The New Zealand Government has introduced a number of changes to regulations and obligations governing investment property owners over the last few years.
Removing tax deductibility for property investors, an extension of the brightline test – where income tax may need to be paid on sales of residential property owned for under 10 years – and changes to tenancy law have led to many investors considering a wider range of investment options, including managed property funds.
Funds like Classic Capital’s Land & Build Fund provide solid returns and stability for investors looking for a dependable, indirect property investment. But what are the ins and outs of investing in a property fund?
Top tips for investing in a fund:
Ray Gatfield, Corporate Investor Manager at Classic Capital – a property fund management business which is part of the Classic Group – says there are a number of important factors to consider before investing in a fund.
“The key thing to do before you make the decision to commit to any investment is to do your homework. You need to make sure you’re comfortable with who you’re investing with, and what they’re investing in.”
“Something my wife always says to me is ‘cash is king’, and that’s absolutely true. Before you invest, it’s really important to look at the liquidity and lifeblood of the business you’re considering investing in and make sure there is the availability of funds to get your money back out.”
Seeking advice from independent, qualified professionals is also essential. Consulting with your lawyer, accountant or financial advisor is a must, says Ray.
“They will be able to give you advice with respect to whether the risk return makes sense to you at your age and stage (of investing). We always encourage people to go down that road before making investment decisions.”
The process of investing:
Once you have sought proper advice and made the decision to invest in a property fund, how do you go about signing up?
The process of investing in Classic Capital’s Land & Build Fund – a new capital-raising investment fund used to build and sell houses which offers a fixed return of 7.5% per annum with return payments made quarterly – is straight forward, and backed by a rigorous process.
“With the Land & Build Fund, we’ve got a strong governance and regulatory framework that we work within which requires us to collect information from potential investors,” says Ray.
“This includes making sure potential investors are ‘wholesale investors’ – in other words. people or organisations who have sufficient previous investing experience that means they don’t require disclosure. We also cover off compliance with anti-money laundering regulations.”
Once these conditions have been met, an agreement on provision of funds is drafted by external legal counsel. “Once this is signed, then it’s about getting funds in and getting money back to investors every three months,” says Ray.
What are the benefits of investing in a fund?
Different property funds bring with them different benefits, including security of investment, removal of landlord obligations for investors, and low ongoing commitments to manage the investment.
“The Land & Build Fund provides a passive investment,” says Ray. “There’s no management, you basically fix and forget for the initial 12-month term.
“The fund provides a regular income source which doesn’t fluctuate. You get a fixed income every quarter paid into your bank, secured by a first and only mortgage over the development properties.”
The Land & Build Fund offers a fixed return of 7.5% per annum, with return payments made quarterly. The minimum investment amount is $250,000 NZD for wholesale investors that meet Financial Markets Conduct Act 2013 criteria.
The fund has a minimum commitment is 12 months, with a 90-day notice of withdrawal period required thereafter, allowing investors flexibility to assess their position every quarter.
It is backed by the Classic Group, which has a sound track record developed over more than 25 years working in New Zealand’s building sector.
Ray says: “From our fund, you receive passive income, and good knowledge that the people you’re investing with have been doing this for quite some time.”
“We are using the funds to build quality homes, so there’s something tangible underpinning the capital that can be sold, providing piece of mind for investors interested in pursuing an alternative investment by investing in property funds.”