27th February 2015
Five reasons why you should consider putting your pension in property
The fast-approaching pension reforms which will allow people to draw cash from their pension fund and spend it how they see fit are causing some concerns. Many fear people will take advantage of these new regulations and tax incentives to draw down billions of pounds from poor-performing pensions and then spend that cash unwisely.
Deciding how best to invest your pension money can be a minefield, but many will be looking to put that money into property.
Property is performing well and we have seen unprecedented amounts of cash invested in commercial property over the past 12 months because of huge double-digit annual returns. The residential property market is seeing decent growth and that will also be attractive to savers who are being held back by meagre interest rates with no prospect of increase.
However, individual property investment does have one major drawback. It can be very difficult to unlock that cash when you need it the most and, if you don’t have the experience and insights needed for property investment, it can be a lottery.
Alternatively, syndicated property investment can be a sound bet for people looking to invest their pension elsewhere. Not only does it give you access to a wider pool of properties, but the choice of which property to invest in is entirely yours rather than handing control of your investment to a discretionary property manager. Each purchase is thorough researched with all the necessary due diligence being made available for investors to review and form their own opinion. Here I’ve listed five reasons why you should consider investing your pension in a syndicated property fund.
1. Spreading the risk of your pension investment
By joining a syndicate you can invest your money in multiple properties, which helps to spread any potential risk of tenant default which is one of the main risks with any commercial property investment. The minimum investment is £25,000 and that means you can choose to invest your pension cash in a wide variety of different properties. There is no maximum, but typically people invest around £150,000.
As an added bonus, each property is independently managed, valued and the legal title to the property should also be held in the name of an independent Professional Custodian Trustee, ensuring that the property is protected even if the investment manager ceases to exist.
2. You can sell or transfer your share in the property at any time
With individual property investment, your pension money will be tied up in the property until you can sell it. At best, that means a two month wait for your money should you need it. In reality, you will probably have to wait at least a year to sell the property and get your pension fund cash back.
With syndicated property, an investor can sell at any point and the syndicate as a whole can also decide to sell the property with a 75 per cent majority vote.
Typically, in our case, a holding is sold to another syndicate member or another member of Rougemont’s qualifying High Net Worth client base.
Ideally, syndicated property is a five-year investment, but should you wish to sell, a typical syndicate sale takes just three weeks and Rougemont as the operator of each syndicated property is authorised to assist with this role.
3. Average annual returns of 6-7 per cent on your pension money
With interest rates having been anchored at 0.5 per cent for years and the threat of a further cut now on the cards, savers have been heavily punished during the recession. As a result, most are now looking to take control and find the best returns they can for their pension fund.
Syndicated property investment delivers average returns of around 6-7 per cent and Rougemont Estates is delivering better returns than that.
Each investor receives a quarterly income from the property and also benefits from any potential growth in value of the building.
Total returns on commercial property last year hit 19 per cent and, while it’s unlikely to be as high again this year, investors will still be able to expect double-digit returns when factoring in both income and capital growth, providing they invest in the right property.
4. Syndicated property returns are tax free and offer long-term growth for pension savers
Around half of all investors in syndicated property are using cash from their pension funds as any income or capital gain from the property into their pension is tax free, which is obviously a real benefit.
A typical investor is 45-years-old and is seeking a secure, long-term income that offers the prospect of medium to long-term capital growth. Depending on their age and profile, we find most investors simply don’t want the hassle of playing the equity market every day or having ownership of a single property where all their ‘eggs are in one basket’ and they have to actively manage the property.
5. Pension investors get expert insight and guidance
Perhaps the biggest benefit of investing your pension money in a syndicated property investment is the knowledge that you are getting expert advice and quality investment prospects.
Rougemont Estates minimises risk in this sort of investment by drawing on their years of knowledge and buys properties in prime locations that offer strong prospects for growth through lease renegotiation or property conversion. Rougemont offer the opportunity to it’s High Net Worth audience by way of a detailed investment prospectus. The decision of whether to invest is then up to each investor. Rougemont does not have discretion on any investors funds.
We aim to buy bullet-proof assets. There is still a significant lack of quality stock out there and investors have to be careful.
However, we are confident. We look to operate in a niche area, picking up properties that are too expensive for individual investors but that are too small for the big institutional funds.
By turning to a syndicated property investment company, you can invest in properties in prime locations that benefit from long leases or offer strong prospects for lease renegotiation, rental growth or conversion to an alternative use.
For pension savers, we feel there are some real areas of opportunity within the prime and secondary market where they will be able to benefit from acquiring quality assets that present a real opportunity for growing their cash for the future.