Specialists in Property Investments
If you Google property investment you will be offered guaranteed returns, minimum investments of £100, bullet-proof strategies and a direct, failsafe route to a tomorrow when we’ll be millionaires. Rodney.
It’s not for us to pass judgement on these erstwhile internet schemes (scams?) but there is an old saying about a fool and his money.
Our aim is just the opposite – to invest capital for secure long-term income and to preserve and grow capital. And we’re not alone – which makes it a very competitive market place.
We work hard to build trust with our clients and make sure that all investment decisions are based on reasoned fundamental and technical analysis of empiric evidence. This informs a detailed appraisal accounting for the investment risks and calculating returns based on assumptions made for our client.
Step one – understand the client and their investment requirements.
Completely fundamental to any business relationship, but never more important than when you are tasked with spending substantial amounts of other people’s money.
We want to know:
– The motivation for investing,
– Existing investment holdings,
– The preferred sector for future investments,
– The balance of the current portfolio,
– The risk profile of the investor or for this particular investment.
The key to successful delivery is understanding the remit. Over 80% of our work is repeat business. We think that is a reasonable endorsement of our service.
And it probably reflects our ethos that deals should be based on investment quality – not our fee targets.
Armed with a full understanding of the client and their requirement we search the market for appropriate opportunities.
The process of assessing, analysing and reporting on whether an investment opportunity is suitable to meet a client requirement.
If it is suitable, what price should be paid to match the client’s investment criteria?
There are some fundamental issues that must be analyzed in any property investment.
Quality of location is relative to the relevant investment sector. Understand what a tenant in your chosen sector will be looking for and make sure the location matches it.
The core of the investment. Is it in good condition? Will there be unrecoverable repairs or refurbishment required at the end of the lease? Consider alternative uses for alternative income streams.
Are they financially sound? Enough to pay the rent for the remainder of the lease? Enough to meet the cost of dilapidations? (See Lease below)
Is the lease on full repairing and insuring (FRI) terms? Does the tenant treat the lease as a legal contract or a series of options (see Condition below)? Check rent review clauses and any break dates.
Dealing with tenant dilapidations is like wading through treacle in flippers so know what the tenant should have done but hasn’t from the outset.
The contracted rent is set. But how does it compare with market value? Is it too high (meaning it will fall at the end of the lease) or is there potential for growth? Are there unrecoverable costs? Whatever, the analysis and assessment of current and future rental value is critical to investment performance.
The yield adopted is used to calculate the value of the investment. The traditional metric is the “all-risks” yield. All risks associated with the investment are condensed into a single figure which is generally derived from market evidence. This is used to find the market price of the investment but, critically not the value to our client.
So, we have assessed and analyzed the fundamentals and the technicals of the investment. Now what?
Our objective is to provide advice on the price that a particular investor should pay for the opportunity. This figure could be very different from either the asking price or “market value”.
The value to an investor will be based on their specific requirement (see above) and a full assessment of the investment under consideration. Asking price and market value are useful sign-posts but are not the oracle.
Armed with our analysis and research we then prepare an appraisal. This requires assumptions on some or all of the following:
1. Will the tenant exercise any break clause?
2. If they do, how long will it take to find a new tenant.
3. What are the likely terms of any new lease following break/expiration?
4. What incentives may be required to secure a new tenant?
5. What are the costs of re-letting?
6. Should there be inflation allowances for rent and costs?
They all matter and they all impact on the return achieved from the investment. So, we make all these assumptions clear and explicit when reporting to allow testing of each before finalizing our advices.
The purpose of our due diligence report is to summarize the research, analysis and conclusions as succinctly as possible. A bit like this paragraph.