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Commercial Investment Property Syndicates
- Investing for less cost
and less risk
Property Investment with 7% to 9.5% Yields. Capital Gain
and/or
Retirement Income Syndicates Available.
For those of you who have read our Commercial
Investment Property Fact-sheet but cannot raise the full deposit required
for a commercial building, we have introduced commercial property and commercial
property syndicates exclusively
for members – this helps members with all levels
of capital from £20,000 upwards start to invest in commercial property
and obtain the higher yields it offers. It also lets investors diversify their
deposit over more than one building hence reducing risk and exposure to just
one building. There are several types of syndicate and
these are detailed below.
The syndicate will typically consist of 5-15 investors. The
syndicate will provide limited liability for the investor and offer potential
tax efficiencies by acting as a tax transparent structure (please seek confirmation
from your adviser) to ensure tax is paid at the rate of the individual syndicate
member.
Syndicate Type A – Short Term Capital Gain Strategy (High Risk)
The property will be bought off-plan at negotiated discounts
(20% target) direct from the developer. Borrowing of 60% (approximately) will
be used. Typically the syndicate will look to buy at around a 9-10% prospective
yield – ie
the rent obtainable via the letting agents would give a 9.5% return on the
off-plan investment. Once the building is complete and tenanted, with a
quality tenant and lease in place, another investor would be prepared to buy
the building from the syndicate at around a 7.5% net initial yield. The building
would immediately be worth around 25% more than when purchased and the building
would
be sold and the profits distributed to the syndicate members. This whole process
is targeted to be complete within one year but will vary according to tenant demand. The member is
then free to join another syndicate or take the money and invest elsewhere.
Example Syndicated Trade:
| Price of building inc fees, stamp duty etc |
£500,000 (Plus syndicate arrangement costs of
2%, legal conveyancing of 0.5%, mortgage arrangement fee of 0.5% (on the
50% mortgage) and letting
fee costs of around 1.5% and utilising a stamp duty avoidance scheme, making
an estimated total of 4.25% costs approx or £21,250) |
| Syndicate members invest 50% of the purchase cost plus costs |
£271,250 (Let us assume one investor makes up £25,000 of
this, or about 10%) |
| Total Borrowings of |
£250,000 |
| Yield/ Rental Income |
9.5% or £47,500 rent pa (prospective) |
| Yield Target Once Tenanted |
7.5% |
| At that time the building is worth (rent divided by yield) |
£633,333 (47,500 / 0.075). This gives a profit of £112,083
or 41% profit on the basic investment by the member before building selling
costs. |
| The building is sold and the profit distributed |
The example investor above who invested £25,000 gets a return of £10,000
less interest costs on any short term borrowing (if required), sale fees
and tax. |
| In Summary |
A great way to trade property with higher risks but
high returns - not for widows and orphans but a small speculative element
of an overall portfolio. |
The timescale sought by the syndicate for the purchase, build, tenanting and
sale is 12 months or less.
Syndicate Type B – Longer Term Retirement
Income Planning (Lower Risk)
A tenanted commercial building will be purchased with the
money invested by the members and a level of gearing/ borrowing to suit the
timescale of the
particular syndicate. For example, if a syndicate was set up with a 20 year
plan to pay off the mortgage, then perhaps 75% borrowing would be sought.
For investors seeking a shorter timeframe, we would offer as little as 8 year
investments with a suitably higher deposit level. After the mortgage is paid
off, the rent would be distributed to investors as income or the building sold,
according to the wishes of the syndicate members and as such the syndicate
can act as a retirement income or asset building vehicle. Type B syndicates are
available with 8, 12, 15 and 20 year target timeframes for the mortgage to
be paid off and all of the income distributed to syndicate members.
Example Syndicated Investment:
| Price of building inc fees, stamp duty etc |
£500,000 (Plus syndicate arrangement costs of
2%, legal conveyancing of 0.5%, mortgage arrangement fee of 0.5% (on the
70% mortgage) and stamp duty of 4%, making an estimated total of 6.85%
costs approx or £34,250) |
| Syndicate members invest 30% deposit
plus costs |
£184,250 (30% + costs + stamp duty - Let us assume
one investor makes up £18,425 of this, or 10%) |
| Total Borrowings of |
£350,000 |
| Mortgage Type |
Repayment Mortgage, 20 Years |
| Annual Repayments |
£32,398 at a commercial rate of 6.75% |
| Gross Profit per annum |
£5,602 after mortgage costs left from the £38,000
rent on a 7.6% yield |
| Once the mortgage is paid off |
A gross rent of £38,000 plus rent reviews over
the 20 years will be available for the syndicate members. If rents and
property prices rise in line with inflation, and inflation is assumed to
be 2%, then the example investor who invested £19,125 now has an
income in today’s money of around £3,800 pa and a 10% share
of the building value worth £50,000. If property and rents rise by
2% above inflation for the 20 years then the rental income would be £5,600
pa in today’s money and the building equity would be £74,297
in today’s money. That represents a yield of 29% pa on the original
investment and a compound growth on the initial invested sum of 7% pa for
20 years. |
| In Summary |
A good solid retirement planning component with a long term income generation.
It is reasonable to expect to receive an income of around £3,800 pa once
the mortgage is paid off (roughly index linked) for each £18,425 invested
today. |
Syndicate Type C – Buy Off-Plan and Hold at High
Yield (Medium Risk)
The property will be bought off-plan at negotiated discounts
(20% target) direct from the developer. Borrowing of 70% approximately will
be used. Typically the syndicate will look to buy at around a 9-10% prospective
yield – ie the rent obtainable via the letting agents would give a 9.5%
return on the off-plan investment. At that point, with a quality tenant and
lease in place, although the building would immediately
be worth around 25% more than when purchased, the property would be held on
the 9.5% yield and the mortgage paid down over a much shorter period than a
type B syndicate. The mortgage could typically be paid off over a 12 year period
and after the mortgage is paid
off, the rent would be distributed to investors as income or the building sold,
according to the wishes of the syndicate members and as such the syndicate
can act as a retirement income or asset building vehicle.
Example
Syndicated Investment:
| Price of building inc fees, stamp duty etc |
£500,000 (Plus syndicate arrangement costs of
2%, legal conveyancing of 0.5%, mortgage arrangement fee of 0.5% (on the
70% mortgage) and letting fee costs of around 1.5% and utilising a stamp
duty avoidance scheme, making an estimated total of 4.25% costs approx
or £21,250) |
| Syndicate members invest 30% deposit
plus costs |
£171,250 (30% + costs - Let us assume one investor
makes up £17,250 of this, or 10%) |
| Total Borrowings of |
£350,000 |
| Mortgage Type |
Repayment Mortgage, 12 Years |
| Annual Repayments |
£42,624 at a commercial rate of 6.75% |
| Gross Profit per annum |
£4,876 after mortgage costs left from the £47,500
rent on a 9.5% yield |
| Once the mortgage is paid off |
A gross rent of £47,500 plus rent reviews over
the 12 years will be available for the syndicate members. If rents and
property prices rise in line with inflation, and inflation is assumed to
be 2%, then the example investor who invested £19,125 now has an
income in today’s money of around £4,750 pa and a 10% share
of the building value worth around £50,000 in today's money. If property
and rents rise by 2% above inflation for the 12 years then the rental income
would
be £6,087
pa in today’s money and the building equity would be £63,412
in today’s money. That represents a yield of 35% pa on the original
investment and a compound growth on the initial invested sum of 11.45%
pa for 12 years. |
| In Summary |
A solid retirement planning component where shorter timescales are needed
and a higher risk of finding the tenant is acceptable to the investor combined with the
need for medium term income generation. It is reasonable to expect to receive
an income
of around £4,750
pa once the mortgage is paid off in about 12 years (roughly index linked)
for each £17,250 invested today. Voids means that it should not be
the sole retirement income plan. |
Syndicate Type D– Quick Income Syndicates
The property will be bought off-plan at negotiated discounts
(20% target) direct from the developer. Borrowing of 50% approximately on
an interest only basis will be used. Typically the syndicate will
look to buy at around a 9-10% prospective yield – ie the rent obtainable
via the letting agents would give a 9.5% return on the off-plan investment.
Once the
building
is complete
and tenanted (taking ideally 6-12 months),
then although the building would immediately
be worth
around
25%
more than when purchased, the property would be held on the 9.5% yield and
the excess income above the mortgage interest would be paid out quarterly to
syndicate members.
Example Syndicated
Investment:
| Price of building inc fees, stamp duty etc |
£500,000 (Plus syndicate arrangement costs of
2%, legal conveyancing of 0.5%, mortgage arrangement fee of 0.5% (on the
50% mortgage) and letting fee costs of around 1.5% and utilising a stamp
duty avoidance scheme, making an estimated total of 4.25% costs approx
or £21,250) |
| Syndicate members invest 30% deposit
plus costs |
£271,250 (30% + costs - Let us assume one investor
makes up £27,125 of this, or 10%) |
| Total Borrowings of |
£250,000 |
| Mortgage Type |
Repayment Mortgage, 20 Years |
| Annual Repayments |
£16,875 at a commercial rate of 6.75% on an interest
only basis |
| Gross Profit per annum |
£30,625 after paying the mortgage from the £47,500
income. |
| Once the mortgage is paid off |
A gross rent of £47,500 plus rent reviews will
be available for the syndicate members. After mortgage interest costs of
£16,875 the net income of the syndicate would be £30,625. A 10% syndicate
member would have invested around £27,125 to achieve this. |
| In Summary |
A quick income generator with a capital asset thown in that can add additional
longer term capital gains into the overall returns. Each £27,125 invested
could produce an income of around £3,063 pa whilst a tenant is in place
plus the syndicate member would gain from any capital growth in the asset. |
Frequently Asked Questions regarding syndicated investments:
1. What is the minimum investment for a syndicate?
Usually £20,000.
2. What are the costs above those I would pay if I bought
the property myself?
Our charge for syndicate organisation and structure is a standard 3.5% of the
building
value.
This is paid as a deduction from the contributions by members initially.
3. How long will my money be invested in property for?
Type A syndicates will be for one purchase and sale cycle of between 6months and 2 years (but could be longer) and Type B will be for 8-20
years. However, it is possible to come out earlier subject to the syndicate
rules
or to extend the period subject to syndicate member votes. Syndicates are not
liquid investments and if you require your money sooner than the planned exit
then you should not invest.
4. Can I use my pension money to invest in these syndicates
as well as private money?
Yes this is possible and we have an FSA regulated advisor to assist with advice
concerning this and also to migrate pensions funds into a property-friendly SIPP
structure if required.
5. I may need to leave the syndicate early – can
this be done?
Yes this is possible subject to the rules of the syndicate – the shares
must be offered to existing members first and then to outside members to join
in your place. In the event that more than one syndicate member wants to buy you
out, the shares are apportioned pro-rata to existing rights. Full details will
be provided in the legal documents once your syndicate reservation is confirmed.
Contact Us
If you wish to contact us online, please fill in the form below and we will
reply to you as soon as possible.
Risks Notice:
Operating within a syndicate can reduce the risk of investment
if diversifying across several properties and gives access to commercial property
at lower
investment
levels than normally required however, like all property investments, there are
some risks:
- Void periods can cause lack of income versus costs being incurred (mortgage, business rates etc)
- Mortgage rates could increase
- Changes in pension regulations (if investing through a pension)
- Less liquidity than if the property was owned by yourself only
- Professional charges could change and reduce the returns
- Property values could go down as well as up
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