high yield property investment by adavo

Q: How long does each joint venture last?

Each joint venture project lasts between 3-6 months. The contract term can range from 6 months to 3 years plus and is severable at the end of property sale. The typical contract term is a 3 year agreement. We listened to 100’s of investors, IFA’s and institutions, and we found that people are looking for two major things; capital security and flexible timescales. That’s why we guarantee our product and it’s also the driving factor behind the break clause at the end of each cycle. If we aren't performing then you can walk away after your first deal. At the end of the term, your capital is returned in full and you can then choose to continue or move on. The choice of terms and the break clause gives each joint venture great flexibility for private individuals, corporates and institutions.

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Q: How can you deliver such high returns per year?

You are investing directly with Adavo. There is no middle man, bank or third party so we don't have to cover all their fees and charges. Adavo ends up paying largely the same amount as it would for standard debt, but instead of paying it to the banks and their enforced supply chain we pay it to you. Our margins are excellent and we are simply reproducing the same product over and over again. Property development is a profitable business but the bottleneck is in the financing, which is where our joint ventures come to the fore.

We buy at a 20% discount and then increase the value of the property by 10-15% through renovations. This gives us a gross margin of 30-35%. Once all the costs are accounted for a net profit of 15% is expected each time which, when split 50:50, gives the 7.5% return to the JV parter per cycle. It is comfortably deliverable and we have spent years developing the know-how and systems to ensure its success.

We are highly experienced in buying, renovating, letting and selling properties using this established business model. The assets we create are desirable properties with good yields and strong demand in both lettings and sales. This is a simple business that we have spent years perfecting which allows us to consistently deliver these returns year by year. It is a robust model with several good exit strategies and the percentage chance of all exits not working is very minimal. This model worked well even at the height of the credit crunch.

There is an efficiency by trading direct which we both benefit from. Banks can charge in excess of £1,500 for valuation fees (!) while we contract the same firms directly for between £125-£250. Admin fees can be £1,995 per deal while early redemption fees of 2-3% can mean £3,000-£4,500 in cost. Take these fees into consideration and the subsequent mortgage payment or bridging fees is broadly in line with the return we pay on our joint ventures. The difference here is that you take all the profit rather than the banks. They have been uncompetitive in the extreme which forces innovation and produces things like our joint ventures. Simply put; we're just tired of paying faceless banks huge amount of money for poor service - we'd much rather pay you instead.

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Q: How can you guarantee my capital?

We have spent years refining a business model that is as low risk as possible. We guarantee all invested capital because we have a full commmand of what the money is to be used for, how it will be used and the timescale it will be used in. Our tight control ensures that the appropriate checks and balances are in place which provides the foundation for offering a guarantee.

There are two important features of all property investment with Adavo. Firstly any property bought via a joint venture is owned by the JV partner in full. You own the title deeds to any property that your funds have been used to purchase. This ensures that in any event that property is solely yours and we nor our creditors have any claim to it. Secondly Adavo does not hold any cash on account; we simply invoice the fees and renovations costs set out in the JV agreement. This gives the joint venture transparency and offers you full financial control with sign off at each stage.

These structural features of investment with Adavo lay the foundation for a risk-managed investment process which has a significant safety margin built in from the outset. Every property we purchase comes with a RICS valuation of its current market value and an assessment of its market value after renovation works have upgraded the value of the property. We buy at a discount from this valuation which means that as soon as the property is purchased there is a margin of safety that protects against a drop in current market prices.

Simply put, if we buy at a discount on day one then in order for us to lose money the market has to drop below that discount level to leave the investment in the red. The typical difference between the purchase price and end value after renovation is around 30%-35% which means the market has to fall by that amount to trigger the need for the guarantee to be used. The business model mitigates this risk by the fact that it is a trading strategy lasting 3-6 months. The biggest fall in one month in UK history is 2.8%. To drop by 30% in six months would mean that record would need to double and maintain that record rate for half a year; which is highly unlikely. Trading properties offers an inherent protection from movements in the market as we are not ebbing and flowing with general market prices, we are in and out in a short timescale.

Should the guarantee ever be needed then Adavo has its own assets (which we are building year by year) with which to reinburse any shortfall from the capital value of your investment. It is a very well protected and risk managed investment process.

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Q: How do I know my money is safe?

Your capital is 100% protected at all times by your ownership of the title deeds and Adavo's guarantee of any shortfall. We have considered every step of the process and selected the best, most secure option to build safety into the core mechanism. This meant ensuring that all properties are owned by the JV partner and not holding any money on account.

The account has set criteria and covenants meaning the money can only be used for asset purchase, associated costs and renovations. This ensures the cash is spent where it should be and physically cannot move otherwise. The advanced capital is separated so that even in the event of insolvency, it cannot be used to pay the partnership’s creditors. Due to the structure, we believe this to be one of the safest models available on the market today.

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Q: Can I re-invest at the end of the term?

Yes. Subject to demand and timing, you can opt to re-invest. Preference is given to existing investors ahead of new.

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Q: How many deals have been completed successfully?

We have bought, renovated, let or sold well over 200 properties throughout our careers. This is an established model that works through any part of the property cycle. The volume of deals done is adjusted in accordance with the market, but because each deal is stand alone and does not require any mortgage lending to work the execution of each deal is very straight forward.

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Q: Is the re-sale of the property secured?

Yes. Our secured exit strategy means that we put the end sale in place before we begin each joint venture. This allows us to deliver a world class investment experience for both parties; joint venture partner and end buyer. The end buyer knows that we will fulfill their order of a fully renovated, fully furnished property while the joint venture partner has a secured exit in place from the outset.

Demand is strong at present but it helps to know what the contingency plan is if things don't go as expected. Should the sale fall through for any reason we will look to replace it will another end buyer or if none can be found immediately we will take the property to market and present it for sale with a top of the range furniture pack and dressings. If we can't sell the property after an agreed period we will conduct a review of the property to see if the positioning is accurate and the renovations standard high enough. If we are trying to market to students when the property is more suited to families it may simply require a change of presentation. Our properties are well presented across the board and tend to fit several markets but it is always a possibility that an increased focus on one area of the market will improve sales.

If we are struggling to sell the property then we will consider renting the property out and selling it as an incoming-producing investment in the buy-to-let market. This route is standard in the student aspect of the market and works well. If the capital being tied up is proving a problem we will look to repay the capital from our profits on other joint ventures and simply buy out the JV partner. The property would then become part of Adavo's own portfolio and the joint venture partner would be free to buy another property or move on. This exit would be subject to our cash position at the time of sale.

The high likelihood is that in any circumstance the asset will be worth considerably more than the capital used due to discounted property purchase and subsequent renovation. As a fallback position it is very reassuring to know that your capital is still backed by an asset even if the property takes longer to sell than expected.

Fortunately demand is not, and never has been, the problem during the credit crunch. The availability of finance is the stumbling block for most, not the willingness to buy. Our existing investors have continued to buy throughout the recession and demand looks to be increasing in the private residential market as we end the recession and begin the recovery.

There is also a ‘safety in numbers’ element to our business. It is true that if only one deal was done then the sale of that one property would key to achieving the return. However, as the volume increases then the effect of a particular house not selling is minimized. Mathematically we would need the majority, and a significant majority at that, to falter in order to run into problems. At present all major house builders are reinstating dividends and reporting returns to healthy sales which offers further comfort in this post-credit crunch era.

It’s a natural question that most ask, but experience tells us that a well presented property tailored to its target market will sell within a 2 month timescale of taking it to market. Add to this the returns that each asset generates in terms of yields, and we trade in a very saleable commodity. Average houses sell in around 5-6 months at present; we sell exceptional property investments and so we sell them ahead of the normal residential market. There is also the income from lettings and, if it is the preferred option, we also have the ability to acquire mortgage debt.

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Q: What does the legal charge mean?

A big part of the design has been to take a considered look at the recourse available to each investor should the deal not go according to plan. We have engaged with investors and industry professionals alike to listen to their experiences and incorporate the solutions into our collateral product.

One of the most common reason property companies fail is to do with the guarantees they offer. Guarantees are made which only fit a certain point in the cycle, and when the market naturally moves on the company folds because the guarantees no longer fit the market. Guaranteed rent is the most common example of this.

When such companies collapse, the guarantees prove worthless because they were dependent of the companies being a going concern. This common problem can be designed around by ensuring that the JV partner owns the asset. This gives the guarantee substance beyond Adavo Property.

Each investor has the security of a separated, stand alone asset to which they are the sole claimant. Adavo simply has a legal charge covering our expected share of the development profit. It is one of the few protections put in place on Adavo's side of the JV to ensure that the JV partner can't simply walk away with all the profit from our hard work.

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high yield property investment by adavo