Savvy Brits according to Forbes are doubling their money every 5 years even in today’s economy. (http://www.forbes.com/sites/investopedia/2011/07/07/how-to-double-your-money-every-6-years/) searching for a good return on their investment or their SIPP have been looking across the Atlantic for inspiration – and found double digit net yields from investments in US property.
Here in the UK there is little sign that the Bank of England is likely to raise interest rates from their current level of 0.5% any time soon. In fact, the latest predictions from UK economists this month suggest that the first rise is unlikely to come until August next year, and even then, it won’t be more than about 0.25% increase.
This is bad news for savers and investors, who have had to put up with low interest rates for a considerable time. However, smart investors have found an alternative way to boost their returns – by buying into a US property investment which offers yields of 10% or more and capital gain, allowing them to double their investment in 5 years. Run by property investment company CityR, the investment qualifies for inclusion in a SIPP because it is commercial property, rather than private housing.
Here we talk to CityR sales manager Julia Ctaz about the options available.
Why are UK investors looking to US property as an alternative?
Julia: We look for properties which offer to generate yields of 10% or more, plus the potential for an increase in the capital value of the buildings that we purchase.
We create a vehicle to invest in the property – with a major US bank providing up to 75% of the financing. We only ask for investment partners once we have agreed our investment in principle with the lending bank and the property management company is in place.
Then we invest up to 10% of the capital required and the remainder comes from our investment partners who can buy stakes in the investment starting at £36,000. It is this investment which qualifies for inclusion in a SIPP.
A SIPP enables you to hold a much greater selection of investments than you would normally be permitted to hold in a traditional pension. One of these options is commercial property.
There are huge opportunities for investment in our US property projects for UK SIPP investors because we have very detailed and specific criteria when we are searching for suitable properties.
What are the levels of return they can expect?
Julia: The main goal is to double your investment in 5 years. There are quarterly payments to our partners from day one – and we prioritise our partners’ returns.
Our goal is for you to achieve a regular, reliable annual return of 10% from the rent on your investment, paid on a quarterly basis.
We achieve this return by putting our partner’s returns first. CityR will not take any profit from our own share of the investment until our partners have made 8% annually – so if you invest £30,000, we won’t take any profit until you achieve 8% return (£3,000 per year).
How does CityR maximise returns for investors?
Above the 10% threshold, rental earnings are split 50/50 between CityR and its partners. So if your investment yields 10.5% in rental earnings, you receive 10.25% and CityR takes 0.25%. If we fail to achieve returns of 10% in one year, we make sure to make it up in the next year. So if one year yield 9%, and the next year yields 11%, we won’t take any profit from that year, so that our partners achieve 10% overall.
The income from your investment will be paid out on a quarterly basis. So if you invest £60,000 with us, you can expect a return of £6,000 per year, or about £1,500 every three months. Your quarterly income can be paid into any account you specify.
We also work hard in the 3-5 years we are holding the property to increase its value with the intention to double the return on investment in that period.
Why are we prepared to use our profits to make sure our investment partners receive returns of 8-12%? Because our main investment goal is our share of the capital gain on each property.
What sort of properties does CityR invest in?
We buy existing multi-family residences, which are gated communities residential properties that have hundreds of units within them. We research opportunities in growing US states such as New York, New Jersey, Ohio, Kentucky, Alabama and Missouri.
As these count as commercial properties, the investment can be included in a SIPP under UK rules.
We are very careful about where we invest, and carry out due diligence on all the property opportunities. We look for existing properties which are already yielding double digit net yields and which have the potential for capital gain in the future.
By choosing properties near employment hubs, we build in the security that these properties will also have high occupancy levels (above 95%) for the three to five years that we plan to hold them. We also look for properties where the rent is likely to increase annually – as the property’s facilities are improved and economic growth creates jobs faster than new housing in the area.
What else should investors bear in mind?
Julia: Our partners usually have £36,000 available to invest, and our opportunities mean that the size of your investment can easily be scaled up, depending on how you wish to allocate your resources. So if you have more than £36,000 to invest, this can easily be accommodated.
Second, our investments last around 3-5 years, so our partners need to be comfortable investing for this length of time. While it is possible to sell your share on to another investment partner, you may lose out on the opportunity for capital gain on the sale of the property.
We are a registered company in the UK, and a member of the Association of International Property Professionals, a group dedicated to voluntary self-regulation in an otherwise unregulated industry. Members adhere to a professional Code of Conduct, and we are proud to be part of an association that helps consumers to find professional companies in the international property market.