Thank you for showing an interest in working with us. We are incredibly passionate and proud of our business models, and their ability to generate safe, secure and substantial returns for investors and ourselves. Furthermore, we provide beautiful accommodation at affordable prices to our professional tenants. In what is a true WIN-WIN-WIN for all parties, this concept was the inspiration for our business name, Pareto Properties.

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There are 3 main ways in which investors can work with us:

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Option 1: Lending funds

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Depending on the specifics of the development project(s) we are working on, we may require funds for anything from 3 months up to 5 years – this can be discussed with the investor to suit their situation and requirements. We can pay interest of 6-10% per year, with interest payable on a monthly basis, on amounts of £10,000 or more. This option should be thought of as an alternative to parking your funds in a bank account – though we aren’t aware of any bank accounts paying such an attractive rate!

 

Who is this option for?

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• People who have savings/inheritance/redundancy sitting in a bank account paying them little or no interest (and actually decreasing in value each year due to inflation)

• Investors with a pension pot who want to generate a much higher return, or have more control over the returns it produces.

• Investors who want their cash to remain relatively liquid, with funds returned at the end of a pre-specified period

 

Option 2: A Joint Venture (JV)

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First, some preliminary information for options 2 and 3.

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An HMO is a “House in Multiple Occupation” (we can send you a separate document titled “How to Supercharge Your Property Investment Returns” if you would like to understand these in more detail). Essentially, we acquire a property, develop it, and rent it out on a room-by-room basis. It is a little bit like a student house but we rent only to high-quality working professionals and buy only in prime locations.

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There is strong demand for high-quality (“hotel standard”) rooms across the country as the cost of living continues to increase and house prices move steadily higher given a rising population and lack of new housing supply. Tenants living in one of our HMO’s enjoy a higher quality of living for less than they would pay if living alone – high-speed internet, cleaning of communal areas, regular gardening and top-quality furniture are all included in the price of the room. In addition, tenants don’t have to worry about paying bills, which are also included, and they can benefit from living with like-minded people.

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In property there is often a trade-off between achieving high rental yields and capital growth. Locations that are high yielding on a gross basis often have a lower quality of tenant, are fraught with management and maintenance challenges (which reduce the net yield), and typically do not benefit from strong capital growth. Conversely, in areas such as London and the South East yields are lower but capital growth has been very strong. We focus on properties located in a “sweet spot” where houses are affordably priced and rental income is proportionally very high. Properties can therefore generate a decent rental yield while still offering the potential for strong capital growth.

 

The JV details…

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A JV is a very exciting opportunity to invest with us, and benefit from the substantial rental income that ownership of an HMO generates. The structure of the JV is explained in greater detail in a separate “JV Proposal” document but, in short, we provide all of the expertise and do all of the work while the investor provides the upfront funds used to purchase and refurbish the house. Both parties share in the capital uplift and split the net rental income. Because of a shrewd purchase price and the value added during the refurbishment process (which is fully managed by us, using our trusted partners), a large proportion of the invested funds will be returned once the property is revalued and remortgaged to release the equity created (typically 6 months after purchase).

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Example

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1. Property is purchased for £200,000

2. Investor puts down £120,000 to fund the 25% deposit (£50,000), refurbishment (£60,000), and purchase costs (£10,000 for stamp duty etc.). The property is purchased in either the investor’s name, their limited company, or via an SPV in which both the investor and Pareto own a share.

3. Since the property was secured at a discount to the true market value, and after value is added during the refurbishment, the property is revalued at £300,000

4. The property is remortgaged at 75% LTV, resulting in a new mortgage of £225,000. This is used to repay the original £150,000 mortgage (75% of original £200,000 purchase price), and the remaining £75,000 is returned to the investor

5. The investor therefore has £45,000 “left in” the deal. This forms part of the £75,000 equity in the property, with the balance (£30,000) representing the additional capital uplift.

6. The property achieves gross rent of £36,000 per year (12% yield), or £500/month per room (assume 6 rooms since this is the optimal number for an HMO)

7. After paying the mortgage (5%), bills (£500pcm), and allowing for voids (5%) and maintenance costs (£100pcm), the property generate a net rental income of £15,750, or ~£1,000pcm after management fees

8. Each JV partner receives £500pcm in net rent after ALL costs, or £6,000 per year. This implies a 13% NET return on money left in from rental income alone.

9. When capital growth is factored in, the net return may be double this.

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Who is this opportunity for?

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1. Investors who have £100-150,000 to invest (the majority of this will be returned in the first 6-12 months, however)

2. Investors who are able to get a mortgage or, if not, have circa £300-350,000 to purchase and renovate the property without a mortgage.

3. Investors who want to benefit from substantial rental income, as well as capital growth.

4. Investors who want a long-term investment.

5. Investors who want to build a significant portfolio of high cash flowing properties.

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Who is this opportunity NOT for?

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1. Investors who want all of their cash to be liquid since it cannot be guaranteed how much of their funds will remain in the deal.

2. Investors who are only able to buy one property within the next couple of years.

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Option 3: A turn-key HMO solution

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Instead of owning the property together with Pareto Properties, the investor purchases the property from us. Rental returns, assuming a mortgage of ~75% LTV, are very high and the net return on money left in is around 7-10% (capital gains may add more). Net rental returns in London and the South East are closer to 2-5%.

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While there may be other properties available on the market to buy, investors may not be able to achieve the same level of rental income as from a property that we have set-up. Investors will have the complete confidence that the property has been totally renovated from top-to-bottom, is in fantastic condition, and management will be seamless. The property will have been purpose built to achieve the strongest rents possible.

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Who is this opportunity for?

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1. Investors who want a fantastic rental return, far greater than they might get in other areas of the country or through a vanilla buy-to-let (BTL)

2. Investors who want the flexibility of being able to sell when they want. Conversely, a JV (option 2 above) is intended to be a long-term investment and partnership.

3. Investors who want a slightly lower return compared with the JV model, though prefer to retain 100% ownership of the property

 

Who is this opportunity not for?

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1. Investors who want/need to recycle all their money out of the deal.

   1. Typically, £40,000-80,000 will be needed for the deposit, stamp duty and perhaps a very light refurb.

   2. Alternatively, the property can be bought for cash for £250,000-£350,000 depending on the location and economics of the property.

   3. When the property value has increased, the property can be re-mortgaged to release the investors’ funds.

 

Next Steps...​

If you would like to have more detail on the numbers or strategy before you move forward, please email or call to arrange a meeting.

 

We hope to have the opportunity to work with you soon.