6th November 2020
New opportunity – Old Basford
These are tricky times for investors. A quick look at Money Savings Expert’s Top Cash ISA Picks 2020/21 shows that the best Cash ISAs currently on offer provide AER of 0.65% variable or 1.4% fixed. Likewise, Stocks and Shares ISAs have been volatile over the past year. The FTSE All-Share Index started the year at 4,237, reached a low of 2,727 on 23 March following the outbreak of Covid-19 and has since recovered to 3,326.
Investors therefore face the challenge of finding a product that is not too volatile but at the same time delivers a meaningful return.
Old Basford provides solidity as well as appealing returns
We launched Old Basford on our platform last week. We believe that it addresses the issues outlined above. Specifically:
- The two properties were bought for cash, making them less volatile to external forces than a leveraged purchase (i.e. a mortgage). The use of leverage in property investing amplifies both profits and losses, and thus increases risk as well as expected return – especially in the current economic climate. We have seen this first hand recently on other peer-to-peer platforms who have large, leveraged property portfolios under management.
- The properties have been bought in partnership with the well established charity Nacro
- Nacro has over £10m of cash on their balance sheet and provides supported living to vulnerable people in the UK
- Nacro has signed a pre-lease agreement that commits them to lease the properties as soon as remedial works has been carried out for five years, meaning there are no void periods to worry about
- Nacro will be tenanting the property under a full repair and maintenance lease, so there should be no unexpected expenses
- Nacro will use the properties to provide accommodation for vulnerable adults as part of a contract that they have with Nottingham City Council
- The properties are currently delivering a net yield of 6.8% to investors
- Income is received monthly and users can elect to buy or sell their investments at any time on the Exchange, subject to investor demand
- These properties deliver a yield that is significantly above those currently delivered by Cash ISAs
- There is a high quality counterparty, Nacro, backed by local government (Nottingham City Council)
- The investment is a tangible asset in the form of two houses bought without a mortgage, reducing exposure to market volatility
- Investors can choose to liquidate some or all of their investment at any time on the Exchange at a price they choose, subject to demand from other investors
It’s important to note that as with all forms of investment there are risks. Both Nacro and investors have the right to terminate the lease after two years. In such a circumstance investors would have the choice to lease the properties to another charity or on a normal AST contract, which could result in a lower yield or void periods, or selling the properties at the prevailing market rate. However, Nacro has informed us that their lease renewal rates are over 95% and the most common reason for not renewing is landlords not meeting their obligations.
Why we believe this opportunity stands out from the crowd
We’ve been approached with deals before for properties that are tenanted either by local authorities, charities or businesses to provide supported living. Whilst we liked the quality of the tenant and the yields, the propositions never stacked up as there was a significant premium to be paid for the strength of the lease. In other words, investors were expected to pay more than the value of the property, which could result in a material loss for investors in the event that the lease was terminated.
Old Basford avoids this issue because we are dealing directly with the charity and cutting out any middlemen (namely a developer or an agent); we sourced the property and introduced it to Nacro. The funds raised are only for the purchase of the properties and the remedial work needed to be carried out. As a result, in the event that the lease is terminated, investors will receive the proceeds from leasing to another tenant, or from the sale of the property (less costs), which will be determined solely by the strength of the local housing market.
Good to know that your money is going to a worthwhile cause
ESG (environmental, social, governance) investing is a high growth area of finance. Investors are increasingly applying non-financial factors as part of their analysis process to identify growth opportunities. The coronavirus pandemic in particular has intensified discussions about the interconnectedness of sustainability and the financial system. Old Basford allows investors to specifically direct their funds to a worthwhile cause whilst at the same time earn a good return, which is called impact investing. You can read more about our purpose and our impact.
The huge popularity of this launch from our investors has encouraged us to work with Nacro to deliver more opportunities. At the same time, we have begun talks with other charities and we hope to introduce similar impact investments to the platform in the near future with a similar strategy; high quality, government-backed tenants, long leases, and investments that have a positive impact on society.
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