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Why a residential property fund?

As we’ve seen the case for investing in residential property looks compelling – particularly within the rental market. To recap:
  • There is a long history showing that residential property has delivered attractive returns
  • Over time residential property has proven less likely to be adversely affected by the economic outlook
  • There remains the potential for future growth & strong rental yields, principally due to increased demand for rental properties
So how is it possible to take advantage of this potential? After all, much has been made of factors preventing a residential property investor from entering the market.
A low level of mortgage offers – one of the knock-on effects of issues relating to sub-prime lending is that there’s now more focus on affordability of new house purchase loans.

Supply and demand – in March 2014, 10 years after the Barker Review of Housing Supply, the Home Builders Federation stated that the UK was 1 million homes short of what was needed to adequately house it population. They also estimate that 260,000 to 320,000 homes per year need to be built to address the issues raised in the Barker review. Yet only 6% of house builders feel that exceeding 200,000 on a regular annual basis is possible*.

These constraints mean that many of us will not be able to get onto the property ladder via the conventional route.

Source: * Knight Frank “Building Momentum Housebuilding Report 2014” published 13th January 2015

The alternative? A residential property fund

A residential property fund pools the money of all individuals investing in the fund in order to buy multiple properties. It does this across a number of different types of property and geographical regions the purpose of which being to spread the risk & minimise the effect of value fluctuations across one region compared to another
The TM Hearthstone UK Residential Property Fund is valued daily with all investors being able to track their share of the value.  Where the properties are rental properties the fund will benefit from some of the rental income once the fund costs are paid. Of course, it must be remembered that the value of investments can go down as well as up.
Until recently investing in residential property via a fund has been the preserve of institutional investors, where the funds are often fuelled by the purchase and re-sale of properties for profit – the profits being re-invested in the fund.
The TM Hearthstone UK Residential Property Fund gives exposure to residential property investment without the individual investor having to physically buy and own the property themselves. This next section explains this advantage in more detail.

A property fund vs. property purchase

This table shows the considerations of buying a property for investment and rental & compares it to investing via a residential property fund. Investing through a fund means the specialist professional fund manager and their support team will invest the money on your behalf.

Considerations for investor Directly buying a property Investing through a fund*
Finding the right property YES NO
Funding a deposit YES NO
Securing a mortgage YES NO
Bridging finance YES NO
Stamp Duty YES NO
Purchase chain POSSIBLY NO
Estate agent and legal fees YES NO
Finding a tenant YES NO
Property maintenance YES NO
Collecting rent YES NO
Insurance – buildings and contents YES NO
Council Tax YES NO
Capital gains tax on property disposals YES NO**
Quick access to funds NO YES
Tax efficient NO YES
Paying letting agents YES NO
Risk of losing income between tenancies YES NO

* The fund manager has similar considerations and will deal with these on behalf of all investors in the fund. Economies of scale mean that the fund can expect to buy property related services for less than an individual buy-to-let landlord could.

** Whilst a Fund may not be liable to CGT on property disposal, investors may be liable to CGT on sales of shares or units in the fund.

Support team

You will have read phrases like ‘professionally managed’,’ Fund Manager’ and ‘Support Team’. One of the significant advantages of investing in residential property through a fund is that it is backed by a proven team of residential property professionals working on your behalf.

We shouldn’t underestimate the role of local estate agents in the process of buying and selling individual properties on their clients’ behalf, but the team supporting a residential property fund is quite different.

A fund will typically be supported by:

  • A large, national estate agency and property services provider - to help provide the fund with ‘grass-roots’ rental market information.
  • A property management group –  to find suitable tenants, ensure properties are fit to let and carry out day to day management. They’ll also provide a single point of contact across all of the properties the fund invests in.
  • A Fund Manager – to decide upon the investment strategy of the fund – the type of properties to invest in and where they are geographically. Their experience will lead them to seek out new and interesting opportunities, but also help them avoid bad choices.

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Hearthstone Investments PLC is the parent company of the Hearthstone Group. Regulated activities associated with the TM Hearthstone ICVC are carried out by Hearthstone Asset Management Limited, which is an authorised representative of Thesis Asset Management plc, authorised and regulated by the Financial Conduct Authority (114354). Other companies in the group provide investment advisory and other services funds aimed at professional clients. Details of these companies are provided in the investment materials associated with each fund.

Information in this website is presented for information purposes only. No information in this website should be treated as an invitation or inducement to invest in any particular investment product over another, nor as investment advice. If you are in doubt about whether a particular investment product described within this site suits your needs you should consult your Independent Financial Adviser. Neither Hearthstone Asset Management Limited or Thesis Asset Management PLC accept any responsibility for your use of this site other than in accordance with these terms.

Please note that future predictions/outlook observations are Hearthstone’s own views and do not guarantee they will come to fruition. Please also note past performance is not a guide to the future. 

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