Property Partner Returns: How much can you really make?

On this post, I examine my Property Partner returns since I started investing in late 2018. I quite like the idea of investing in a passive property portfolio. I can literally pick properties from the comfort of my sofa.

This is part of my Property Partner investment series. You can find all the previous articles here.

The ability to buy/sell properties to other investors in the secondary market makes it an incredible tool. It was for me what businesses call the unique selling point. But making money is the primary goal of my investments so here are some facts about Property Partner so far.

Property Partner Returns

What returns can you expect with Property Partner? Well, the historical return since the platform started is now 6%. Rental income accounts for 4.7% and 1.3% comes from property appreciation (capital gains).

Although up to 2018, Property Partner returns were at 7.3%, the stagnation in property prices has brought the returns down to 6%.

That’s not surprising given property prices have stopped growing like crazy after the referendum. Time for the North to shine and London and the South to mean revert to lower levels. Looks like my thinking was right to avoid London and focus on the “Northern Powerhouse”. That’s Newcastle, Manchester, Sheffield and Liverpool in 2018, and still is.

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. They wanted to prove that the selling method works. They even sold them higher than the RICS valuation. PP has a big advantage buying in bulk compared to me investing on my own. I wouldn’t be able to afford a mortgage on this huge castle shown below! But PP managed to buy it and sell a single unit recently for a 95% capital gain on investor’s equity.

I don’t expect such a huge gain in future units sold, but I expect some extra “break up” value. All property units go through a RICS valuation every 6 months. But it’s still a bit early to say whether the RICS valuations are right. That’s because most properties are only now slowly approaching their 5-year exit point.

However, I think an independent RICS valuation is the closest thing we have to accurate property pricing. In most cases, they know what they’re doing better than I do so I’ll take that.

A rock-solid Property Partner portfolio

Investing in the North proved to be the right thing to do so far! It’s also probably the reason that this year I’ve outperformed the Property Partner all-property portfolio by ~3%.

PP has returned 3.5% during Oct 18 – Oct 19 across all properties. My personal returns are 5.67% after fees so around 6.5-7% before fees in the last 12 months.

The selected one in Newcastle is a Purpose-built Student Accommodation (PBSA) which is a trendy term lately. It was one of the first investments I made for a 7% annual dividend (rent). I was happy to take such a good yearly rent in our low-yield environment. I was also thinking I’m providing a nest to a foreign student studying for exams partying in his 20s.

I’ve previously mentioned it makes sense for me to invest for income rather than growth. That’s because I invest as a limited company where dividends (rent) are tax-free. As an individual, the first £2,000 of dividends per tax year are also tax-free. Then you’re taxed depending on your income level. More about property partner taxes on this link.

But income should not be the only criterion. In fact, the biggest gains in property come from the property prices going up in value, not rent. Partly, that’s because properties are leveraged with a mortgage. In PP, mortgages usually come at 50% LTV. So at a 50% loan-to-value (LTV), a 5% gain is really 10%. Even higher if the loan is bigger.

But it’s a double-edged sword in the short term… Just look at this Surrey Quays property that has fallen by -35% since PP bought it in 2016! You can now buy shares for 40p each but PP bought it for 59.36p per share in 2016! Another reason why diversification is super important when investing in property.

PP makes it much easier for me to diversify without having a £1m to invest in multiple buy-to-lets.

Some properties may have a bad run but the more properties you invest the smoother the ride. Personally, I think 15-20 properties are more than enough to get a good risk/return profile. I built my portfolio slowly and I kept buying existing holdings on the resale market. Here are some properties I’ve invested in.

My Newcastle property paid its rent to the last penny. But the uni building lost some property value according to the latest valuation. Hence the 2.89% total return.

Then this Manchester property makes more than 10% of my portfolio and has done well. Despite the drop in rent, it has increased by more than 10% since 2016. It trades at a hefty -16% discount right now. My other Manchester property (Agecroft apartments) has not increased at all since its 2017 levels which is why I bought recently.

Although I’m investing for income, I like to keep an open mind. If I see an opportunity for a 10% capital growth return in a year then I’ll snap it up without second thoughts. Tax on profits is better than tax loss harvesting ;) I’ll shortly explain how I go about selecting properties on Property Partner.

I believe lots of properties are trading at more than -10% discount due to the recent fee hike. After fees went up I had to make a decision. I either invest more money to drop the total fees or I pull out at discounted levels. I chose the first route.

Given the discounts in properties right now and the fact I still trust the people I’ve met behind Property Partner, I see this is as a good opportunity to buy more. This also drops my fees further now that I have a >£20,000 portfolio.

How I select properties on Property Partner

Selecting properties myself is harder than investing in passive mode. Property Partner offers 3 investment plans for investing in property. You just pick your investment style (Growth, Income or Balanced) and they do the rest.

I think this is a great way for investors to allocate money in multiple properties. However, not everyone likes to do that. Personally, I like to pick properties myself and be more in control. This comes at the risk of underperforming the Property Partner market.

So far, I’m beating the “index” maybe that’s just due to pure luck! Anyway, here’s how I select properties on Property Partner on the resale market.

1. Decide on investment style

First, I decide on investment style. Income means buying properties that pay good rent. I define good rent as 5% dividends or higher. Some examples are the Stalybridge property and university PBSA units such as this one and this one.

Growth means that properties have a good chance of appreciating in value. I don’t expect PBSA’s price to outperform a flat in Liverpool, therefore, I’m getting higher rent now at the cost of future returns.

Obviously, if you can get both that’ll be a nice advantage which is why sometimes I will invest in properties trading at a big discount while offering at least a 3% rent. Right now, there are plenty of these.

2. Sort by cheapest properties first

This is value investing applied to property. Property Partner offers a nice feature where you can list all properties in Data View. From the menu, click on Properties -> Data View -> Premium on Latest Valuation

If you click on Premium on Latest Valuation you can sort by highest or lowest premium which is awesome. I will usually select the All properties-by-page button at the bottom to get an entire view of the PP portfolio. It’ll look something like this.

3. Focus on properties matching your criteria

Starting from the top, I try to match as many of my criteria as possible. My criteria are as follows:

• Discount compared to the latest valuation.
• Not London or Southeast (for now)
• Higher than 3% rental yield
• Nothing obviously wrong with the property (like rent suspended due to fire investigation, etc)

A rent reduction is usually not a worry. Similar to how an aeroplane crash should actually make the airline’s next journey much safer because all eyes are on this! Usually, a drop in rent is followed by investors overreacting and panic selling. This makes up for the lost rent and then some.

If I want to make a big purchase, say £5,000 on a single property and I’m not sure, then I will also have a look at the RICS notes. When RICS make an estimate, they leave notes explaining each property valuation. You can download the RICS notes from Property Partner’s revaluation blog post. They mention “comparable information provided by Allsop” with a link.

I love the transparency on this one.

Sometimes finding the area to invest in is only half the battle. For example, I have two properties in Manchester, one is up 5% and another one stayed at last year’s levels. If I look at the RICS notes for my property I see this:

How awesome is that for finding answers in niche streets.

I think it’d be easier if PP could expose these notes per property, rather than having to download a document and search but I’m not that bothered.

Last but not least, the 5-year exit mechanic is something to look out for. It’s still early to say and there are simply not enough properties that have gone through the selling process. But I believe I will find good discounts to buy properties just a month or two before the exit. This way if PP can sell at the RICS levels then I will make a nice arbitrage. Stay tuned on this one.

4. Bid or Buy

Once I’ve selected a few properties I like, then, I will look at the bid/ask spread. If there is a big gap between buyers (green) and sellers (blue) then it’s worth bidding at a price higher than the highest buyer. A big spread means that buyers and sellers don’t really agree with each other while nobody is giving in!

I will keep my bid live for a week or so. Most of the times it will execute depending on liquidity. But sometimes, I will just buy from the lowest seller, especially if the property is trading at a discount and the spread is small.

Tip: Bidding does not reserve your funds. This means you can actually bid on multiple properties with a fixed sum of money and just wait for them to execute!

Latest property funding:

Final Thoughts

The returns have been OK in a tough environment for property. Although the global stock market hits all-time highs every year, I find comfort knowing that my property portfolio does not move in line with my stocks. This is what this bucket is for.

Diversification does not mean that all assets in your portfolio should do well. If this happens consistently then your portfolio is too concentrated. I like alternatives and want to have a more predictable passive income from rent too.

Lately, I’m flirting with the idea of development loans to boost my returns. Dev loans started about a year ago and can go tax-free in an ISA. Property Partner has started issuing more development loans recently, usually once a month. They have now started paying back investors as the old loans are now completing.

My only worry is that the loans are usually “second charge” meaning that the first charge in the case of default goes to the senior lender. However, the fact that the owner of the development company can provide a personal guarantee over the full value of the loan is very positive.

Therefore, I have just invested in my first development loan and will keep an eye on these opportunities. I should probably write a post explaining how development loans work.

How have your returns performed? Or what holds you back from investing?

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!