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Saturday, November 29, 2008

Property vulture funds - alternative to direct landlording?

The credit crunch and fall out in the housing market has brought about the arrival of so called property 'Vulture Funds'. These funds backed by high net worth investors aim to pick up property from distressed sellers and landlords.

Landlords advised to check out charges!

They may represent a way of landlords entering or expanding their residential holdings without the hassle of direct property holdings. However, I would caution landlords to look very carefully into the terms of any of the investments. Especially important are any fees and charges. Frequently, investment vehicles are loaded with hidden professional fees and charges which means that these investment companies become vehicles for making the initiators of the funds rich leaving the poor old investor decidedly out of pocket.


One property fund is looking to buy up an entire street of 45 properties in Eastney, Portsmouth, many of them from distressed landlords.

The British Opportunities Fund, launched at the start of the year by boutique fund manager Managing Partners Limited (MPL), backed by HBOS, has paid between £89,000 and £100,000 for each property. The same properties were selling for between £180,000 and £205,000 two years ago.

The fund, which says it has returned 6.16% growth since launch compared with a fall of 10% in the Halifax house price index, has bought 15 of the 48 properties in Fort Cumberland Street and has offers pending on a further 10 homes.

The management expects a minimum 10% rental yield on each property. It has funded “non-structural refurbishments” and installed a caretaker to collect litter and maintain the street, which it says allows it to charge higher rents.

The minimum investment is £50,000 — £2,500 if made via a self-invested personal pension.

Jeremy Leach, managing director of MPL, said: “The fund has been able to purchase these properties from landlords who have overstretched themselves at prices that are as much as 40% below market value.”

In August, Arch Financial Products, the investment manager, launched a residential property fund with Nice Capital to make the most of falling UK house prices.

The Guernsey-domiciled fund, Nice Residential III, will purchase discount properties from distressed sellers, with the aim of returning 15% annually over five years. The London-focused fund has a £50,000 minimum investment.

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