Month: March 2020

The Property Rollercoaster

Last week’s blog was a swift update on everything going on with Nichol Smith Investments. We’ve managed to catch up on ourselves and thought we’d take a moment to summarise what we like to call ‘The Property Rollercoaster”, which we feel has been going on for a few weeks.

The property market where we invest (Edinburgh), and I’m sure true to many UK cities, have been through many changes in recent months. The market got off to a flying start at the beginning of 2020. Properties were coming on the market and attracting a lot of interest. We saw many offers for every property, with practically every property on the market going to closing dates.

We’ve gone from a very strong property market to a very variable market. Some properties are still flying off the shelf, and some properties have had no interest whatsoever.

In the space of two weeks, we’ve seen dramatic changes.

We’ve even experienced properties gaining a lot of interest and notes of interest, and going to closing dates. At the closing date, there are no offers from the interested parties. This is unheard of!

We recently picked up a property as all the other interested parties pulled out. We were due to collect the keys tomorrow but the Registers of Scotland (where the title deeds are held and updated) are temporarily closed. Again, this is completely unheard of.

We also submitted a very low offer on a property at a closing date. We were notified on Friday that our offer was successful as the other eight parties interested dropped out. We’re delighted with our purchase and can’t wait to get working on it. It’s really a wild roller coaster ride at the moment.

As Warren Buffett rightly says “Be fearful when others are greedy, and be greedy when others are fearful”. It’s in times like this where we really leverage our buying power, as these are the times when wealth is created.

Many things in the property world can be out of our control. We like to plan out strategies A, B and C to cover all eventualities. I feel we may only be at the start of this new rollercoaster ride due to the difficulties facing the stock market and the global pandemic.

Investing in Property

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Joint Venture Contracts

This week’s blog is going to take a closer look at the joint venture partnership and what exactly should be discussed before entering into a joint venture. This will ultimately shape the contract you make legally binding between joint venture partners.

In case you missed it, last week’s blog discussed some basic principles of joint ventures and their place in the property world. It’s a good starting point if you’re completely new to joint ventures, so head back to the blog on the website and give it a quick read.

A joint venture contract doesn’t need to be a large, complicated, lengthy document, but it’s essential to take the time to get it right before you get going. It protects all the individuals in the joint venture to ensure all possible eventualities are covered, including profit split, responsibilities in the project, the exit strategy, and the backup plan.

First things first, you need to consider who will be involved in the partnership. Usually, the partners are the property professional who will bring their time, skills and knowledge of the industry, and the other partner will provide the funding and oversee payments throughout the project.

Have you considered who will own the property during the renovation?

Typically it will be the individual who provides the finance for the joint venture who will legally own the property. The individual who is not part of funding the property purchase may take out a legal charge on the property (for example an RX1 form) or a legal contract (deed of trust) to ensure the property cannot be sold or transferred without their permission.

Another important point to consider about a joint venture partnership is sharing profits. Here at Nichol Smith Investments, we like to see it as two or more parties coming together as equals, bringing equivalent skill or monetary value to the table, and therefore profits split evenly. However, that’s how we feel about joint ventures, and not all property professionals are willing to split profits equally. 

We have discussed buying, renovating and selling properties in joint ventures. This is the traditional way individuals can work together in property to share profits. However, there are plenty of people out there who are keen to work on all different types of property projects. For example, joint venturing on HMOs; where one partner is responsible for the project managing the renovation of the property to be suitable for HMO licensing and usage, and the other funds the purchase and renovation. The rent income (after all expenses) is split 50/50. This type of joint venture partnership is a longer-term commitment. Deciding an exit strategy is vital when considering a joint venture partnership.

What about when things don’t go to plan…

If you decide on an exit strategy, for example, buy to sell, but you can’t sell the property or don’t receive an offer that you (or your joint venture partner) see as acceptable, what do you do? It’s essential to document the plan for the ‘what ifs’ in your joint venture contract before starting out. Discussing these things early on will make decisions easier down the line if the worst is to happen, and you both have it written down in black and white. Say the market changes during a buy to sell project, consider what price you are happy to accept for the property to break even. Consider how long you’re comfortable leaving the property on the market, whether you’d consider an auction sale after a specified period of time, and what you would do if you made a loss.

It’s not always plane sailing. There is always an element of risk in the property market, just like any other investment method. One of our fond property friends comes to mind when we write up joint venture contracts, as they always say ‘cover the five D’s’. The five D’s are departure, disaster, death, divorce, and disagreement. Discussing the five D’s and acknowledging what to do in worst-case scenarios will put you in good stead for a successful joint venture. 

Investing in Property

We make property investing simple for people who want to benefit from high-quality property investments without investing their own time or resources. Our investors can benefit from a passive income on a fixed term, backed by a brick and mortar asset and a team of experienced property investment professionals.

Are you interested in finding out more?

Download our investor brochure by clicking the button below.

Joint Ventures: Basic Principles

Joint ventures are well known in the business world, but many are a little unsure about what joint ventures involve when it comes to property investing. Today I am going to outline some basic principles of joint ventures in property, including what makes a joint venture successful and how to cover all eventualities.

In the property market, a joint venture is a temporary but formalised partnership of two or more individuals, which contract with each other for a particular development project, such as a buy-to-sell project, often through the creation of a temporary subsidiary company called a Special Purpose Vehicle (SPV).

Creating a joint venture partnership for a specific property project can be a great way to work with other professionals or investors in the industry. Joint ventures, in our opinion, work best when two (or more) parties come together to work on a project where their skills complement each other. The way we like to think of it is: you don’t want two (or more) investors working on the same project with little experience of project managing, and likewise, you don’t want two hands-on individuals coming together with no way of funding the project.

A successful joint venture partnership works well in property when the individuals involved have skills that complement each other. This could be where one individual organises the funding for the project and oversees payments, while the other finds the project and manages the refurbishment from start to finish. Alternatively, it could be a partnership between an individual who can oversee the project and fund it, partnering with a builder or other tradesperson who will complete the refurbishment.

Not only can joint partnerships work well with two parties coming together with complementary skills to one another, but joint ventures can work well with more than two parties. We have met professionals in the industry that have multiple parties involved in a property project, where skills and expertise are brought from a wide range of professionals like architects, accountants, quantity surveyors and engineers.

You might be thinking “this all sounds great, but why would we consider joint venturing”. Let me explain some of the benefits.

For many individuals who want to invest in property, joint ventures can be a great way to get involved in a renovation project without going it alone. You can keep up to date with progress, be as hands-on or hands-off as you like depending on your workload and geographical location, and gain experience of what’s involved in a renovation project while working alongside someone with more expertise (and time) than yourself.

For property professionals, working in a joint venture partnership can be a way to expand their knowledge of different aspects of property, and allow working with new professionals in the industry. In certain circumstances, it can be a great way to work with an investor who can fully fund the renovation to get a project off the ground.

Depending on the joint venture partnership agreement, investors can often achieve higher returns on their investment than loaning money to a property company for a fixed return. At Nichol Smith Investments, we believe that joint venture partnerships are where each partner is equal. With this in mind, previous joint venture partnerships we have worked on with investors or other property professionals have resulted in a 50/50 split of profits. This allows us to work on more projects throughout the year while achieving great returns for our investors. And of course, having fun at the same time.

We hope this blog has helped explain the basic principles of what a joint venture partnership can involve in property, and why they can be a great way to gain experience in property and achieve good returns at the same time. Last week we touched on the recent changes the Financial Conduct Authority made to investors working in property. If you missed this article, it’s well worth a read if you’re considering joint ventures in property.

Next week we are continuing the theme of joint ventures, and we will take a more in-depth look into what a joint venture agreement should include. 

Interested in Investing in Property?

We make property investing simple for people who want to benefit from high-quality property investments without investing their own time or resources. Our investors can benefit from a passive income on a fixed term, backed by a brick and mortar asset and a team of experienced property investment professionals.

Download our investor brochure by clicking the button below.