Octopus property

[PositronicRay]

What do we think about the above? It's been recommended to me my IFA, I've been dealing with him for yrs, and pretty happy.

I've around £120k which I'll require for a House Purchase, anytime in the next 18 months.

He tells me it'll generate 4.5%, secured against property with no more than 60% LTV with usually a quick withdrawal (tiny risk here) and only 5% being allocated to any individual investment so minimal risk here.

Seems too good to be true?

[blueg33]

We work with Octopus developing property that is sold into or funded by their investments. The returns are about right, Octopus look for a 6.25% net initial yield where were income stream is Government backed. This will net down to around 4%.

It is relatively risky and the prospectus should set that out. Do your research. I have some investments in similar funds (Puma Investments)but not vast amounts.

[ellroy]

You're taking on risk assets against an 18 months timescale when you know you're going to spend the cash?

Quite frankly he should not be recommending that to you in my opinion.

What about if there's a closed period on the fund, ignoring potential market movements, when you need the funds for your property purchase? Is he going to front up the cash at that point?

There were a number of closures of tradtional property funds for a few months last year for example, and those investors who took funds out at the end of the closed period took a haircut as well.

Octopus are a good, well known provider of Venture Capital/Enterprise type investments. They are not known as long only property managers, but I can't imagine they're looking at the same type of underlying bricks as those steady eddy long term property managers given their general focus.

[PositronicRay]

Thank's, I'm waiting for more details. I was surprised it was recommended, the guy's always been okay over the years I've been using him.

He felt in this instance ISA's would be wrong.

What's the alternative? I've already £30k in premium bonds and £20k with Santander, if Mrs PR signs up for some PB then that's £70k, so another £50k to find a short term home for.

[ellroy]

Over that timescale you should stick to cash, term accounts and the like. Not much return, but no downside risk of not being able to buy the property.

[The Hypno-Toad]

I thought Octopus only had gardens?

[WindyCommon]

ellroy said:

You're taking on risk assets against an 18 months timescale when you know you're going to spend the cash?

Quite frankly he should not be recommending that to you in my opinion.

What about if there's a closed period on the fund, ignoring potential market movements, when you need the funds for your property purchase? Is he going to front up the cash at that point?

There were a number of closures of tradtional property funds for a few months last year for example, and those investors who took funds out at the end of the closed period took a haircut as well.

Octopus are a good, well known provider of Venture Capital/Enterprise type investments. They are not known as long only property managers, but I can't imagine they're looking at the same type of underlying bricks as those steady eddy long term property managers given their general focus.

For balance (& I have no interest to declare) Octopus acquired an established property finance business called Dragonfly a few years ago. Their products are debt not equity so somewhat different to the "traditional property funds" referenced above.

[Ginge R]

PositronicRay said:

What do we think about the above? It's been recommended to me my IFA, I've been dealing with him for yrs, and pretty happy.

I've around £120k which I'll require for a House Purchase, anytime in the next 18 months.

He tells me it'll generate 4.5%, secured against property with no more than 60% LTV with usually a quick withdrawal (tiny risk here) and only 5% being allocated to any individual investment so minimal risk here.

Seems too good to be true?

We don't know the full facts, so it's impossible to say with any certainty, and I do like the Octopus property approach and solution - I'd just wonder if it's right for someone in your circumstances. Let's say it makes the gross 4.5%, say, £5400. Take off your adviser's fee, take off the Octopus fee.. what are you left with? A couple of grand? Is that worth the risk of unforeseeable dramatic loss and you not having sufficient cycle-time to recover? If you need that 120k in 18 months time for your home, would not simply keeping pace with inflation and house inflation drive your thinking to identify the best approach? What's more important, securing your home or the chance of making an extra grand or so?

[PositronicRay]

Thanks, I've some thinking to do.

[ellroy]

WindyCommon said:

For balance (& I have no interest to declare) Octopus acquired an established property finance business called Dragonfly a few years ago. Their products are debt not equity so somewhat different to the "traditional property funds" referenced above.

Thanks for the clarification, but my main point still stands. It's clearly not traditional bricks, but debt on an asset that fluctuates, is relatively illiquid and over a short term horizon? No thanks! If anything i'd be even more wary given the extra level of complexity and, as Ginge rightly points out, costs.

Nothing necessarily wrong with the underlying concept, in fact could be very interesting, but timescale and need trump all in this situation I think,

[blueg33]

I would want to know which Octopus fund? Some of their funds have primary care assets in them. These should be fairly safe as they have government backed income streams and 60 year leases. We sold £1 bn of these to an Octopus fund a couple of years ago. Some of the other assets are a bit more risky.