Nowadays there are mobile apps to manage our savings and bank accounts, to invest in stocks and shares, and even to dabble in cryptocurrencies.
We may soon have an app for investing in buy-to-let, too, as the duo behind a popular podcast are set to launch their fractional property investment proposition later this month.
Manchester-based property landlords, Rob Bence and Rob Dix, are launching a new app called Portfolio which will enable investors to become part-owners in a portfolio of rental homes.
Rob Bence and Rob Dix are co-founders of Property Hub and creators of The Property Podcast
The pair, who are the co-founders of Property Hub and The Property Podcast, say people will be able to invest with just a few clicks – giving them a share of the rental profits and potential house price gains.
The app, which launches on 4 November, claims to give investors the benefit of having their investment diversified across different homes across the UK at a far lower cost than purchasing a single buy-to-let – though they will still need to stump up a minimum of £10,000.
‘Portfolio has been several years in the making,’ says Bence. ‘We wanted to make property investment accessible to those who lacked the time, money or confidence to invest the more traditional way.’
It could be an opportunity for would-be landlords to dip their toe into property ownership without such a big financial or time commitment.
It also means that they will not personally feel the effects of some of the more punitive tax measures levelled at buy-to-let landlords in recent years, such as the 3 per cent stamp duty surcharge on purchases and the inability to offset mortgage interest against rental income to reduce their tax bill.
But Portfolio will select and manage the homes, meaning those who buy in will have less control over their investments – and similar buy-to-let co-investment schemes have run into issues in the past when lots of investors have tried to leave at once.
This is Money digs into the detail on the Portfolio app, and asks whether fractional property ownership schemes are worth committing money to.
How does it work?
Portfolio is structured as a Real Estate Investment Trust (REIT).
A REIT is a company that is listed on a stock exchange, set up with the purpose of owning and renting out property to generate a return for its shareholders.
To qualify as a REIT a fund must pay out 90 per cent of its rental income to its investors through a dividend.
REITs are tax-efficient structures which are not charged corporation tax on any profits made, whether that be from the rental income or the sale of its properties.
Investors will be able to buy shares in Portfolio, which is listed on the International Stock Exchange.
The value of each individual share in the fund will be determined by the overall net value of the fund’s assets – which is mainly made up of the properties it holds.
The Portfolio app is currently in testing but the waitlist to join is open.
To ascertain the value of the assets, and therefore the shares, all properties within Portfolio will be valued every three months by an independent RICS valuer.
If the value of the fund’s assets increases after an investor has bought in, they will make a paper gain that they can realise by selling some or all of their investment.
Rob Dix says: ‘We chose this structure because it’s mainstream and it allows anyone to invest.
‘As an investor you’re exposed to the performance of all the property within Portfolio, so you effectively qualify for a share of the income that all the properties pay out and if the properties grow in value your share becomes more.
‘This also gives investors maximum diversification and removes the need to have the specialist knowledge to identify a single property they believe will perform best.’
How will Portfolio differ from other residential property funds?
There are more than 50 REITs listed on the London Stock Exchange, according to Moneyfacts.co.uk, with a combined value of around £54billion – plus many more which like Portfolio are listed elsewhere.
Most REITs in the UK focus on commercial property, such as offices or shopping centres.
Some of the biggest examples on the London Stock Exchange include British Land, Land Securities and Hammerson, who generate returns from the rents that companies and retailers pay them when they lease out that space.
But there are other notable REITs with a residential focus, such as Residential Secure Income plc, as well as non-listed funds, such as L1 Capital’s UK Residential Property Fund, which is rumoured to be considering a London listing, and Hearthstone Investments’ TM home investor fund.
Bence and Dix believe one major drawback with other forms of non-direct property investment is that they lack any tangible feeling of ownership, which they think attracts people to buy-to-let rather than alternative investments.
REITs are tax efficient structures which are not charged corporation tax on any profits made whether that be from the rental income or the sale of its properties
Portfolio will provide video tours of properties and frequent updates through the app.
Dix says: ‘Making sure investors get all the excitement and pride that comes with being a property investor was a really important factor when we were developing the app.
‘It was finding a way of allowing for a traditional investment experience but without any of the hassle of property ownership.
‘Along with the financial benefits – rental income and potential capital growth – Portfolio investors will receive video updates, property tours and get notified of key events directly through their app.’
There are also other propositions out there that are similar to Portfolio. These include Property Partner, which while not listed on a stock exchange, offers investors the chance to own a share of buy-to-let properties with a lower minimum investment of £1,000.
Another similar scheme was Bricklane, a REIT which was also listed on the International Stock Exchange – though this recently closed its site to individual investors.
What type of properties make up its portfolio?
Although the fund is expected to officially launch next month, it is already up and running, and has bought and rented out around £4million of property.
The fund will target homes in key towns and cities across the UK where there is strong rental demand.
‘We target properties with great fundamentals; public transport, amenities and schools,’ says Bence. ‘All the aspects you’d look for if you were purchasing a buy-to-let property yourself.’
What costs can an investor expect?
A typical buy-to-let landlord could expect to pay maintenance costs, letting and management fees and buildings insurance as well as service charges and ground rents.
There are also taxes on property purchases and rental income to consider.
As a REIT, Portfolio will not have to pay tax on rental income as long as it pays 90 per cent of the income to investors as dividends and meet a range of other criteria.
However, Portfolio investors can expect to contribute towards covering all the other costs, though they won’t have any of the responsibility of administrating them.
Rob Bence says: ‘There are all the property-related costs you’d pay if you owned a property yourself, plus costs associated with running the fund vehicle.
‘These are all deducted from rental income before profits are calculated.’
How do people buy and sell shares?
The new app, Portfolio, allows investors to become a part-owner of a portfolio of rental homes based across the UK
For those wishing to invest there will be a minimum deposit required of £10,000, although the founders say they are keen to reduce this in the future so that Portfolio can become more accessible.
Although Portfolio will be listed on The International Stock Exchange, it won’t be available through other platforms – only through the app.
When it comes to getting your money out of Portfolio, investors can make a request to sell their shares at any time – although the ability to sell within a particular timeframe is not guaranteed.
This means investors may have to wait to get their money, during which time the value of their shares could fall.
This is because if someone wants to sell, there needs to be a buyer.
If there aren’t any buyers, the REIT can decide to buy back from its own cash reserves, although there is no obligation for it to do so.
This will avoid it being forced into making hurried property sales at a disadvantageous time.
Bence says: ‘There’s no guarantee that investors will be able to sell when they want to – just like you can’t be guaranteed to find a buyer for a buy-to-let property at a price you’re happy with.
‘But under normal market conditions, we expect it to compare very favourably with buying or selling property directly – which typically takes at least several months, and of course doesn’t provide the option of selling only part of your holdings.’
With new and untested schemes such as Portfolio, investors should be aware that selling their shares could potentially be a challenge – depending on how the fund performs.
Who will it appeal to?
Portfolio could appeal to buy-to-let investors who may lack either the money, time, or confidence to make a start themselves.
Being a buy-to-let landlord also often involves management, upkeep, awareness of regulations and active relationships with either tenants or letting agents.
Portfolio may therefore also appeal to those who are perhaps put off by the hands-on nature of property investment.
‘Something like Portfolio would have allowed us to get started with property much earlier and would have taught us valuable lessons before buying directly,’ says Bence.
The Property Podcast popular with landlords, and Bence and Dix have also shared their knowledge through four bestselling books
‘Even though we’ve built up a business in property because we love being actively involved, this also makes us very aware of the hassles and drawbacks of owning property directly – and we constantly come across people who love property as an investment but just don’t have the desire or ability to be hands-on.
‘We’re excited that Portfolio will potentially open up property investment to these people, without them having to sacrifice the excitement we experience from being hands-on.’
Aside from property enthusiasts, any person looking to diversify their investments may find Portfolio appealing particularly given the recent property boom.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown says: ‘Given the red-hot property market, it’s understandable some investors might want to share in what they see as huge returns.
‘Although people might assume they understand residential property, often they only know it as somewhere to live and investing in it is entirely different.
‘REITs are often seen as an easy way to own a share in an income-producing property portfolio.’
Should you invest?
The tax environment for buy-to-let landlords has become less attractive in recent years with a 3 per cent stamp duty surcharge to pay, the eradication of mortgage interest tax relief and a raft of regulatory requirements such as minimum EPC standards, electrical installation condition reports and gas safety checks.
Laura Suter, head of personal finance at AJ Bell says: ‘The entry price to investing is pretty high, particularly if you’re buying in more expensive areas, and managing the property and tenants can become time-consuming.
‘That means something that offers the chance to invest in rental properties but with a low entry price and no hassle of managing them is likely to be popular.’
But despite its obvious appeal, there will be some who may prefer to wait and see how well Portfolio is received and how well it performs.
At launch there will be a minimum investment of £10,000, which the two Rob’s say they are focused on reducing as quickly as possible to open up Portfolio to more people
There have been examples in the past of REITs struggling due to market conditions, particularly when swathes of investors seek to exit all at once.
And new investment schemes are open to changes of management or ownership, and changes to their fees, terms and conditions as they grow in size – sometimes to the detriment of smaller investors.
For example, in 2019, investors in Property Partner criticised the platform for introducing new AUM and account fees, which they said were punitive for individual investors.
And Bricklane, which also offered individuals the opportunity to hold shares in its portfolio of properties located across London and other UK cities, has recently decided to close to retail investors.
On its website it states: ‘Due to the ongoing fire safety crisis affecting high-rise flats across the UK, Bricklane has decided that it is in the best interests of individual investors to sell the property portfolios and return net proceeds to investors, before closing the London and Regional Capitals REITs.’
Some investors may also prefer to opt for more established funds which already have a reliable track record.
For example, Hearthstone Investments’ TM home investor fund, which owns and rents out 200 UK properties, has a nine-year track record, having been set up in 2012.
Unlike Portfolio, it enables its customers to invest via an Isa or Sipp.
‘There are many REITs and funds that have been running for years, have solid track records, have already built up a portfolio of different properties and have experienced managers at the helm,’ says Suter.
‘A couple specialise in buy-to-let while others invest in a range of commercial property.
‘If this investment cannot be held in an Isa or Sipp, investors could also face unnecessary taxes, when compared to investing with an existing alternative REIT.’
However, despite being the new kid on the block, Portfolio will likely attract attention – not least because of the two people behind it.
While it could offer an easier alternative to becoming a buy-to-let landlord, investors should make sure they are comfortable with the concept – and scope out the alternatives – before committing.
What should people ask before investing in a REIT?
Laura Suter, head of personal finance at AJ Bell, suggests that investors ask these five key questions before putting their money into a REIT.
1. What’s the investment strategy?
The last thing you want is to find your money is entirely invested in small flats in one city, as you’d be very exposed to price fluctuations in that one market.
2. What are the fees?
Ask what kind of fees are being charged for buying and managing the property, for each pound you invest how much actually goes on the properties and how much is swallowed up on administration, stamp duty, legal fees, management etc.
3. How easy is it to get your money out?
Do you have to give notice before you can get your cash back or is it immediately available? Or do you have to wait for another investor to commit money and effectively buy you out? Property takes a long time to sell, so investors might not be able to access their money quickly.
4. What happens if lots of investors wish to sell at once?
We’ve seen in both the peer-to-peer and the property funds markets that when lots of people want to head for the exit they can be subject to lock-ups or higher charges – so you want to make sure you avoid that.
5. Are you personally diversified enough?
If you have no other investments and you’re putting all your money in the buy-to-let market, that’s pretty high risk. However, if you have a good spread across different asset classes and want to bulk up your property exposure, this could be an option.
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