The Problem:
This situation is rampant with small to medium size developers who have historically had good relationships with their banks but because of the severe financial restrictions imposed to many main stream lenders has become untenable.
This particular developer had a 10 year track record in providing top class residential accommodation and had successfully built over 100 apartments and houses in that time.
It was important for him to trade through this downturn.
As bank funding was not available, we needed to achieve healthy deposits from the investor, whilst making sure we do not expose them to unnecessary risk.
We also needed to come up with a property investment that was strong enough to attract off plan sales in a market that had predominantly moved away from it.
The Solution:
After reviewing a number of his sites, we came across one in Wavertree, this site had great connections to both Liverpool Universities and major transport routes. Wavertree also has a nice mix of residential and student accommodation.
Student Property Investment has become a “buzz word” in the investment industry. With the Government slashing funding for Universities, many have had to rely on third party builders to keep up with student demand.
We are big fans of student houses, we believe they offer a very important option over student pods in that houses can be sold and valued as residential property, with pods your exit strategy is severely reduced.
The development is on a road called Ashfield, this is predominantly terraced houses so building more terraced houses to fit with the area seemed the logical choice.
Our next step was to put together an investment package and do due diligence on occupancy and room rates. Our due diligence was concluded in 2 weeks after numerous conversations with letting and management agents. We decided on Downings for our management and letting agency, Downings have a long standing relationship with the developer and are one of the largest student landlords, developers and management companies in Liverpool.
We wanted to structure this student property investment in a way where the developer could be happy that the deposit money he will use to build is secure; and the investors risk in minimised by only releasing a % of the deposit at specific build stages.
We achieved this by asking for a 30% deposit in 2 stages, 15% at exchange and 15% when building is wind and watertight. The 15% is released in 3 stages and only after an architect has signed the previous stage off. This only exposes the investor to 5% of his funds at any one time but the 15% held by the developers solicitor means the developer can rest assured the money is there when needed.
We asked for a reservation fee of £2,000 which is fully refundable should planning not be achieved.
Results:
We launched the Ashfield Student Property Investment to our clients in the form of a 4 part email, 3 parts detailing different points of the investment process and the last concluding all information.
We sold out the entire scheme in 7 weeks, investors bought because of the stability of the off plan purchase process and the achievable returns available.
The developer can now move forward with his planning application safe in the knowledge the entire site is pre sold off plan.
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