SHOW ME AN EXAMPLE

• Given the uncertainty of the UK housing market investors are increasingly in search for alternative property investments
• With a strong hotel industry, in London in particular, a growing alternative to buy-to-let investments is to invest in an Apart-Hotels
• In essence an overview of an Apart-hotel is as follows:
  • You purchase a room in a hotel managed by reputable hotel chain
  • The rooms tend to be more luxurious than a traditional hotel and are geared towards both short term and long term lets
  • The hotel leases the room back from you for say 20 years (and then on a rolling basis)
  • As the hotel rents out the rooms you get a share of the hotel profits depending on the size and location of your room
  • In a crude way this could be compared in buy-to-let terms as buying an apartment and hiring a managing company (the Hoel in this case) to find tenants for you
    
    

• This particular Apart hotel is located at the foot of Westminster bridge, has views of Parliament and is within a 1 min walk of the British Airway London Eye / Millennium Wheel
• The area is known to have a very high hotel occupancy rate
• A typical apartment in this project costs from £200,000
• The project is due for completion in 2010
• There is a staged payment plan between investment and 2010
• All payments between the purchase date and completion earns 6% interest per annum
• Upon completion the investors received a guaranteed return of 6% p.a. until 2015
• Beyond 2015 the returns are based on the profits generated by the hotel. Profits are then shared among the owners of the apartments
• Learn more about this particular project here
  
  

• An investor (lets call him Dave) may have seen this Apart-hotel and would love to be involved as he feels there is significant potential in the long term for regular income beyond particualry beyond 2015
• There is comfort in the fact while the hotel is ramping up operations the developers are offering a 6% guaranteed retun for the first 5 years
• Dave likes the idea of investing in an exciting new property venture like this and feels the location is ideal for a hotel, particularly given the views of the Houses of Parliament
• However, Dave doesn’t have £200k capital so can’t buy it outright and he doesn’t want the risk of a mortgage
• He is worried that even the 6% a year might not be sufficient to pay the mortgage if interest rates go up between now and 2015
• Furthermore he realises that investing in an Apart-Hotel would mean he needs a commercial mortgage which is likely to have higher  mortgage rates than typical buy-to-let mortgages
• Dave is happy to invest for the long term but only wants to invest about £20-25k and wants to minimise risk
• Dave is frustrated that he seems to have found a great investment opportunity but can’t see how he can get involved
• Dave comes across My Property Partners and finds out that they offer to find like minded investment partners to buy the Apartment outright directly from the developer
  
  

• Through My Property Partners the property will be purchased through an LLP and Dave will be a partner of this new company
Dave registers with My Property Partners and soon finds that others have registered with My Property Partners and the project is live
• My Property Partners is offering to facilicate the purchase for Dave
• A 5% share will be available for £10,000 each
• Dave decides he wants to buy into 10% of the Apart-hotel at a cost of £20,000
• Dave also recognises that there are other costs, as with any property purchases, as sees the Reserve funds requirement to cvoer stamp duty and to protect himself from future demands to cover costs is 4% (which includes 2% stamp duty)
• Dave signs up, paying the 2% arrangement fee
• He receives, signs and returns the Partnership agreement - this shows that Dave has legal rights over 10% of the LLP, which is equal to his share of funds contributed
• He then transfers the funds to the LLP bank account
• Based on this the LLP purchases the Apart-Hotel and Dave receives ocnfirmation that he is now a partner in a business that owns a prestigous apartment overlooking the House of Parliament
• The total cost to Dave of this purchase would therefore be £21,200

During Construction

• During the construction period the only costs that should be incurred would be the cost of managing the accounts for the LLP and any bank charges
• For this project there is a phased payment shcedule, so the reserve funds and interest earned on the funds held by the LLP would be sufficient to cover the costs
• As there is only interest income during the construction period no profits would be distributed to the partners until completion
• At the end of construction Partners will be required to vote on whether to continue holding the porperty and receive the 6% guaranteed income from teh developer for the next 5 years

During guaranteed return period - 2010 through to 2015

• The developer guarantees 6% interest per annum for the first 5 years after completion
• Therefore, given the value of the property is £200,000 the returns for the year would be £12,000
• After deducting any running costs for the year this is returned to shareholders – e.g. the only costs may be accountancy fees and abk charges totalling £500
• My Property Partners will also be paid it’s share of 10% of the profits which would be £1,150
• The remaining £10,350 is returned to shareholders according to their partnership stake
• In this example Dave has a 10% stake and would get a return of £1,035 which is equal to 5.2% before any relevant taxes are paid
• Although this is less than the 6% the developer is offering Dave soon realises that this is a very good compared to having a mortgage which would mean most of his 5.2% return would be used in paying the mortgage
• He soon realises that he has no mortgage, his risk is minimised, he owns part of a prestigous central London apartment and he has generated a 5.2% return - Dave is quite happy !!
• At the end of ths 5 year period, the Partners will be required to vote on whether to continue holding the porperty until the end of the investment period (3 more years) or begin to look for an exit and realise any capital gains

Return from 2015 to 2018

• Beyond 2015 the income from the apart hotel would is expected to significantly increase and if the hotel is on track should be delivering double digit returns
• At this point Dave's investment is generate double digit returns and all of this income goes to Dave as there is no mortgage to deduct from his income
• See more details on this project
• As the end of the investment period approaches in 2018 preparation will begin to sell the Apart-Hotel
• Unless an amicable solution can be met where existing partners buy out partners that want to exit or new partners can be found the property will be sold and proceed will be distributed to partners according to their respective partnership stakes