How to Create Effective Property Investment Strategies

More and more Ultra-high-net-worth individuals (UHNWIs) and their families are choosing to cut out the middleman when it comes to their investment portfolios by setting up a dedicated family office: and property is no exception.

Knight Frank, through their 2019 Wealth Report came up with a number of key factors that those looking to create a property investment strategy should consider.

The factors came about from the firm’s conversations with a number of private investors looking to take greater control of their property assets. Based on those conversations, here are some of the points:

1. Be patient

Real estate markets are cyclical and linked to many factors, including the strength of the economy.

Private investors and family offices can afford to wait for the right point in the cycle to invest, unlike institutional investors who can be under constant pressure to deploy capital.

Private investors should wait for the right opportunities to maximize returns, avoiding unnecessary market and asset risk.

2. Do not chase yield at any cost

With capital appreciation hard to underwrite in any investment sector at the moment, the yield is often the main target. But this may be found in secondary markets that could be more vulnerable to any financial downturn, so don’t chase yield at any cost.

Private investors need to have a clear strategy – and to accept that it may not be possible to achieve the same level of diversification as is offered by managed funds. They must also recognize that there will probably need to be trade-offs between yield and growth.

3. Taking control does not mean going it alone

We have seen an increase in the number of private investors and family offices looking to get involved in co-investments or joint ventures with other private investors or families.

This can help spread risk, create diversification, open up new sectors and provide access to larger deals, while still retaining a level of control.

4. Your best advisers could be your children

Many emerging property sectors, such as last-mile logistics hubs, are being driven by new trends in technology, consumption, and demographic changes.

The younger generation is often more in tune with the “next big thing”, so getting children involved as early as possible in the management of property portfolios is not just part of any sensible succession plan; it could well prove to be commercially astute.

We have seen examples of where this has been done well, and not so well. Relinquishing some control and sharing responsibility generally creates the strongest family partnerships.

5. Keep it simple

Increasingly, governments around the world are clamping down on investment structures that, while often perfectly legal, are deemed to be designed to avoid the payment of tax.

Such structures are often complex and expensive to set up and may well affect portfolio liquidity. Tax planning is, of course, important, but when it comes to property it is very often the case that simple is best.