We have all heard the term “Subject to Market Variables” (usually before making an investment) only to realize a short time later that the market variable in question has meant that the mortgage payments have increased by the cost of your average Olympic stadium build price, and has the same chances of coming down again too. Of course, its not just mortgage rates and inflation that one has to consider, there is good old VAT as well. This affects things like solicitor fees, contractors (if you are in the fix and flip market) and marketing if you are advertising to rent out Buy to Lets or trying to sell independently.
Most of us will have heard at some point or another “The only guarantees in life are death and taxes” and to a large extent this is true. However, imagine if you could remove some variables from your investment life? (No, we haven’t found a tax loophole or the elixir of life unfortunately!) All too often we have all just accepted that variables with investments are a fact of life if you want to make any kind of real profit.
Removing variables from any investment and still making it attractive is a tough task in any market, and if it is achieved, the self styled “experts” (harbingers of doom) in the forums are all too quick to come out and say “If it sounds to good to be true, it probably is” simply because its easy and ends the thread there and then without the need for any thought or analysis.
Over the years though, there have been a number of investment tools and products that have been crafted very carefully to eliminate some of the market variables that apply. In the process this reduces risk exposure leading to happier clients. Of course there are the extremes that go way over the top, names synonymous with such schemes are Charles Ponzi and more recently, Bernard Madoff. However, in the world of legitimate property investment, property based funds and derivatives would appear to be the order of the day.
What are the variables and costs?
- Stamp Duty
- Searches and Surveys
- Mortgage Setup and Interest Rates
- Selling Fees
- Rental Agency Fees/Repairs (If you are in the Buy to Let arena)
All of the above apply to property purchases in varying percentages at some level, regardless of where you might buy in the civilized world.
Arguably the most obvious variable to remove is the need for finance. Whilst great if you can afford the finance to start with, if the markets go haywire as they have of late, you can very quickly find yourself paying far more for your borrowing than you ever thought possible and far more than your investment can hope to return, resulting in many cases with negative equity. Whilst I know not everyone is able to be a cash buyer, structured products that enable you to get in on the deal with low money down are the main keystone, which neatly ties in to the next point.
With property if you eliminate the need to complete on the sale, you remove a number of variables, as well as (and possibly just as importantly) costs if you take advantage of selling pre completion and don’t go all the way through to full ownership. In days of old, the “Buy 3, flip 2 at completion, pay for the third and retire on the profit” was a fantastic idea. The reality however is that it hardly ever happened. With developers under so much pressure now though to complete on time, deliver to budget, and market the project for maximum occupancy a lot more besides, something has had to give.
With careful structuring it is now possible to invest into property and have the exit guaranteed at the same time, to a time scale, deposits underwritten by a major insurer, low enough entry to avoid the need for finance and eliminate stamp duty and search and survey fees in their entirety. Impossible? 3 years ago yes. Developers, agents and promoters would have laughed at the very idea with a great deal of contempt. Now though, with necessity being the mother of invention and all, such an investment product does exist.
By removing variables and binding established solution providers together, all of the above are possible. Granted no investment is “One size fits all” with respect to the individual, or indeed the provider for that matter. Our own SES (Secure Exit Strategy) product does exactly what it says on the tin. Whether you choose to believe it or not the fact remains in turbulent markets, focused thinking and understanding will still make money!
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- Friday 19 February 2010