Short Term investment using property

How to invest indirectly into property

over the short term

 

 

IMF issues glowing report for Australian (and world) Economy April 2018

“Australia’s economic growth among the best in the advanced world with growing support from the strong commodities market over the next 2 years according to the International Monetary Fund.”

“The fund’s review of the global economy says a recovery in business investment in advanced countries and in household spending in emerging countries is lifting economic growth across the world. This broad-based and strong has not been seen since the world’s initial sharp 2010 bounce back from the financial crisis of 2008-09,” the fund’s chief economist, Maurice Obstfeld, says.

The Reserve Bank has endorsed the strong outlook. Minutes from its last board meeting, released this week (April 2018), highlighted the recovery in both household spending and business investment, providing a positive backdrop for next month’s Federal Budget. The IMF predicts Australia’s growth will accelerate from 2.3% last year to 3% over 2018, lifting to 3.1% in 2019. It expects growth will be sufficient to bring the unemployment rate down from 5.6% to 5.3% this year with a further drop next year.

The property market and real estate projects have long been a key source of wealth creation for multiple generations of Australians. Over the years the industry has shown resilience and delivered substantial growth in property value. However, the significant amount of capital required to purchase a property acts as an enormous barrier for many Australians to invest in this market and benefit from its growth potential

When it comes to developing a project yourself, your investment feasibility, scaleability and management of such projects has often been a concern for investors. Another major headache is getting the bank to provide you with the finance so that you can go ahead and develop. Not to mention ongoing headaches which result out of developing or undertaking renovations on property throws at you

Do you have Equity in your property, or a lump sum in a savings account or off set account or monies in Super really not achieving much for you? Give thought to becoming the ‘arm chair’ developer by outsourcing it to professionals yet you still earn significant returns BUT without the need for your valuable time (a scarce resource), development risks, dealing with builders and ongoing fights with your bank over the finance

 

The How :

You may be aware that developers across the board (large to small ones) continue to struggle to acquire bank loans to meet their development requirements. Yet they have the right property, the skills and knowledge to develop and make profits, yet the bank still holds them over a barrel or makes them jump through too many hoops, thus eating into their profit margins

Their ongoing struggle is now your opportunity, as developers look to private investors (like you or your SMSF) to help fund their projects and get them off the ground; AND they reward you accordingly for providing this debt capital. Your interests as a shareholder of the development is thus secured

Your opportunity is the ability to get your own money working for you without the headaches,  from around 10% up to 40% returns or more with time frames of 10 months up to 3 years and anything in between. Each project’s offering and time frame will be different

The developer requiring private funding will provide their Information Memorandum which you can review, take to your accountant or solicitor and ask them to review. You then undertake your own due diligence and if you feel comfortable with the opportunity, provide your funds to the project you wish to invest in

Different projects have varying time frames and thus varying returns on your investment

We recommend you determine how much you have to invest, your risk profile and the maximum term you want to invest for and secure your redeemable preference shares within that option

If you do not want to be part of a group of investors you can take up the whole tranche yourself


Armchair Developer :

Another avenue is to provide the Equity and a home will be sourced, one suitable to simply adding value or a major renovation can be undertaken and the property put back on the market 10 to 12 months later, with significant returns. Roll over your profits and go again into the next then next ones. You could generate an annual revenue for yourself through this method

One would require a minimum of around $850k in cash or cash and a loan, a suitable home in a quality suburb will be located for you which lends itself to a major overhaul and put back on the market at healthy profits. Example : a home is acquired for $900k + renovation costs taking it to $1.6m and sold on the open market for $2m. There are suburbs out there today in which this is going on right now and you to could be a part in having a lions share of the profit within 10 to 12 months!

*this is a simplistic explanation with the purpose to give you an overview of the concept and how to generate a healthy annual income for yourself

 


 

Legalities and your protection

This structure (company set up for that particular development) secures your interest above the interest of the ordinary shareholders of the Developer. Furthermore, your investment in the preference shares of this company with a fixed rate of return gives you senior claim on the profits of the company over and above the claims of common shareholders. While this is a unique investment opportunity, like any investments, it has its inherent risks. The principals of the Development Company execute a number of similar projects successfully, however certain market conditions can lead to the project running into challenges and the  investment returns not being delivered including a potential loss of invested amount. The Information Memorandum is prepared to provide you a thorough understanding of the investment structure and associated risks. We highly encourage you to read the Information Memorandum carefully and seek independent financial advice before making your investment decision. Each project and IM will differ accordingly

 


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