Finding new investment opportunities for clients is a tall order in today’s economic climate. With interest rates on cash deposits at an historical low, and many retail investors reluctant to invest more money in equities after a tough year for the UK stock market, clients are looking for alternative sources of income from their adviser.
Unlike many of our European neighbours, owning property has always been at the heart of UK wealth and investment.
Indeed, buy to let has been one of the investment success stories over the past decades for those investors who bought early – and bought wisely. But experts are now questioning whether yields on UK rental properties can be sustained in the long run. Broadly speaking, yields on UK properties are now between 4% and 6%.
Tighter rules on mortgage lending, the prospect of higher interest rates in the medium term, and the saturation of the buy to let market in popular rental areas mean that this type of investment now has a number of drawbacks.
So if the UK housing market is looking overheated, where should investors look next? US property has emerged as a possible alternative for the savvy investor.
The economic crisis has created some good opportunities for buying in the US, but in order to take advantage of this, considerable scale is required.
One company which is making US property investment accessible to UK investors is CityR, which has 15 years’ experience of investing in the USA. The team at CityR identifies and purchases multi- family residential American properties on behalf of investors from around the world.
“Investment in commercial and residential property is in many cases an asset class which can produce high yield with relatively low risk,” says Ron Szekely, partner at Cityr.
Yields are returned to investors on a quarterly basis, with CityR looking at a five year time horizon for sale, creating an opportunity for capital value growth.
CityR employs a unique model, operating neither as a brokerage or an investment house, instead investing up to 8% of its own equity into each property alongside investors while providing its investment partners a preferred return. Investments start from £36,000 in multi-family residences – privately owned residential properties that can have anything between 30 to 1,000 one, two or three bedroom units within them.
There are a number of compelling reasons why CityR believes the US offers such a great opportunity right now:
- There are fewer buyers than sellers
- Good deals are available
- There are great opportunities for improved rental income
- There is potential for capital gain when the property is sold
- American cities offer a range of employment opportunities for tenants thus reducing the risk of tenancies being affected by a single employer
- There is a lack of supply of alternative housing.
Ron Szekely, partner and founder of CityR, explains: “CityR will not take any profit from our own share of the investment until our partners have made at least 10% annually – so if you invest £30,000, we won’t take any profit until you achieve 8% return (£3,000 per year).”
Above this threshold, rental earnings are split 50/50 between CityR and its partners. So if your investment yields 10.% in rental earnings, you receive 9% and CityR takes 1%. “If we fail to achieve returns of 10% in one year, we make sure to make it up in the next year,” he says. “So if one year yield 7%, and the next year yields 9%, we won’t take any profit from that year.”
Investors need to bear in mind that there is a currency risk – but this can work in their favour as well as against them, depending on when they choose to sell. In addition, by buying a pooled investment they won’t have to sort out US taxes on an individual basis, nor will they have the challenge of trying to raise finance in a foreign country.
CityR is an American company buying property in America, and therefore the investment is not subject to UK financial regulation.