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Owner-Investors & Joint Equity
► Owners are Investors too
As the Owner-Partner you are also an investor and will receive significant benefits from your investment.
By taking a Joint Equity property you benefit in 2 ways:
1 From any capital growth on your owned portion, and;
2 Joint Equity can be cheaper than renting 100% of a similar property, so your monthly costs are lower.
► In this section:
The Joint Equity Scheme & Investing
The Joint Equity Scheme & Investing
► Increasing investments
It is probable that the value of your investment will rise (capital growth) and your disposable income will also rise (lower monthly costs). This means that you can increase the amount you invest, should you wish.
With your new found wealth you may choose to open a regular saving scheme, a personal pension or any other traditional investment route. An IFA (Independent Financial Advisor) could help you with this.
Or you may choose to invest again through your Joint Equity account, and you can do this in 2 ways:
1 As the Owner-Partner you can vary your investment by increasing your % owned.
2 You can become an Investor-Partner for another Owner-Partner.
► Increase your ownership percentage in your home.
After the initial 2 years you can ask your Investor-Partner to sell you part of his share. You can ask for any amount up to 75% and he must comply (there are some safeguards over value - see the Joint Equity Partner’s Contract for details). If you want over 75% equity in the property you must offer to buy the whole of the Investors share but they are not obliged to agree..
► Becoming an Investor-Partner in your own right.
There are some significant advantages in becoming an Investor in another Owner-Partners home, rather than increasing the equity in your own home.
By having a part share in another property you are protecting your investments against cyclical property price fluctuations. This is because the price rise and fall cycles are geographically focused.
For example: Docklands in London has had falls in prices for over 2 years to 2004 but has now started to pick up again in 2005. Whereas Manchester continued with strong price growth over the same 2 years but then began a slight downturn in 2005.
Therefore the astute investor will have invested in Manchester between 2002 and 2004 and will now capitalise some of the gain and reinvest in Docklands. Jumping between local growth cycles.
► When to invest
We are often asked when is the time to invest in property and the answer is quite simple – at or around the bottom of the price cycle or early in the upswing.
Now it is virtually impossible to identify the lowest point with any degree of accuracy (without the benefit of hindsight), and anyone who tells you they can is frankly telling porkies.
But... ...what you can do is identify when the rate of price reductions slow down. That is not a sure indicator of the bottom because you might get a ‘double dip’ but it is a good gamble that within a relatively short time you will be in profit as values overtake your purchase price.
By buying at the very bottom of the cycle you will obviously maximise the possible gain
► So, should I wait for the right time?
However, defining where you are in the cycle its almost irrelevant.
And here’s why - buying at point 1 costs £150k and selling at point 3 for £200k shows a profit of £50k.
Buying at point 2 also costs £150k and selling at point 3 provides the same profit of £50k.
If we were lucky and bought at the very lowest price the property dropped to, £125k, we would have maximised the profit at £75k. Likewise we could have waited a little longer and sold at maximum price £205 delivering the highest gains.
► The real secret!
Over the last 40 years the information on house values from the Association of Mortgage Lenders shows that each successive peak is greater than the last.
So, even if you bought at the top of the cycle as long as you wait for the next upswing you will make money.
This is the real secret of the house value cycle.
The other secret is don’t be too greedy as you can make very good returns on investments without squeezing the last £ out of the purchase price.
► Now how to make more money?
In this graph we have added the Manchester cycle which has a lower price base - interestingly this does not matter when only considering profit generation, as you will see.
N.B. It is extremely unlikely the 2 cycles will be as matched as this with the Manchester high being at the same time as Docklands low but, we have assumed it here to demonstrate the principle.
So, we buy in Manchester at point 4 for £50k, as we have seen it does not matter whether it is on the down or up slope, and we sell at point 5 for £100k. Again its immaterial whether we are not yet at the peak or are just past it, the profit is the same at £50k.
Stage 2 of the master plan is now to reinvest in a growth area, in this example Docklands. So we buy in Docklands at point 2 for £150k and sell at point 3 netting another £50k profit.
So by switching between growth areas we have increased our profit from £50k to £100k and lowered our investment risk.
Of course, with us you do not need to sell the property in Manchester and using the Joint Equity Scheme we refinance up to 85% of the gain, releasing £42.5k for reinvestment.
So now you are the owner of 2x 50% shares rather than 1 x 100% in Manchester. Which, if you had stayed solely in Manchester, you would have forgone the additional £50k profit.
► What’s the catch?
Now you will have already worked out that the most difficult job is identifying the areas to invest in and then being able to identify suitable properties.
If you are in the buy-to-let investment market this is difficult to do, time consuming and adds to your costs.
But with Joint Equity you can identify hot spots easily, its just as easy to invest away as it is at home and the costs are the same.
The Joint Equity Scheme is for first-time buyers, home owners and property investors. This site is developed and maintained by Joint Equity ltd. ©Joint Equity (2007)
Joint Equity Ltd works with Mortgage Beaters Ltd to provide case studies & Illustrations to prospective Owner-Partners & Investor-Partners. Joint Equity Ltd does not carry out any regulated activities and so is not regulated by the FSA (Financial Services Authority). Joint Equity Ltd are introducer appointed representatives of Mortgage Beaters Ltd, which are authorised and regulated by the Financial Services Authority.
The content of this website is accurate to the best of our knowledge and for information only. We do not provide financial advice.
