A valuer’s perspective on corporate property investment

There comes a time in every successful business when a decision has to be made –  do we re-invest this year’s profits? Do we leave them in the bank account, or do we invest elsewhere?

As is the case with any investment, a business must achieve a desirable balance between capital growth, yearly return and risk-management. A number of options exist, but many – including dabbling in the stock market – might sensibly be considered too risky.

The alternative? Property.
It is an industry that offers a diverse range of potential opportunities, with differentiated characteristics and return profiles.

Direct Purchase
The primary benefit of direct property purchase is the ease with which a credible company can procure finance to supplement their own.
In this way, the investor can leverage their own capital to procure top-up finance and purchase an asset of greater value than they would otherwise have been able to afford. It also means that a single capital sum can be split and invested across multiple properties – minimising risk via diversification.

The downside?
Property is an unusually non-liquid asset. Conveyancing can take weeks, months or even longer if the asset is no longer desired by the market – perhaps due to a change in tastes, physical deterioration or an over-valued initial purchase. It is therefore very difficult to recover the investment capital quickly, in the event of an emergency.
A quick sale isn’t impossible and investment companies offering cash purchase within weeks exist for just such a situation, though you are likely to forego 10% of the property’s value.

Very much a ‘buzzword’ of the last few years, CrowdFunding is fast growing into a major player in the investment markets; be it for a start-up company, a new film, a charity project or, in this case, a property investment.
Various companies have emerged to provide a platform through which small investors with limited funds can still reap the benefits of property investment. Organisations like the House Crowd now operate in this market – offering investors the opportunity to purchase shares in a special purpose vehicle (SPV), which purchases a given property on their behalf.
The success of these new investment providers can be narrowed down to a few key advantages:

  • Liquidity is much higher than direct investment. Money can be removed by selling shares on a secondary-market.
  • The established platform will offer a range of property types, locations, sizes and ages to choose from – which allows investors to choose their preferred risk / reward balance.
  • An individual investor can put as little as £100 into a given property. That opens up property investment to a vastly wider pool of potential beneficiaries.

The downside?
CrowdFunded property investment is still a relatively young market and therefore somewhat untested. This adds an element of risk which some companies may shy away from.
Beyond that, the secondary markets on which a company could recover their invested funds do rely on another individual wanting to buy the shares. It also requires them being willing to pay the same price or better. If not, then the company will make a loss in extracting its funds.

*Back to May 2016 Newsletter*

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