PASSIVE REAL ESTATE INVESTMENT GUIDE MAY 2020

In times like this where investors are looking for security and protecting the value of their money in a declining world market Guaranteed Rental Return Investments or Passive Real Estate Investments offer a great alternative to the standard buy to let property investment market.

WHAT IS A PASSIVE INVESTMENT?

In very simple terms it is an Investor Arm-Chair ride or a hands off investment in that the investor puts his money in, takes his return and his original investment out whilst not having manage or worry about his investment. Giving the Investor more time to focus on things that are important to them such as more time with the family, the Golf Course or to cheat on their spouse.

Passive investments can offer a Guaranteed annual return and a guaranteed exit strategy by the way of a Developer buy back. In essence this makes a Passive investment like a financial product with a Guaranteed return and a Guaranteed exit strategy.

WHAT DIFFERENT TYPES OF PASSIVE INVESTMENTS ARE THERE?

• Condos with Guaranteed Rental Returns
• Hotel Room Investments
• Care Home Investments UK
• Student Accommodation UK
• Buy to let property with Guaranteed Returns {normally short term with no guaranteed exit strategy}
• 5 Star resort property managed by International brands.

There are probably many more but Gray Stuart are focused on these Asset Types based in the UK and South East Asia.

HOW DOES A PASSIVE INVESTMENT WORK?

Very simply you buy a unit from a Developer either Freehold or Leasehold.

The Developer will then lease it back from you on a fixed term contract 3 to 15 years for a guaranteed return normally between 6% to 10% PA

The Developer will offer a Guaranteed buy back at the end of the term normally between 100% to 130% of the original purchase price

On Hotel room investments, Condos with Leaseback and Five Star resorts you get free usage of your unit in what we call a benefit in Kind.

WHAT ARE THE NEGATIVES OF A PASSIVE INVESTMENT?

• Less opportunity for Capital Growth
• Locked into investment for given time period

In essence if a passive investment is right for your needs there are very few Negatives but it’s important to give a balanced outlook,

WHAT ARE THE POSITIVES OF A PASSIVE INVESTMENT?

• Three layers of Investor security protection
• Guaranteed Return
• Guaranteed Exit Strategy
• Additional Lifestyle benefit in Kind – Free stay in your unit

Your three layers of protection are

• The rental contract which is legally binding on the Developer
• Enforcement against the Developer
• The security itself.

HOW HAVE PASSIVE INVESTMENTS PERFORMED IN COVID-19 TIMES

Struggled for the majority who have big overheads

First you have to understand that for those passive investments based around travel had their room rate occupancy rate drop from 90% to 5%.

One good example of this is a Thai based company who has sold over 3000 units to passive income investors so all of a sudden they have approx. 15m USD a year to find with no income as they are also not selling new units at this time. This Particular Developer has stopped paying their rental guarantee until after virus travel restrictions are over. Important to note this Developer still has a contractual liability to pay their obligations.

There are a few of these Developers with strong balance sheets who are still paying their rental guarantee and if they can pay a rental guarantee in these times then that’s a very strong investment for the future.

Finally, there are projects that are under construction from new Developers who will deliver in 2022 or later and therefore it is possible to invest in those projects as besides the building of the project they don’t have any overheads until the project is finished.

So in short Passive investments in Covid-19 times is one of the safest investments where you can park your money for a given period of time as long as you pick the right ones.

WHAT PASSIVE INVESTMENTS DO Gray Stuart RECOMMEND TODAY

In essence right now we recommend two option one offering 190% return over 7 years and the second offering 147% return over the period with the latter offering a 99% risk tolerance guarantee.

OPTION 1 – EL NIDO, PHILIPPINES 5 STAR FRONTLINE BEACH RESORT – STARTING FROM $244,000 USD

Cash Back                                10% PA for first Two years of construction of resort

Rental Guarantee                    10% PA Guaranteed for 5 Years

Developer buy back                120% after 5 years Rental Guarantee period

30 days free Usage                 Worth 7500 USD as a benefit in kind or another 3% PA

ROI OVER 7 YEAR                   190%

OPTION 2 – NAIHARN, THAILAND CONDO RENTAL GUARANTEE – STARTING $150,000 USD

Cash Back                                8% PA {6.8% Net after Thai Witholding Tax) during two-year construction period

Rental Guarantee                    8% PA {6.8% Net after Thai Witholding Tax)

Developers Buy Back             100% after 5 years’ rental guarantee period

7 days Free Usage                  WORTH 1000 USD PA

ROI OVER 7 YEARS                 147.6% NET

CONCLUSION

Both of these passive investments offer a superb opportunity and it’s just a question of your risk tolerance and lifestyle requirement of your investment than will decide what Investment to choose.

If you want 99% security from a developer that is long established and honoring all their obligation in these times, then it must be Option 2 and if you want an investment with an amazing lifestyle option in a 5-star resort with a little more risk with almost double the return then you should pick Option 1

These are just two options to illustrate the opportunities out there and it could be that another project is better suited to your needs and requirements.

If you have any questions or want any advice arising from the issues raised in this article please do not hesitate to contact me or one of my team.