Structured Investment

The world of investment is a complex one; so many choices and so much advice from differing sources. The Property and Land Investment structured below is clean, clear and safe.

The concept of this investment is to give clients a controlled and structured investment with some expected ideas of returns and potential increase in value of the investment vehicle.

We have used an example of buying a house which has a value of £100,000 with Property and Land Investment negotiating a discount of 20% therefore the client pays £80,000 for the property.

our client puts in a 25% deposit of £20,000

Client takes out an interest only mortgage of 75% @ 5% interest rate

Property and Land negotiate the purchase of 10 properties at accost to the client of £200,000 with a value of £1,000,000 total (the quantity will be scaled to the investment amount required – from one property upwards)

The ten year plan is to rent out the properties on an interest only mortgage and also to use any excess from the rental income, plus the clients own funds to pay the capital by say 10% per year; so, in some 10 years the property is paid off and completely owned by the client.

Property and land Investment believe this is a tax efficient way of handling the investment as interest only mortgages will be tax deductable.

The figures given under example Fig 2.64 show exceptionally healthy returns compared to any other pension investment. The client should expect to achieve an income of approximately £53,000 per year plus a property portfolio with£2,000,000 of equity – from an investment of £595,000.

Working closely on this structured investment Property and Land Investment use affiliate accountants who fully understand the tax implications of such an investment and consequently can advise our clients accordingly. The second group of professional affiliates is a group of financial advisors who are capable of advising our clients on a wide range of planning options including inheritance tax planning and exit strategies.

Example of using property to build a portfolio

Initial property purchase price £100,000 – Property and Land Investment negotiate the purchase price down to £80,000.

  • Client investment is 25% deposit – £20,000 per property
  • 10 x properties = £200,000 (plus solicitors fees, PAL fees – less any property upgrade costs say at an average of £2,500 per property)
  • Rent per property £500 per month – £6,000 per year less letting agents fees of 10%+vat

Income

  • £6,000 per year

£690 less Agents fees plus VAT

£5,310

£3,000 less Mortgage payments @ 5% interest only

£2,310 Net per year x 10 properties = £23,100 per year

Client pays 10% off capital value annually – the above £23,100 from rental surplus plus £370,000 from own funds over 10 years.

After 10 years the client owns 10 properties outright from which the income would be £53,100 based on the above example.

The total cost to the client would be as follows:

10 initial deposits @ £20,000        = £200,000

Part payment off capital               – £370,000

Mid term property upgrades @ £2,500 per property        – £25,000

Total Investment               -£595,000

This will produce an income of £53,100 per year.

  • The property values are likely to increase
  • If the prices increase at the same rate as they have for the last 70 years then they will at least have doubled in 10 years to a value of £2,000,000 – (10 properties @ £100,000 now worth £200,000 each).
  • The equity in the properties would be £2,000,000.

There are numerous variants on the above e.g.: some properties may have lost some rent in a year by not being let, some may have cost more to upgrade that the estimate, the values may not double in the next 10 years.

On the other hand – we have started with a conservative rental value; it may be that the properties achieve more rent than we have forecast. Also, rents will rise in 10 years which has not been factored in and property prices could easily rise more than double in the next ten years as our population continues to increase far more that the house building programme in this Country – supply and demand pushes the prices up.

So, all in all, this structured method of investing could give many people the returns and the security that no other investment can give at present.

Finally, the investment can be scaled up or down to 1 property or 100 properties.

When you consider the amount of investment required in our Structures programme and you compare the returns through virtually any alternative investment not only do you achieve high income but also there is huge equity potential which can then be realized as needed in tax efficient ways such as through remortgaging.