Founded in 2013, Property Moose was one of the first property crowdfunding platforms in the world and the first in Europe to launch a digital platform. Since then, we have developed a sound amount of expertise on the industry that we helped create. We have gathered a significant level of data on investments, property management and, more recently, property exits.
In April 2015, property was highlighted as the best performing asset class. (1) Over the last 20 years, UK property prices have grown by 14.34% p.a. on average (2). This is compared to the FTSE All Share index which has delivered 3.46% p.a. (3) on average over the last 20 years.
This assumes that property is acquired and held for the entire 20-year period. In reality, properties may be acquired or sold at any point in this journey. It is very important to remember that property should be seen as a longer-term investment. Indeed, the Money Advice Service of the UK Government states that investors should see property as a medium to long-term investment. (4)
Using the knowledge that we have gained, we decided to build an investment strategy for Property Moose. We believe this investment strategy mirrors personal buy-to-let ownership whilst also providing the advantage of our professional investment team and the benefit of scale.
All buy-to-let properties will be held for a term of 3 years (other than those that have already funded at a different specified term). During that time, properties will be re-valued every 6 months using an independent asset manager along with two independent local agents, who will provide an open market value for the property. This will give regular updates as to valuations and help to facilitate effective use of the secondary market for anyone who may wish to sell their shares early. You can read more about how the secondary market valuations work here.
Upon the expiry of the 3-year term, the final independent valuation will be taken and used to calculate the exit price for the property. This will be calculated as a percentage of the open market value, with the percentage used being the most recent average achieved sales price compared to asking price (using third party data). For example:
Property Valuation = £100,000
Average price achieved for area = 95%*
Sale price = £95,000
*This is the average percentage sales price of properties compared to their asking prices.
The property will then be re-listed as an opportunity on Property Moose for funding.
This will give investors who wish to exit the property an opportunity to sell their shares at a data led price – rather than seeing a sales risk of selling on the open market at an unknown price or over an unknown sales period.
At the same time, this allows the other investors who want to retain the property for the medium to long term the potential to maximize the opportunity for returns, as they can remain invested in the property.
Upon re-listing, additional sums will be raised to provide a provision fund for the newly specified term (usually 3 years), to pay for insurance during the term, to cover a Property Moose fee (reduced to 2% to cover funding, corporate governance, and compliance costs) and an amount to pay for any required works/renovations.
Those investors who wish to remain in the property will have the opportunity to top up their investment to cover any additional funds required with the remaining amount being open to the wider crowd for investment.
There are a number of potential benefits to this strategy:
- Stamp Duty Land Tax (“SDLT”) is paid upon the purchase of property in our Special Purpose Vehicles (SPV). If we re-cycle properties within our SPVs, no SDLT is payable, saving money for investors.
- We spend a great deal of time sourcing properties that we believe are strong buy-to-let opportunities. There is no guarantee that we can find sufficient deals each month to fill new investment levels and replace existing stock so it may be beneficial for investors to retain properties where possible. In addition, as there is less work involved in re-cycling stock, the fees we charge can be significantly reduced and simply cover our costs.
- Property is a medium to long-term investment and should not be seen as a quick money maker. The fees associated in acquiring a property (including any renovations) can be spread across the life of an investment – if that life is only 2 or 3 years, the overall impact on returns is greater than if those costs are spread over a longer term.
- There is no guarantee as to how long a property takes to sell, or what price will be achieved. This is especially true for investment opportunities where there is a tenant in situ. By re-cycling the property to the crowd, we are able to secure a quick cash sale at a price that is in line with the average achieved in the area. We feel this is a fair result for everyone.
There may be properties that we acquire that do not perform as anticipated, or are no longer deemed to be good buy-to-let opportunities moving forward. If that occurs, we will suggest that an open market sale of the property occurs and all investors will have the opportunity to vote on the decision.
To ensure that properties are dealt with in a timely manner, should a property that is re-listed on the secondary market not be fully funded in 60 days after listing, it will be placed on the open market. Of course, investors can vote to keep the property at this point with a 75% majority (in the usual way).
Examples
A property is acquired (A) for £100,000 and valued at £120,000. Total purchase costs and fees equate to £10,000 giving a total fund amount of £110,000 made up of 11,000 shares of £10.
The property is rented and produces a net rental income of £15,000 over the 3-year period.
Example 1
At the end of the 3-year term, the property is valued at £130,000 and the average price achieved in the area is 95%.
Sale price = £123,500 (i.e. 95% of £130,000)
PM 15% Profit Fee = £2,025 (i.e. 15% of the £13,500 profit)
Corporate Tax provision = £2,295
Total SPV Value = £119,180
Value per share = £10.83
If 50% of the shareholders wish to leave (5,500 shares of £10), the property would be relisted on the site for:
Property Price: £119,180
Provision Fund: £1,500
Insurance: £600
Legal Fees: £500
PM Fee: £2,435
Total Fund: £124,220 (rounded up to nearest £10)
The existing shareholders that wish to remain equates to a value of £59,565 (5,500 share of £10.83), therefore, £64,655 would be available for investment.
Example 2
At the end of the 3-year term, the property is valued at £110,000 and the average price achieved in the area is 95%.
Sale price = £104.500 (i.e. 95% of £110,000)
PM 15% Profit Fee = £0 (no gain)
Corporate Tax provision = £0 (no gain)
Total SPV Value = £104,500
Value per share = £9.50
If 50% of the shareholders wish to leave (5,500 shares of £10), the property would be relisted on the site for:
Property Price: £104,500
Provision Fund: £1,000
Insurance: £600
Legal Fees: £500
PM Fee: £2,132
Total Fund: £108,750 (rounded up to nearest £10)
The existing shareholders that wish to remain equates to a value of £52,250 (5,500 share of £9.50), therefore, £56,530 would be available for investment.
Sources
- http://www.sequre.co.uk/investor-advice/why-invest-in-property
- http://www.nationwide.co.uk/about/house-price-index/download-data#xtab:uk-series
- http://swanlowpark.co.uk/ftseannual.jsp
- https://www.moneyadviceservice.org.uk/en/articles/buy-to-let-property-investments
Disclaimer and Legals
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).
