Understanding our New Buy to Sell Product
At Property Moose, we are dedicated to providing our members with what we believe to be the best and most innovative investment opportunities. We pay close attention to property trends in an attempt to identify what the next exciting opportunity could be, taking account of market sentiment and conditions. After extensive research, we have decided to launch a new type of investment opportunity on the Property Moose platform: The Buy-to-Sell product.
What is Buy-To-Sell
Buy-to-Sell, otherwise known as “flipping,” essentially means buying a property and selling it for a profit. There are two main ways in which you can do this:
- Buy low sell high: Purchasing discounted properties and selling them at market value, or in up and coming markets. Typically, these properties are acquired from motivated sellers who need a quick sale for whatever reason.
- Fix and flip: Increasing a property’s value through renovating it, and selling at a higher price. Properties here could be acquired from a variety of sources, including auctions but all are first inspected by a member of our investment team to assess any works required (sometimes there is just too much work!).
Of course, both methodologies can be, and usually are, used together.
How will it work?
Our buy-to-sell product will incorporate a mixture of these two types. We will continue to purchase our properties at a discounted price and also factor in a refurbishment fund.
We aim to sell each property as quickly as possible but use 6 months as an assumption within the calculations. We believe this is an achievable goal, considering the average time it takes to sell a house across the UK is 6 weeks, with regional differences varying significantly. For example, 10 weeks in the North East, but just 4 weeks in the South East. (1) In this time, we hope to source, secure, fund, renovate and sell the property. When selling, we aim to achieve the best price possible, considering the time the property is held. In our assumptions, we have used a sales price of 92% of the market price, which we believe is both feasible and realistic, considering last year, the average percent of an asking price achieved across the UK was 95.8%. (2)
In the past, we have purchased some of our properties at 30% below market value, and whilst past performance is no indicator of future performance, we believe that by purchasing a property so significantly below market value, our members have a higher chance of achieving a profit on the sale of a property in a shorter period of time. Assuming members continue to invest returns, this shorter time frame will hopefully allow our members’ funds to work harder and achieve a compounded and growing annual return.
Please note that this structure is not a replacement of our standard buy-to-let (BTL) product. It will run alongside our usual investment opportunities, and provided there is enough demand, we will continue it. This new type of investment will be listed as a “Private Equity” investment on the site. Please bear with us while we update the name.
Funding the Properties
Properties will be secured by funds provided by Creditum Capital Ltd (previously Property Moose Finance) to allow us to move quickly and secure some of the best discounts. A bridging finance fee will then be paid to Creditum to cover the cost of our underlying investors in the relevant loan notes.
The property will then be listed on the platform in two parts:
- Equity investment: This investment will be in shares in the Special Purpose Vehicle (SPV) and carry the usual equity risks of our BTL investments. The potential returns will be higher but the risks associated with selling the property sit with the equity investors in the first instance. This is akin to direct ownership by an investor with a mortgage.
- Loan Note: At the same time, a loan note will be listed on the site paying 9% net p.a. on exit. This will be secured against the property by first charge and against the SPV with a typical Loan-to-Value (LTV) of between 50-60% aiming to ensure protection. The relevant LTV will be displayed on the site with the listing.
Potential Benefits
Our team of experts have years of experience in sourcing properties that are below market value, and we believe this is an invaluable asset to the art of flipping.
In addition, recent research has shown that May 2016 held a record for the shortest national average time it took to sell a property, as measured by Rightmove – just 57 days (3), making us believe our product is feasible and potentially a good investment opportunity. In fact, research also indicated that it takes twice as long to rent out a property in London than it does to sell one. (4) (5)
Flipping properties independently can be a bit daunting if you don’t have the knowledge, skills, capital, time or expertise. In our mission to democratise the property market, we wanted to provide our members with a buy-to-sell opportunity, but alleviate the associated hassle. The same premise for getting involved will apply, you would simply fund your E-Wallet, invest in the buy-to-sell opportunity and potentially benefit from capital growth sooner than you would a buy-to-let opportunity.
This is a new type of investment for the platform, and as a result, allows our members to diversify their investment portfolios further. Diversification is thought to be crucial to any investment portfolio, and you can read more about it in our recent blog post.
Potential Risks
Investments of this nature always involve risks. However, because our fee structure is tied to your returns, it is in our best interest to ensure we only secure what we believe to be the most promising investment opportunities. In addition, we will be instructing an independent valuation through Spicerhaart, which will give us a localised, in depth market analysis of each individual property, designed to ensure the opportunities we list will stack up.
Sources
- http://www.telegraph.co.uk/finance/property/house-prices/10946361/How-long-to-sell-your-house-and-what-discount-to-accept-on-asking-price.html
- http://home.bt.com/lifestyle/money/mortgages-bills/uk-home-sellers-taking-13000-hit-on-asking-prices-11363991714542
- http://plc.rightmove.co.uk/~/media/Files/R/Rightmove/house-price-index/house-price-index-june-2016.pdf
- http://www.home.co.uk/for_rent/london/current_rents?location=london
- http://www.rightmove.co.uk/news/wp-content/uploads/2009/07/Rightmove-House-Price-Index-14-November-London-FINAL.pdf
Disclaimer and Legal
Property Moose does not provide any advice in relation to investments and you must rely on your own due diligence before investing. Please remember that property prices can go down as well as up and that all figures, rates and yields are projections only and should not be relied on. If in doubt, please seek the advice of a financial adviser. Your capital is at risk if you invest. This post has been approved as a financial promotion by Resolution Compliance Limited.
Property Moose is a trading name of Crowd Fin Limited which is an Appointed Representative of Resolution Compliance Limited which is authorised and regulated by the Financial Conduct Authority (no: 574048).