CityR Group // January 2015
You work hard for your money – but does your money always work as hard as you do in return? Your money is an asset, and it should be invested wisely to generate the best returns possible. So how do you decide how to maximise the potential returns from your savings? Many people end up holding cash either because they are concerned about the risk inherent in other forms of investment, or because they don’t have the time or confidence to research alternatives. In the current economic climate, people are not maximising their return on investment, which means that their money is not being put to the best use.
Cash: By leaving your money on deposit you are failing even to keep pace with inflation. With interest rates at historically low levels, your cash values are actually being eroded in real terms. So what looks like a low-risk asset is actually one that will gradually lose you money. Even the best rates on cash deposit accounts are 1.25%.
UK property: According to the latest report by the Investment Property Databank, net yields in the private rented sector outside London are 3.7 per cent per annum. Other estimates put yields on UK property at just 4 to 5% a year. This is a relatively low return given the time, cost and financial input required to be a UK landlord.
Bonds and Shares: The markets for both bonds and shares have been volatile recently and with the General Election coming up, problems in the Eurozone, and world economic worries ahead, it is difficult for investors to make an estimate of what returns they are likely to make, or what risk they are taking with their money.
What are the alternatives?
In these uncertain economic times, it pays to start thinking ‘out of the box’ and looking outside the UK for an investment which is lower risk than shares or bonds, offers a good, reliable yield, and which provides the prospect of capital growth.
One option is to invest in the familiar asset class of property – bricks and mortar – but in a very regulated market like the US, where there is no risk of political upheaval. One company which helps UK investors buy into US rental properties is CityR, which specialises in US property investments and which has a 15-year track record. Its business model is to buy multi-family residential properties, often at significantly discounted prices, and to offer a stake in that investment to individual investors.
What are the potential returns?
The typical return is in the region of 10%, with an additional opportunity for capital gain when the property is eventually sold, often at a profit.
Why is it safe?
What makes CityR different, and attractive to investors, is that no money is transferred to the company but rather to an insured legal escrow account. The property is also registered on behalf of the investment partner on the deeds and title, so you actually own bricks and mortar.
CityR are also careful to make sure external due diligence is carried out on the property, plus you have the assurance that a major US bank is providing 75% mortgage finance and doing its own due diligence on CityR and on the properties on which it is lending.
The properties are also existing high yielding properties and not development projects or properties in distress hence mitigating the risk associating with distress properties or development, assuring high yields from day 1.
What makes City R different?
CityR invests alongside with its investment partners and gives a 10% assured annual return meaning that it will not take a profit until the investment partners are making at least 10% year on year returns.
Why is it lower risk?
CityR selects properties in urban centres where there are multi employers and a large pool of prospective renters. Yields are returned to investors on a quarterly basis, with CityR looking at a five year time horizon for sale. CityR founder Ron Szekely says: “The recent economic crisis in the US means that property prices still offer good value, with the potential for capital gain over an investment horizon of 3-5 years.”
He says CityR chooses sites where there are a multitude of different employers and industries, to ensure that occupancy is not just dependent on people employed by a handful of nearby companies.
Once CityR has identified and bought a multi-occupancy block, it reviews and improves the property and rents are revised in line with market values, and then increased annually in line with market expectations.
Properties are chosen which offer potential for improvement – both in terms of rents, profitability of the tenants, and a possible rise in capital value of the property after improvement and refurbishment.
What are the economic forecasts for the US?
Sophie Carter, UK managing Director, believes that the US offers huge potential because GDP and employment growth are likely to be strong and there is a large anticipated demand for rental properties from young people, people who are taking up new jobs, and immigrants to the country.
She said: “US property prices are still sitting at a substantive discount which is some cases is up to 50%, depending on the area. By having bought property already, we have locked in the potential for upside.”