As recently announced on our blog, we have launched our newest, exclusive residential property investment on the GrowthFunders platform at Chilton, County Durham.
With Jordan touching on the benefits of the investment opportunity in the post, today I want to look closer at these and how beneficial Chilton could be for property investors.
A growth-focused property investment opportunity
As we've highlighted in both our guide to integrating property investments into your portfolio and the associated property investing webinar, property investments can often deliver a return as income and/or growth.
Generally speaking, income is most often achieved through rental income, which for many private investors is accomplished through buy to let property and is directly subject to income tax.
However, following the changes to the tax reliefs afforded to buy to let homeowners made over the last two years, this approach to property investment is expected to be less attractive than it has been for many years.
Although still an attractive investment - generally due to the inherent security afforded by asset backed investments - these reductions in tax relief offered on mortgage payments and increased stamp duty on second homes have impacted on the number of buy to let landlords.
With our Chilton opportunity, being an investment into an SPV, benefits are realised primarily as growth rather than income, with the return on investment paid from the profits made on the development after all fees are paid according to the equity share held.
If Chilton was a direct investment opportunity, this would usually require a long term investment as a property is bought and sold for an increased value, either through appreciation or renovation. In the case of investment into an SPV, this growth can potentially be achieved in a much shorter timescale, as the return is provided through the sale of the properties developed.
The structure means that as an investor you own equity in the SPV, which in turn owns the assets. So whilst the investment is asset backed, providing security in the form of the property owned, there is no higher rate of stamp duty to be paid by investors. This also means that any return on investment released from the profits made on the project is taxed as capital gains rather than income.
Why invest via an SPV?
As Dan covered in a recent blog post, an SPV is a Special Purpose Vehicle that allows (in this scenario) investors to invest into property opportunities, like the Chilton residential property opportunity, as if they were investing into a limited company. The SPV that is being invested into in this case is called 'Carlton SPV1 Limited' and has the focus solely on developing the 14 luxury homes on the site at Chilton.
As a limited company, this means that investment into this SPV is not affected by any associated parties or any other project that is being delivered by the developer. Therefore the performance of the investment is tied only to the Chilton development, effectively protecting the investors who have participated in the opportunity.
Being set up as a limited company, this vehicle is able to accept investments from a wide variety of investor types, including traditional loan finance and equity investment from institutional and retail investors. This gives investors who may not have the level of capital available for other property investment opportunities - such as a traditional buy to let - the ability to invest into property alongside a group of other investors, bringing the benefits of an asset backed investment without the costs of owning a property outright.
Why invest in the property opportunity at Chilton?
Based in County Durham in the North East, Chilton benefits from good local amenities and close proximity to both the city of Durham and the market town of Darlington.
With positive demand in the area recently, the trend is expected to continue into 2018 and beyond as there is a distinct requirement for starter and small family homes. This has prompted a significant amount of investment in the area, aiding in the supply of quality housing to satisfy the growing demand.
With two national house builders represented in the local area, providing good specification 3 and 4 bedroom homes and similarly targeting first time buyers with their 2 to 4 bedroom homes. Presented as a quality product with prices between £199 to £202 per sqft., the first time buyer home prices reflect the target market needs at a smaller price point of between £150 and £155 per sqft.
The experienced, award-winning Carlton development team are able to take advantage of these market conditions by ensuring the Chilton development is designed to a superior specification, whilst remaining lower in price than the local Avant homes.
External designs include detailing and materials that will ensure that Carlton homes will have a desirable kerb appeal, meanwhile internal finishes are to a high standard and the level of attention to detail given ensures the homes are set apart in the local market.
With over £250,000 already committed in the first 20 days of the Chilton property investment opportunity, GCV is seeking to raise £0.4 million of equity investment alongside the senior debt to finance this project. The site will be acquired with the benefit of detailed planning consent and with prices ranging from £160,000 to £215,000, the project is targeting a base case 1.5x multiple of money return - this means a £10,000 investment would be targeting a £15,000 return.
To find out more about the benefits of investing into Chilton, you can see the full property investment opportunity details here and I'd be more than happy to discuss further and answer any questions you may have.