INVESTMENT PROPERTY and SHARES

Your investors will wants some security, so a Limited Company that issues shares would be appropriate. However, you would lose control of that company by issuing 70%.

For your own security and control issue only 49% and have your solicitor draw up a document, to be signed by the investors, which states that the shareholders are not partners but investors in a commercial enterprise. This is for your protection should things go wrong and they want their money back.

Yes.......

How are they acquiring the shares.

Are you giving them some of the current value or are you just giving the increased value. Or are you selling same.

You have to be careful that what you do doesn't trigger a Capital Gain for yourself at the time of transfer.

TBH I think that it is all too complicated to do at all.

Why would one of you friends want to invest in this 'house' in this ad hoc way?. There are many more formal ways of investing.

tim

Hello Stickems. Thanks for the reply.

I understand the principals of the 49% business regarding co-ownership, but that is where this idea is a little different.

The investors are taking shares out only in the capital growth. They will not be investing directly into the property, but in its rising value.

I am not too sure, but as far as I am aware, there is nothing like this arrangement in existence. I could well be wrong, but I have searched high and low to find something similar. I will own the property and manage it outright, although I would receive a smaller percentage of the capital growth, but as more properties come online, then I would benefit.

It is a mixture of a few investment vehicles really, the futures market, the property market, the pension fund etc.

I agree that a contract would have to be signed, or alternatively upon receipt of the shares a contract is formed dealing with limitations, but I want this to be as simple as possible. The limitations would be a two year lock-in for stability purposes, plus one other.

Thanks again.

Stickems. wrote:

How does a limited company give the investors security?

There are three ways of doing it. As a limited company, as a partnership, or from some point in the near future, as a Real Estate Investment Trust. The tax position of each is different.

Herein lies the problem.

Investors need security. Their investment in a company, holding property as assets, with no debts held against any property, would surely go a long way to cover this security.

As to whether it needs to be limited, I'm not too sure.

I was under the impression that company owners went Ltd to safeguard their own assets against creditors, who the investors would be, which again is contrary to what is needed, whereas the assets of the company in this case would be the security for the investors, allowing, in times of crisis, the public the opportunity to claim back their investment through the courts.

My thoughts are that it would have to be set up by an individual, perhaps a small company, a family, whatever, with a view to that individual having no assets, other than the properties in question, so that should the worst occur, then some semblance of dignity could be maintained.

The idea of investing in property is sound while the prices are rising, but this has a flip side - when they are stagnant or decllining, but as every savvy property investor knows, the rise will return once more in the not-to-distant future.

What this boils down to is that like a bank, I would be borrowing (using) other peoples money, but I would be offering a percentage of the rise in the value of property as their return, rather than a paltry interest rate, whilst the banks re-invest that deposited public money, much as I would do, in property. The banks obviously re-invest it elsewhere, but what security does a bank give to its customers, other than they will be dealing with an established entity which has been robbing them blind for many years?

Alternatively, what security does anyone have with regards to shares, or any other company which could go down the pan. After all, the shares will be secured by the property held by the company, with no debts at all, so surely this will be a better option than most investment products available?

J> Stickems. wrote:

In message , " snipped-for-privacy@uwclub.net" writes

Why dont you just take a first legal charge in your favour for the same amount as the initial value. So, if the others have 70% and you have 30% and the property is initially valued at £100,000, and it sells later for £200,000 then you will always get your £100,000 plus £30k of the rest and the others get £70k. This will be a capital gain. Ownership of the rent would be declared to be entirely yours, (the ownership of the rent does not have to be in the same proportion as the ownership of the capital).

However, when you said ">>From this I release the value of my property," that is when you lost me. Are you asking the others to give you money for their share of the property? or where you intending to go to a high street mortgagee for a buy to let type mortgage to release equity? Please can you answer this? Your answer will then enable me to be far more precise as to the way to proceed (if it is possible to proceed further at all)

(By the way, as it stands at the moment I cant see how a Limited Company can help you, and I dont follow your thinking on that at all, either in your OP or your other reply elsewhere).

These shares would be distributed by myself, as a company, and I was thinking along the lines of using the internet only, paypal, clickbank or something similar, other than the return of funds to the cashed-in shareholders which would be a cheque sent to their last known address.

The intention was to offer them some of the increased value, so that I would be selling the appreciation aspect at the current market value to the investor and returning the new value upon cancellation of the shares, less CGT.

Surely my CGT would be moved along onto the next property down the line? That way deferring the payment.

Regarding the 'ad hoc' way, I am at present looking at the options open to me, but I appreciate it does look all over the place at the moment.

All I can say regarding the 'why should my friends want to invest in a house', is that firstly, it's bricks and mortar, the old adage still rings true for a steady return.

I would be offering around 6 or 7% gross or more, judging by the way property prices double every seven years or so. It is a sound, long term investment, and lastly, I have already contacted many, with only the odd thou or two, who get no pleasure from the stock market, the banks, pension funds or whatever, and they would be more than happy to be getting a return of a good percentage of the rising value of property.

There is a whole country out there wanting somewhere to place the odd fifty or a hundred pounds and to get a better return than what is available, without all the necessary costs involved with agents and the likes.

By the way, did I say that the rental income covers all costs, including purchase and settlement fees? Meaning that all the funds provided for the investment will be invested.

Thanks for your input.

tim..... wrote:

In message , " snipped-for-privacy@uwclub.net" writes

But what about their original capital? Wouldnt that mean they own part of the original property?

No. Shares can not be 'secured' by assets with a company in the way I think you mean. Odinary shareholders come last in the queue on winding up.

Its exactly the same as any equity based investment in which shares are bought.

In message , " snipped-for-privacy@uwclub.net" writes

So in effect they would just be buying a portion of the property from you?

Fair enough

No, the liability to CGT rests with the shareholder, not the company

No. Neither hold over or rollover reliefs are available.

It does ! :-)

Hello John,

I know it is a little confusing, but perhaps I need to emphasize things a little.

Firstly, I do not want to borrow any funds in the conventional manner.

I, therefor would not approach any lender as this would limit the capacity of the investors. The property must remain debt free.

One other point is that the investors would not actually purchase a part of the property, as in land registry problems and dissagreements between investors and tenancy worries, they would be buying into the capital growth of the property, but not the property itself.

The investors would get a worry-free investment in the rising value of property held by the company. For this 'worry-free' armchair investment they would pay a price, being a percentage of the risen value of their shares worth of that property, but only on redemption.

shareholder less CGT, then I also have to pay out CGT, even though I would not be drawing the balance from the investment in any property myself?

In message , " snipped-for-privacy@uwclub.net" writes

Hmm, be aware that my suggested solution elsewhere in the thread grants a debt to you of you base value.

having read your other posts this is clearer to me now. But how can they be buying in, in the supposed 'safe' way you are describing without there being some capital protection from day one. Say (for example) the property is worth £100k. I want to participate in 50% of the future growth. How much would you want off me?. (but see below)

OH NO!!!!! No they wouldnt!!!! There are HUGE liquidity problems and the possibility of a long term tax fuse exploding at any time you choose to sell, not to mention the possibility of property prices falling either because of the market or because you don maintain it properly, or you make a mistake and somebody ends up with a protected tenancy or the insurance wasnt renewed properly and it burns down or gypsies move onto the garden next door etc.,

Dont use the word 'company' for the moment, it is confusing things. We may introduce it later.

OH NO!!!!!!!!!!!!!!!

ARRRGGGHHH NOOIO!!!!!

This I where I cant see what you are getting at. I Am guessing that your answer to my question above is 'nil'. So now, say, in twenty years time the house has gone up to £200k, and I am due £50k being 50% of the growth. I then have to pay you something do i? If so, how much?

If I only have to pay on 'redemption', where do you get the money to buy other properties in the meantime? unless I give you some at the outset? In your 1st post you said ">From this I release the value of my property". I assume this means at the outset, so how is that done?

No, you dont deduct CGT, thats for the shareholders to sort out.

If the property is being sold, then yes.

The debt, as you call it, is not a debt at all, as I have a property already that can be used as a float that will secure investment against it from the shareholders, to the value of that property, thereby allowing me to purchase a second property outright, and then repeat the process.

SEE ABOVE

Say (for example) the

This would be entirely up to you, as a shareholder, but I would not be able to take investments above the value of any property held, for the investors security and my own.

Being an ex-builder, the maintenance side of the equation is safe, especially as I would have a 30% share invested in the property myself. (Although you are saying 50%) I am also experienced in letting property, plus the simplest option is to go in for new property, that way all maintenance is minimal. I can understand the tax problems, but as property is a long term venture, then running a (dare I say it?) venture like this is also long term.

FOR EXAMPLE, lets say you invest £1,000 with me. I link this in to a property valued at £100,000.

In ten years time this property has risen in value to, say £200,000. Then the property has doubled in value over this period, which means your share has doubled in value too.

Upon surrender, you would receive your original investment and 70% of the growth, being £1,000 and £700, making £1,700 in total.

I would retain the other 30%, the £300, as my share, that way keeping me interested in keeping the property up to scratch.

The 4 main problems for the average novice punter to invest in property by purchasing a Buy-To-Let property are:

1 finding the deposit ---- many people simply do not earn enough to save thousands while the property value is escalating totally beyond their reach. 2 securing a mortgage. Again many cannot obtain mortgages for many reasons. 3 funding it over the first 3 or 4 years which tends to be the norm. 4 and the biggest problem of all, tenancy problems.

The above system covers all these problems readily, in that the punter can get a foot on the housing ladder, maybe in a very small way, say £100 worth, but they will not have maintenance worries or the likes, and there would be no arguements with boisterous shareholders. There would be no worries wondering if the mortgage was going to be met this month. There would be no extra funding needed once the investment is made. No insurances to worry about, and most certainly no tenancy problems.

The beauty of something so simple as this is that funds could be added randomly, for a pension, a marriage, university fees or the likes and there would be no extra charges for placing the funds into shares.

I still don't see why anyone would want to invest in your scheme.

John has pointed out the investment risks and some of the adminstration risks, You seem to think that they are negligible. But they are not, they are real.

You are an amateur 'investment manager'. Anybody with money to invest has the pick of professionally managed schemes, mostly with less risk than yours and some with the same upside. Someone who wants to invest in property can either buy some or invest in a REIT (when HMG gets around to setting a date for them).

It (still) seems to me that you are not offering anything special to the investor here.

tim

In message , " snipped-for-privacy@uwclub.net" writes

At last! The crux of it.

Why didnt you make it clear at the outset? In an earlier post you saif the £1k was only payable on redemption.

You are proposing something that is considerably more risky and more complicated to administer than you imagine.

You may think you have thought of everything but you seem to forget that the biggest risk is you. No matter what the status of the scheme is, i.e. LtdCo, partnership etc., the whole scheme relies on you and that (no disrespect intended) makes it all very risky indeed. 'Shareholders' have no control. What you really want are a bunch of your mates with some spare dosh.

I really dont think you have grasped the elementary risks involved in your scheme. I speak as a property owner, landlord etc.,

You dont seem to understand the BTL market.

What happens when they want their dosh back. What happens when you die?

??

And how do they get their money back for those events?

I am beginning to think you are a troll.

Many thanks for your input gentlemen.

up, the 30% retained, which would allow for some withdrawals and if it came to the crunch then I would go via the auction route or other methods, depending on the time scale. There would also be a small amount of cash from the rental income building up, so refunds should not be too much of a problem, once the ball is rolling. Hence the two years lock-in period.

These numbers would have to be considered more thoroughly as at the moment they are from the top of my head.

Regarding the BTL principal, I have a very good understanding of it. The buy low, to make the profit first, then take on a mortgage at the market value to release funding for another deposit, revalueing regularly, etc., that way growing the asset value whilst the tenants pay the mortgage.

However, there are so many people out there who do not have the ability to obtain a mortgage readily.

You point out that the process depends totally upon myself and I must admit you are right. You also point out how investors would look at the offer, which again is right, so I think I had better put this idea on the shelf for the time being.

Many thanks once again,

George Hughes

You are correct to shelve this idea. It is far to risky for investors and far too complex to administer, you would have to do a valuation on every day that an investor joined.

John Boyle wrote:

Many thanks for your input gentlemen.

up, the 30% retained, which would allow for some withdrawals and if it came to the crunch then I would go via the auction route or other methods, depending on the time scale. There would also be a small amount of cash from the rental income building up, so refunds should not be too much of a problem, once the ball is rolling. Hence the two years lock-in period.

These numbers would have to be considered more thoroughly as at the moment they are from the top of my head.

Regarding the BTL principal, I have a very good understanding of it. The buy low, to make the profit first, then take on a mortgage at the market value to release funding for another deposit, revalueing regularly, etc., that way growing the asset value whilst the tenants pay the mortgage.

However, there are so many people out there who do not have the ability to obtain a mortgage readily.

You point out that the process depends totally upon myself and I must admit you are right. You also point out how investors would look at the offer, which again is right, so I think I had better put this idea on the shelf for the time being.

Many thanks once again,

George Hughes

1) Most people who want a mortgage, want one to buy a house to live in, they do not want one to buy a house for an investment. 2) Anybody who wants to invest in property, can do so without taking out a mortgage for a whole house.

HTH

tim