strategy of the investment. If the loan period for the investment is for a two-year period, then plan for two-years. You can always review after two years and change your strategy. If the investment is for a ten-year period loan, then plan for a ten-year period. You can always review this at the mid-point of 5 years. The key point is to plan to be successful. If you lay out your strategy and cost models and set your realistic goals out from the outset then you will be able to manage the expectations of returns.
Smart use of pensions enabled through recent UK government initiatives with SIPPS may also be a good source of affordable finance. Commercial property can now partially be used as part of retirement planning. Self invested personal pensions can invest in this asset class which brings a number of financial advantages. An example would be where rental income is not taxable when it is paid in to the SIPP and property is not subject to capital gains tax when it is within this structure. Furthermore, it may be possible for a number of SIPP investors to club together and acquire property thereby allowing investors to buy larger properties effectively. This grouping is referred to as a property syndicate whereby individuals have a share of all costs but also returns such as rental income and capital appreciation in proportion to their share of the property.” The risks when forming syndicates are typically lengthier commitments, less flexibility with the investment in terms of moving assets and the big risk of one the SIPP investors dying or differences in the investment strategy.