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We’re not short on news here in the UK about the worldwide spread and effect of the coronavirus. One of the most impactful ramifications of the virus has been on the markets across the world, particularly in China, where there has been a 10-11% decline in stock markets. Stocks are renowned for their volatility, so world events such as these can have a great, global effect on investors. These markets see huge waves of increasing stocks, but equally as we’ve seen in the last five days, you can also see huge waves of decreasing stock. The clients that we work with here at DJF Asset Management, some of them have been investing in equities for decades now, they’re looking for something a little more stable – and this is where real estate comes into its own.

For last four years I’ve been working in investing my own money, family’s money and clients’ money into more stable income producing assets, be that direct investment in real estate, or passive investment (where you’re not the developer, but rather the lender) in real estate. We’re going to go into depth today about the positives of working in real estate, verses the positives of stock market investing – to see how these two strategies differ.

In the last year alone, the S&P 500 Index, which is the stock market measuring stock performance of 500 large companies in the United States and one of the main stock markets, underwent a growth of 30% in 2019. However, this week alone has seen a decline of 10-11%. That means in the last year we’ve seen massive growth, but we’re also seeing big losses. If you’ve been an investor for awhile, imagine taking a hit as big as 10% to your entire portfolio. You might be at a stage in your life where you’re reliant on that income, so it might well hit you quite hard.

Here at DJF Asset Management, we deliver returns of between 8-10% on average back to our clients every year. For the last two years we’ve been working, we’ve been delivering an average of just over 9.2% in paid monthly income. It’s not going to be compounding interest, but with a lot of our clients being aged anywhere between 40-60 years old, this is what they’re looking for in their lifestyle – a preservation of wealth and an income that will support their lifestyle. These clients are not typically looking to grow their wealth massively, but more-so looking for protection. They may well have different investment strategies across the board, but this is how we manage their money. Such competitive returns of 8-10%, looking back over the last 30 years, that’s pretty much identical to the annual return of investments in the stock market. However, the big positive that we have over the stock market is the safer investment, the client doesn’t suffer from great ups and downs in their investment, Instead, each month they get their return check of 400, 800, 2000, dependent on what they’ve invested, and that goes towards supporting their lifestyle as well as protecting their nest egg of, let’s say, a £100,000 investment in a property.

Property is exceptionally liquid, so when you’re buying and selling a property, you’re looking at least 12 weeks down the line – from an offer being accepted, to purchasing a property, and exchanging and transacting on the deal. The process by which we protect our investors is simple. We’ve got a house that requires a loan, we send our a chartered surveyor – someone employed by banks to value an asset (house, flat, plot of land etc.), and we have this report before we lend any money. Let’s say this house is worth £100,000, at DJF Asset Management, we lend at 75% of the value of the property. The asset is likely distressed and purchased by an investor itself, with the lending of another investor. Our typical client is a portfolio landlord, that might have a portfolio of income producing assets, residential properties, potentially offices, buy-to-lets and houses of multiple occupancy (HMOs), and they might also have their own PAYE income stream. The investor purchasing the property renovates the property, they might pop in a new kitchen, new bathroom or just spruce the place up by painting and decorating. It’ll then be refinanced with a much higher value afterwards. By the time that little house has been renovated and cleaned up, the new value may then be £120,000. This might then be refinanced with a £90,000 mortgage, to pay out the £75,000, which would be equivalent to less than a 66% loan to value. With mortgage products out on the market, you’d be able to acquire buy-to-let finance up to 80%, so as a maximum we’d be able to release up to £100,000 against that property.

So that’s our investors protected. With our investors earning 8-10% on their money, comparing this to £75,000 on the stock market, which could fluctuate extensively. Putting the same amount of money into a liquid asset, like property, is going to be a store of wealth. While there’s not going to be huge volatility on it, if the market does come down a little, you know that the house has been renovated to a good spec and that the value of this loan is not likely to erode. In the event of default, the property can be repossessed and sold for up to a 25% discount, and we would still be able to recoup all our monies. With it being liquid and the nature of the property market, you’re not going to be able to get in and out of this type of investment too quickly, but you’re not going to be suffering too many fluctuations as a result.

We hope this article has been helpful for you, and topical with the impact that the coronavirus is having on equity markets globally. This is just scratching the tip of the iceberg, and there’s likely to be a continued ‘correction’ on these last few years of great growth in equities we’ve been seeing as a result of the coronavirus. If you have any questions following this article, please don’t hesitate to get in touch with us. You can reach us through our website contact forms, by emailing us at info@djfam.co.uk, by calling us at 0207199648, or through our social channels! Don’t forget to share this article with anyone you think might find it helpful, and check out our YouTube channel for more finance and property investment topics.