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Invest in the US: Interview with Managing Director of top US Partner
December 19, 2012Article by Ray Withers
As a result of overwhelming interest in our previous US Property Bond investment which we launched in the early stages of 2012, we have been busy in the office carefully structuring our pioneering new opportunity – a secure and “hands–free” way of investing in the lucrative US market.
With a staggering $3m raised, the success of our first US Bond cemented our belief in the sheer potential that the US market holds to this day and we have no doubt that our new opportunity will prove equally as lucrative.
To further explore the value of the US property market and how it is performing, I interview Anton Tardiff, the Managing Director of Middleton May, our partners on the ground who buy, renovate and sell properties across the US. Anton has spent the past 5 years living the majority of the time in the US gaining a vast knowledge of both the residential and commercial industry as well as building a network of contacts and specialist advisors.
Below, I chat to Anton about how this new opportunity works and the returns already being earned by investors!
Anton, it’s just over a year since you launched the US property investments bonds. Has it gone as you expected?
Yes Ray, we have had a good year and have paid out the interest due to investors back in July and at the end of December we will be making the next payment. Obviously not all were due payments in July so this may well be the first payment for some of your investors.
That’s great news! Tell me a bit more about how you have managed to invest the clients’ money to ensure the returns that the bonds offer.
Well it’s a bit of an art rather than a science and my job is to source specialist companies that buy, sell and manage property working with them buying and selling property with the invested funds.
Why don’t you personally buy the properties and refurbish them yourself since you have experience in construction in the US and Europe?
Well from a company point of view, it would mean a whole change of focus. At the moment we can use companies in various parts of the US according to where the largest increase in the value of property is happening. If we were to do the work ourselves the cost of employing so many staff and the quantity of work involved would mean that we couldn’t be flexible and would have to locate in one area. The way we are structured means we need a minimum of staff which keeps our overheads low, can invest in more than one area but be ready to move to another area almost overnight. This allows us to maximise the returns.
So you are buying and renting out properties in different areas?
Well yes, we “cherry pick” properties and rent them out and have a few really nice properties with great tenants but what we have found is that the increase in value of property in the last year is much greater than expected. The viable properties are harder to get hold of. As the properties increase in value the rents stay the same as they have been meaning the yields drop which now longer works for the bond.
So how have you dealt with this as clearly you are still getting the returns that are required to pay the investors their interest?
Well to be honest Ray this is where we are in a win win situation. Having the historic knowledge of how property tends to move and great contacts actually allows the model to change and to make even better returns than using the buy to let method. When property is going up in value, the art is to choose the right locations to buy and sell property and of course we all know that Florida is always going to be a place that’s sought after. At the moment my partner company there is buying and selling up to 50 properties a week. In fact I was there last week and they purchased almost doubled that number!
So explain to me how you make the return as obviously you can’t be buying and selling that many properties?
No, when we have available funds, we have a list of properties on a day to day that are available for purchase. We then look through these and make a decision which to purchase according to the options available. The options being is it a property for buy to let, is it a property that can be sold at a profit to another investor without being refurbished or will there be a property that will make extra profit by purchasing to refurbish and sell on retail. Our partner company buys them on our behalf and then they get to work on the property according to what we want to do with it.
Well that seems to sound rather simple, there must be more to it than that?
Yes we can chat about the detail all day long as if it was that simple everyone would be doing what I do. The fact is along with my company manager we spend a lot of time checking out the properties to ensure there’s nothing nasty that we don’t know about like a sitting tenant. We also have to deal with the tax and legal structures, it’s certainly a full time job but it works as you know and hence the launch of the new bond.
So how many properties have you bought and sold this year?
Well I would have to go and look in the books but we have around $1M across the bonds invested in buy to let properties and another $2M of investments that are used for buying and selling the properties so if the average property cost around $75000, you can see that we have around 25-30 properties being purchased and sold at any one time. The average time that it takes to buy refurbish and sell a property is around 8 weeks so we are usually purchasing around four new properties a week using the sales income from the properties sold the week before.
Ok, that being the case Anton, what everyone really wants to know what are the returns that the bond company expects to make on this?
Of course and quite rightly so but please don’t think that all the income over and above the returns we pay to the investors goes in my pocket! Over the last 12 months our return on investment has been around 20% gross, of course we have costs and taxes so this does get reduced but net we hope to be able to make around 16%, so a very healthy return.
That’s been a very useful update, I’m sure our clients will find the information of great interest and enable them to appreciate how they can receive such impressive returns on their investments. One final question where do you see the future for this type of investment?
The future…I was only listening to an interview with Warren Buffett on Radio 4 the other week and despite some of the political issues that are now being faced by President Obama his forecast for the short to mid-term was America is back on its feet and apart from some minor issues the forecast for the economy was very promising. In fact property is so strong in his mind for personal investment; he has actually started buying up real-estate brokerages to take advantage of the massively increased volume of property sales expected over the coming years. For us it’s business as usual but our focus will be where can we invest we mustn’t just invest in Florida or we will miss out on other opportunities and in fact for the new bond not only will we look at new area but when the time is correct we will also focus on Commercial real-estate and even land…So the future is if the investors want them then we will keep producing bonds investing in this exciting market.