Ah yes, the joyous marketing term “passive property investment” or “arm chair investment” – another remnant of the property boom. So what is a passive property investment, and moreover, should you invest in one? Lets look at some of the evidence.
Some of you who have been in property la-la land or a while will remember there was even a company called Passive Investments. Now, in case you don’t know, the company had an unsustainable business model which eventually led to it going bust. The man at the top Andy Shaw wrote several ( terrible) books about investing in property. He hopped it to Cyprus for a while to escape angry investors who lost multi-thousands of pounds. He has now re-invented himself as a ‘wealth creation expert.’ *cough*
What Doe Passive Investment Really Mean?
A passive investment is a term coined to explain, or more correctly, to market any type of investment that is considered ‘hands off.” In a nutshell, if someone wants to take money off you by offering a deal where they do all the work and you are not involved at all, then it’s considered a passive investment. Now, I understand that many folks interested in property might feel that they don’t know enough to run an investment themselves, which is why a passive property investment may seem appealing.BUT! It must be approached with extreme caution.
You must realise that by removing ALL your control you open yourself up to being ripped off. A lot of things can and do go wrong in property investing markets, and, if you hand over full control you may know nothing about it until it’s too late. Almost all off plan property is ‘passive’ in some way because you trust that those who set up the deals know what they are doing and allow them to dictate terms. Passive investments are often the most common arenas where folks get sucked into scams. Here’s a few examples:
- Land banking.
- Property portfolio building on your behalf ( Like Passive Investments/ Inside Track etc.)
- Off Plan in foreign destinations ( Like Harlequin Property.)
- Fully managed student lets.( Particularly in new blocks.)
- Full refurbishments where extensions have followed the letter of the law/conditions
- Fully managed HMO’s.
- More
I could go on, but I am hoping you get the idea. This is I think of it: If its Hands Off – It’s High Risk
Now there is nothing wrong with those who like a high risk project, they would probably argue that this means a higher return – usually. The higher the return, the higher the risk is a general investment rule. Here’s the thing, if somebody wants a big wedge of cash upfront, there is probably more in it for them than for you.
Off Plan- High Risk Passive Investments
Lets look at off plan property. Make no mistake this is THE highest risk in property investing. They use all their own people ( no outside independents) to do valuations and legal contracts etc. Effectively they will try to predict whether a market will grow and at what price. Then they seek YOUR money to make it happen. Think of Spain, Cyprus Greece….Surely anyone can see that this is just a long term way of gambling, often with huge sums of other peoples money. Have you ever seen proof that they have put their own money in?
With that in mind here are a few simple things to remember before placing any cash with anyone:
- Check the company out, how long have they been trading, what is the press like across the internet?
- Be very skeptical of quotes like BMV ( below market value- this is a nonsense marketing term), No Money Down,Passive Investment, portfolio building, hands off, or armchair investment.
- Get their terms and conditions checked by legal specialists.
- Talk to other real investors- not just the salesmen who earn a commission for their blarney.
- Remember that off plan deals often state in the contract that you will be forced to complete on a sale even if expected values drop in the interim.
- Don’t get swayed by glossy brochures and sales patter.
- Invest with someone you know and trust.
- Make sure any agreements you sign are not detrimental to you.
And, finally, be aware that marketers use these catchwords for a reason- to make something sound better than it actually is. That’s marketing, folks!
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Janet Trowell Discountletting.co.uk Join me on Twitter LinkedIn