Property Partner investing 3 years later

This is part of my ongoing experiment with Property Partner which started in 2018.

Although now an older article, it can still describe well what Property Partner is all about. In one sentence, it is a digital property crowdfunding platform where anyone can invest in buy-to-let in various UK locations.

The recent news prompted me to write about Property Partner which I kept putting off for a while.

Property partner has been acquired by a US company, “Better”!

Better is a much bigger company that offers mortgages, insurance and more. They operate in the US but through Property Partner, they now want to offer US and international properties to UK investors. Sounds promising!

Key changes from 1st October 2021:

1. Fees dropping from 1.2% to 1.0% per year. If investing more than £25k the same 0.7% fee remains
2. Scraping the £1.20 per month account fee
3. Dramatically expand new investment opportunities on the platform (US and international)
4. Improve mortgage financing on properties to enhance investment returns for all clients
5. 2-4% investor cashback for providing liquidity

I’ll share my views on these changes below.

1, 2. Property Partner lower fees

Performance comes performance goes, fees never falter.

You can argue that a big reason the secondary market trades at such a big discount is that more people want to leave the platform than join due to loss of trust after Property Partner introduced new fees and the way they did it.

Lower fees are always welcome.

PP investors currently pay an annual fee depending on the invested assets in the platform. This is now changing to:

• less than £25,000: annual fee = 1.2% -> 1.0%
• more than £25,000, annual fee = 0.7%

For a £25,000 investor, the fee is now £250 instead of £300. Add the removal of the monthly account fee (£1.20) and we’re paying £64.40 less a year. Not a life-changing amount but I’ll take it.

Above all, it also shows the intention and a path in the right direction.

Yes, I want to see more of that.

3. Property Partner offers US and international property

I think the expansion to US and international markets is a really interesting one. I’m not sure whether the “international property market” will include the EU as well but I hope so.

I keep saying that I’m not very optimistic about the UK property market. The pond is too crowded. It keeps defying gravity and proving me wrong 🙂

But it’s not a zero-sum game. I would love to see both the UK and say, Germany or Greece do well. I would love to have the option to invest in the Greek market in a one-click fashion like I’m doing in the UK. The high prices in the UK have dropped the net yield from rent. As a result, it’s much harder to get a high income-producing portfolio.

A BIG benefit of this approach is that we will have the chance to invest in NEW LISTINGS. This means new opportunities and fresh new properties on the platform.

I haven’t seen a new deal in ages, apart from the development loans. So overall, I welcome this change.

4. Improve mortgage financing

Better offer homeownership products and services. It looks like Property Partner can greatly benefit from Better mortgages (sorry, couldn’t resist!), effectively making it a win-win between their platform and the end-investor.

This has been a hot topic during the PP premium client meetups I attended pre-COVID.

Since PP owns such a big property portfolio (>£100m) why can it not negotiate better terms with the banks? They must do something which can result in higher investor returns.

After the integration with Better, I am glad it’s on the table.

5. Offering 2-4% cashback for buying on the resale market

Basically, Property Partner are paying you to buy shares in the secondary market. We all know liquidity is dry there, and that bigger investors have trouble buying or selling without moving the market.

This incentive will hopefully improve things.

If you invest more than £10,000 per month then you’re eligible for a cashback.

• £10k – £20k -> 2% (max £200)
• £20k – £50k -> 3% (max £900)
• £50k – £250k -> 4% (max £8,000)

Example: If I buy multiple properties for a total of £30,000 value in the secondary market, I will be paid £900 to do so. Do not forget there’s a 1% fee when buying in the resale market. When taking that into account, the total cashback is £600.00.

Again, not a bad idea to incentivise investors to bring the resale market back to life.

Property Partner investing in a post-COVID world

Properties are valued every 3 months by an independent market surveyor. For a long time, properties trade at a much bigger discount (10-20%) to what the surveyor says they’re worth.

As with any financial market, it is not the locked AUM that set the price, but the direction of flows.

In plain English, more people want to sell than to buy in Property Partner. This can dramatically drop the price even if the sales taking place are only a small fraction of the overall invested amount.

Right now, it is a buyers market. Sellers have to really offer a discount to incentivize the buyer. There is no meet me in the middle.

The secondary market is on sale for quite a while. Selling relies on other investors buying in because for every seller you need a buyer. At the same time, independent surveyors value the properties at a much higher amount than what buyers are willing to offer. Who to trust?

So there is a big gap.

Who to trust? The resale market or the independent surveyors? Perhaps the resale sellers are knowingly wrong but this is what they are willing to pay to exit the Property Partner platform! However, there are some properties that trade at a premium!

Such as this Aberdeen university block of flats which has an almost-guaranteed rent leased to the university, despite uni properties being the last thing investors want.

So I don’t know, but here’s how I go about it.

Resale Market VS the Open Market

Luckily, Property Partner has existed for more than 5 years. As a result, some listings are now due for an ‘exit’. PP have to go to the open market and sell the properties.

Eventually, it is the open market that will decide whether resale investors are right or wrong. Wait until the 5-year exit mechanism kicks in, and see what the properties actually sell for!

Given the depressed secondary market prices, I would expect to see losses when selling at the open market.

But on the contrary, the latest selling records show that when Property Partner sells at the open market it has achieved a 25.4% total return for 5 years, so 5.2% per year after all fees and taxes (Sept 2021).

Here is the selling record, sorted from earliest to latest.

PP started listing properties in 2015, so most sales have taken place in 2020-2021 (5-year exit mechanism). You can also click on individual properties and find out more details in the description.

25.4% total return gives me hope! This total return is also based on initial listing prices. These were much higher than the depressed resale prices we see today. So all else being equal, returns should be higher for the “late” investor.

I also think PP shoot themselves in the foot by advertising the Resale market index first thing on the homepage.

As an investor, I don’t really care how much I can sell my properties in the secondary market right now. I mean.. ok, that’s good to know, but I’m more interested in what the actual value of my properties is in the real world.

See what I’m talking about, Resale market index below:

Property Resale Value index

And now look at the Independent Property Valuation picture which is NOT showing by default. This is basically what really matters as a long-term property investor.

Even worse, the Resale market does not show the total return I’m getting, half of which is typically dividends!!! See the selling record, dividend return is 13.0% out of the 25% total return.

As of their latest July report, average annual dividends are now 4.6% (3.6% after fees if you are investing <25k, 3.9% if >25k).

Not all properties are made equal

Even the Independent Property Valuation doesn’t paint the whole picture because it’s an average view.

Post-COVID everything has changed.

We have 2 kinds of properties. Those impacted by COVID (Purpose Built Student Accommodation (PBSA), city centre flats no garden) and those that are not. PP has a big chunk of university accommodation which is depressing the average index.

I would be much more interested in viewing the non-PBSA index and see how the other properties perform in aggregate. That will tell me whether Property Partner tracks the UK property market well which in total, has been doing well.

In any case, seeing positive numbers when waiting to sell at the open market is good news for me. Property should not be traded in/out every year. This is also what people do with the traditional Buy-to-Let. They hold on to it for at least 5-10 years.

Overall, these are the stats I’m interested in and in the following order:

• How much has Property Partner made for investors over time (based on RICS valuations and actual sales if possible)
• What is the non-student-accommodation property price index
• What is the resale market value over time (the current PPX All-share index)

The last time they had reported the Total return for investors, was in March 2020 and without taking Covid revaluations into account. That was 5.7% per year.

My personal stats

When it comes to picking properties you can say that I’m a terrible investor (or just say unlucky 😉 )

In my personal portfolio, in November 2019, a few months before COVID I wrote:

As of end of 2019, the average return since Property Partner launched (2015) is 6% per year if properties are sold as whole units. However, if we follow the intended method of sale, which is to sell units one by one, then Property Partner has achieved a 9.6% total return since launch. That’s a big if, but Property Partner has already managed to sell 4 properties so far.

November 2019

It’s nice to see that this is actually happening. More and more unit blocks are being sold as separate units to either enhance the property balance sheet or pay down the mortgage.

Judging from their selling record, 23 properties have now been either sold or offer-agreed.

They typically buy in bulk and then offer higher “break-up” value to investors.

I also wrote:

My personal returns are 5.67% after fees so around 6.5-7% before fees in the last 12 months.

November 2019

Post-COVID, the picture is pretty bad! 1/3rd of my portfolio is university accommodation so overall I am down 8% in total! This hurts and I am not sure if / when the PBSA situation will improve.

Excluding my university investments, my personal returns are 3.2% after fees. If we include my development loans, then my portfolio is up 5.7%.

Speaking of which, I think the development loans have had a good run and are not getting enough attention. I know some people who only invest in development loans.

University accommodation investing (PBSA):

The love for the sector comes because as an LTD company investor I prefer a dividend-heavy portfolio. The tax advantages are just massive. See my previous post on How taxes work at Property Partner.

You might be one of the lucky ones that invested in Aberdeen PBSA where Robert Gordon University guarantees the rent. The rent is even linked to RPI inflation so goes up every year! As if that’s not enough, the property was revalued to 2m, an 8.1% increase.

I will continue to collect the rent from my university accommodation, which surprisingly some universities pay. For example, the PBSA in Newcastle-upon-Tyne has actually increased the dividend from 4.0 to 4.5% and it’s currently trading at 0 discount/premium.

That’s not the case with my Bangor, Wales PBSA which has been a disaster (-47.55%).

At least the development loan in my portfolio compensates for that. 9.5% annual return, partially repaid and progressing.

One thing to note on Property Partner pages: The dividends (rent) is now being quoted AFTER fees which is nice.

Is now a good time to invest with Property Partner?

There are some big discounts in the property resale market that can prove to be good investment entry points.

If those discounts are real, meaning the properties can sell at their RICS valuation then things look good.

Having said that, I would like to see how the Better acquisition will play out before investing. I want to see what kind of new properties will bring to the platform and how they will communicate/treat investors.

Perhaps if you are willing to allocate a certain amount to property, add a percentage to Property Partner and gradually enter or exit accordingly. It is what I have been doing with my experiment.

Some people were hesitant to invest with Property Partner because it’s a small company with an uncertain future. I believe PP will be in a much better position financially speaking now that is backed by such a huge US company with plans to go public in Q4 2021 ($7.7bn valuation).

Also, Better have just bought another UK company, Trussle, which is a popular UK mortgage provider. I’m sure there are synergies at play again here.

All things considered, if you want full control of your properties then you can’t beat the traditional buy-to-let route. It’s just not for me, not yet at least 🙂

As always, I cannot provide any advice and you are responsible for your investment gains and losses respectively.

It has been a tough ride! Perhaps you, like me, have invested in university accommodation and are experiencing losses too. Especially in a booming property market that’s not great to see!

It also shows the power of diversification. Property makes up about 15% of my portfolio. Invest in multiple assets, regardless of how confident you are. Covid is a bright reminder that not everything can be known upfront…

Other property choices can include the traditional Buy-to-let route which gives you the ultimate control or REITs. I have previously mentioned Real Estate Investment Trusts where you can get exposure to commercial property managed by a team of experts. They are also completely hands-off (except the research part!) but more highly correlated with the rest of the stock market.

Right now some UK REITs trade at big discounts to their net asset value, like BMO BREI, Standard life Investment trust (SLI) and SREI that pay dividends.

All things considered, I see the Property Partner acquisition as a good thing. Lower fees, liquidity improvement and more property choices. Whether what’s promised is delivered remains to be seen…

Until then, I want to hear from you… How has your Buy-to-Let or PP portfolio performed? Are you doing something different, perhaps Airbnb? Are you happy with your property investments?

On a related note, I believe it is a good time I interview Property Partner and clarify some of the above and their future plans. What would you like to ask? Post your questions below.

As a reminder, if you want to support this blog consider signing up to Property Partner using my affiliate link. Helps me and the blog to keep going. Disclaimer: This is not financial advice and you are liable for any losses. As always do your own research!