Frequently Asked Questions

Questions we have been asked more often than not are listed below.

If you have a question you would like to put to us, use our contact form. We may well add it to the list!

• Why invest in property?
• Why invest overseas?
• Is it too late?
• How do I start?
• Why ‘city’ and not ‘sun’?
• Why finance with a mortgage?
• What are the critical success factors?

Why invest in property?
Diversification is fundamental when creating a successful investment portfolio.

Widespread volatility in share and bond markets in recent years has served to remind us that these assets can be subject to considerable short-term fluctuations.

Many investors have realised that property offers considerable stability and steady growth, and for many people their own home has turned out to be their biggest single asset.
In particular, buy-to-let has proven highly rewarding with more investors becoming millionaires in the UK through this investment route in the past five years than ever before.

The right property, in the right location, is a tangible asset with a solid resale market (i.e. an exit strategy) and can be readily financed with a mortgage that can be paid for by the rental income.

Over the medium-to-long term, property will appreciate in value while your debt will remain static with an interest-only mortgage, or decrease with capital and repayment mortgage.

And by mortgage financing, your return on investment is 'geared' since you will need a low capital outlay to benefit from the growth in property value. In the right locations, the right property will have paid back your initial investment before the first tenant moves in.

The Invest in Property Show, adds the following:

1. Property is a good hedge against inflation which is showing signs of re-emerging in the global economy.
2. Rental income from property is a stable source of income.
3. Real estate always has a residual value: property values will never fall to zero unlike shares and hedge funds.
4. Property is a kind of hybrid asset with the capital appreciation of a stock but the income-producing capacity of a bond.
5. Investors typically have more control over the nature, timing and size of real estate investments.
   
6. Real estate is always an excellent collateral security against loans, and allows debt finance to be secured at the best rates.
   
7. Property portfolios offer great scope for diversification of risk into different property types, locations and rental levels. This helps to spread the risk of an interruption to income-flow.

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Why invest overseas?
Following several years of spectacular rises in residential property values, the UK buy-to-let market has weakened considerably.

Those who chose to continue to invest in the current market are finding financing increasingly difficult since rental income is no longer covering their loans, and the capital gains of previous years are decreasing rapidly.

Experienced and novice buy-to-let investors alike are leaving the UK market and looking further afield at Central and Eastern Europe. Such investors are not looking for a "place in the sun" - they are pure investors interested in maximising their return on investment.
This investment option is still relatively new since it is a by-product of the European Union's expansion to the east and south of the continent.

Most investors have come to the conclusion that the market cycle here in the UK is at it’s peak, and the more sophisticated investor has already started moving his money into new markets – and in particular the emerging EU countries.
Many astute investors started buying there a year or two before EU accession, particularly

in more developed cities like Prague and Budapest where the real estate markets were relatively more mature. Prices in these cities had already increased by up to 25% in the year up to May 2004, however there is still a long way to go especially in the other capitals in Eastern Europe.

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Is it too late?
The focus on the emerging markets is still relatively new and the good news is that it is definitely not too late to enter these markets.

Indeed, given the facts and figures in terms of investment and the low cost of entry at this time, it is clear that these markets will remain an outstanding investment option for some years to come.

There is pent-up demand in the accession countries for quality accommodation; EU driven economic reforms are creating a new middle class who are abandoning the communist-style concrete blocks for new modern apartment developments.

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How do I start?
It can be confusing and frustrating gaining access to this market. We know - because we've been through it ourselves and found all manner of problems to prevent the uninitiated.

This need not be the case if you have a good contact base, and sound investment strategy.

Pardon the hyperbole, but that is why Advantage Portfolio was established - by investors for investors.

We demistify the whole process and help you to buy the right types of property in the right locations, and finance them locally to minimise risk, and maximise your return on investment.

Advantage Portfolio was launched to address the lack of support for investors wanting to invest in the right kind of property in the right location, based on our own extensive experience of investing personally in this region.

You will find a wealth of personal knowledge in our Research section and a choice of carefully selected properties that offer excellent potential in terms of capital growth and rental.

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Why ‘city’ and not ‘sun’?
Spain, Cape Verde, Bulgaria, Croatia, North Cyprus, Turkey, France... Every day we see these locations promoted as the next smart investment location and the list goes on - and to a greater or lesser extent, these are all property 'hot spots' and therefore should be good investments.

But a property hot spot can rapidly go cold: so the question is, which ones are truly investment gold and which are merely the flavour of the month? Which is the best investment: a 'place in the sun' or a city apartment?

The answer depends entirely on how you define 'investment'.

A 'place in the sun' will often be a townhouse, villa or balconied apartment in a current 'hot' holiday location. For many this will be the investment of choice since it is likely to be a lifestyle investment with the bonus of being rentable to tourists.

In our view, this is often where the term 'investment' is misplaced since the drivers for capital growth are seasonal sentiment and lifestyle investor demand, as opposed to local demand. In addition virtually every other property in the area is vying for rental business which invariably suppresses rental income yield.

That said, certain locations do offer a reasonable mix of capital growth potential and rental yield plus 'place in the sun' advantages - especially where there is a combination of low available building land and rising demand (South East Cyprus is proving excellent and there is very good potential in Polands ski resorts). But we will always question whether they are good investments by checking the risks involved in making such a purchase and ensure there is a ready exit - i.e. a live resale market.

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Why finance with a mortgage?
If you are looking for maximum income from your investment then you will not gain much benefit from financing.

However, most investors are looking to secure maximum capital growth and will benefit hugely from leveraged or geared investment. In other words, using a mortgage secured against your buy-to-let property to fund the majority of your investment, and using the rental yield to cover the monthly mortgage costs.

This means that it is possible to use a very low initial down-payment to build significant investment returns.

Let's imagine you have £15,000 to invest. On its own, this is not enough to buy a property, so it might be invested in stocks and shares, directly or via an ISA. Let's assume that this grows at 15 per cent per annum.

After five years it will have doubled in value to be worth just over £30,000.

Your profit is £15,000 after 5 years.

Now invest that £15,000 as a deposit for a £100,000 property (or two £50,000 properties) that also appreciates at 15 per cent per annum, and use a mortgage of £85,000 to finance the purchase.

The mortgage monthly repayment costs are covered by the rental income from the property.

After five years the property will be worth £201,000.

Your profit is £101,000 after five years.

You may initially worry about 'going into more debt' by investing in property. We work on the notion that there is good debt and bad debt.

Good debt is that secured against growing assets, such as property, where income from the asset covers the debt payments – it dramatically maximises your capital growth prospects. An example of bad debt is that secured against an asset that reduces in value such as a car, which - unless it becomes a rare classic - will always reduce in value and delivers no income.

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What are the critical success factors?
You want to be sure that the best possible conditions exist for excellent long-term capital growth along with sustainable strong rental yields at a minimum risk for the term of your investment.
Consider the following factors when choosing any potential development for investment:

• What will drive up the price of property in the target location?
• How sustainable is the capital growth and over what period?
• What is the minimum capital outlay needed to secure the property (the less the better for maximum leveraged growth)?
• Are local financing options available for foreign investors - and are the mortgage terms and rates favourable?
• What legal structures are in place and does the development have planning permission and legal title?
• Is the developer reputable with a good existing track record?
• Will the developer offer a bank guarantee or escrow to protect your money in the event they cannot complete the development?
• Will the property be easy to rent?
• Who will deal with all the day-to-day tenant management issues?
• Will the rental income cover financing and other costs?

We can help you find answers to these questions for every development we bring to market.

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