There are a whole host of terms used when talking about investments. We talked about some of the most common investment acronyms a while back, but if you've been keeping up with our blog recently, one you'll have read a lot about is a SPV, or Special Purpose Vehicle.
A term that can often be integral to making successful investments, whilst it may not be something you need to be directly involved in, understanding the use and role of a SPV is an important part of increasing your investment knowledge - it's something I'm personally doing continually!
What is the role of a SPV?
On the highest of levels, a SPV is essentially a limited company. However, the primary difference to a standard limited company is mortgage lenders will accept applications from SPVs. Clearly this makes SPVs particularly attractive for those involved in the world of property investing.
Having specific Standard Industrial Classification of Economic Activities (SIC) codes assigned by Companies House, registering the company under the relevant SIC code allows you to experience the opportunities and benefits to limited companies whilst simultaneously having the freedom to apply for mortgages.
On a more in-depth level, when looking at property investing - or indeed, any method of raising capital - a SPV can be seen as a funding or investment structure. Investors can be grouped together under the SPV and their investments pooled together into one single entity, which then uses the finances as agreed (i.e., to invest into a residential property development opportunity).
Why are SPVs used?
There are various reasons why a Special Purpose Vehicle would be used for investments, the most notable is that a SPV can be setup and utilised purely for a single goal. There would be nothing outside of this single goal that could cause issues or distractions - for instance, no unrelated financial implications to the project(s) in hand (which a standard limited company may have) or even general business obligations that parties may need to become involved in.
With a SPV, it's focus is defined and set. For property investing, this would likely mean the investors who come under the SPV invest their money and buy the property - or properties, or land - and nothing else.
Find out more about SPVs and property investing
The whole world of property investing is vast and varied. There are opportunities, phrases, scenarios and so much more that although full of potential, can undoubtedly be daunting to get started in.
Understanding and appreciating this, we're continually producing completely free content to support your journey to becoming a property investor. Our 'integrating property investments into your portfolio' guide is an extensive, downloadable resource that's supported perfectly by our 'introduction to property investing' webinar.
Couple this with our blog posts - 'how to get started in property investing' is a great example - and we're continually striving to deliver the resources you need to start making the most from property investing.