The clear common objective from investors, landlords and researchers is they just want to know where and how they can earn 5% (or more) on their capital. And let’s say this is with an average of £65,000 in liquid cash to invest.
This doesn’t ignore further, and deeper criteria investors have: investment sector, property asset-ownership, a specific location, secured-by-asset investments, short-term investments, and last but not least, long-term plan & appetite for risk.
It’s the fundamental wisdom of holding on to a large amount of liquid cash that will only earn 1.3% up to 2% best-case scenario on a 5-year locked-in scheme/bond with a bank. And knowing deep down there are some secure options in the market that could be providing a much higher percentage per annum – an extra income that really bolsters your salary or pension.
So why don’t we just leave it in the bank?
For the most part – even for the more risk-adverse individual – banks do not sit right for investors or first-timers looking to invest as they do not incentivise nor pay their clients/members decent interest on large amounts of cash.
And what is happening right now? Earlier this month (April 2020), in a bid to boost the economy due to the coronavirus pandemic, the Bank of England announced its emergency decision to slash its Base Rate, not once but twice, to a record low of 0.1% (down from 0.75% earlier this year).
Banks and building societies quickly followed up with announcing a raft of changes, cutting interest by over 60% on really popular schemes, as well as pausing many incentive schemes.
Savers haven’t yet felt the negative effect yet, however these cuts will start filtering through the market from May onwards.
What are the alternatives to earn 5% (or more) on my money in Q2 2020?
There have been many investments over the years that have provided investors 5% p.a. net return or more on their money, however some investments are fickle with no guarantee on a positive annual return.
Lets look at the common list of investment options that can provide this return, fixed or unfixed: Stocks & Shares, Oil & Gas, ETFs, ISA’s, Bonds, Funds, Real Estate, Loan Notes, REITs, Peer to Peer lending and Annuities.
It’s no secret the stock market crash has left some FTSE 100 shares trading down by as much as 50%. Granted some very cheap stock ‘could’ be tomorrows winners, but this could be a sign that the market doesn’t expect them to recover quickly at all. A return on investment sooner rather than later and at fixed, regular intervals is generally paramount.
Oil is another no-go at the current time. The earlier this year price war and the aforementioned effects of the coronavirus pandemic has driven oil prices to a record low of late April 2020.
The stock markets have become extremely volatile for investors and substantially riskier than usual.
Real Estate: Counter-cyclical Purpose-Built Student Accommodation
There is one defensive asset class to focus on here, Purpose-built Student Accommodation (PBSA), however most projects aren’t providing 5% … but 7%, 8% and 9% net rental yield per year.
With PBSA investment the developer assures a very carefully calculated net rental return based on sustainability – taking all variables into account, including an average occupancy and void periods. This shows how confident the developer is, who provides this assured rental for the first few years to allow the project to become established and for occupancy to grow. That said many PBSA’s are 90% – 99% occupied by year two.
The investment is full-asset ownership of a student self-contained, fully-furnished, studio or en-suite apartment. The benefits are it’s totally hands-off, as fully managed and let by a specialist student letting agent and management company. The ROI is an assured rental income of 7% -9% p.a. net for three to five years – moving to an annual rental income based in predicted 2% p.a. compound rental growth.
That sounds amazing.
But hang on. How resilient is the student property sector during Covid-19 pandemic?
We are seeing some markets and investments that have become rather volatile and riskier as a result. However there are good reasons why PBSA sector looks like a good option going forward.
Recent research from Savills, showed investment into PBSA across Europe increased by 250% between 2018 and 2019.
PBSA was one of the few asset classes to show resilience during the 2008 financial crisis and provided investors with robust returns given its counter-cyclical nature.
The number of international students globally is expected to rise from the current 5,000,000 to 8,000,000 by 2025.
A predicted 25 billion euros of institutional money remains available to invest in this sector just in Europe.
International student population has grown by 65% in the last 10 years fuelling demand for increased provision for high-spec PBSA – many cities are still greatly undersupplied.
During periods of uncertainty student numbers increase as many chose to upskill or delay entering an increasingly competitive job market.
We may see a short-term impact while the market and situation normalises, and the current situation may prompt overseas students to study closer to home, its predicted however this will be a short term response.
The UK and Europe will remain one of the world’s most popular student hotspots. Demand from overseas for high-quality accommodation is expected to rise once the travel restrictions have been lifted – with students particularly from China and India predicted to fuel this trend.
Short-term investments in April 2020 earning over 5% p.a. on your money.
If the appetite for investment is specifically short-term with a guaranteed exit, non-asset ownership, moderate risk then the following two options should be considerations. Especially if you have a lower amount to invest now, like £20,000.
Loan Notes’s of typically a 2-year term that are secured by property or assets. Net return of 10% p.a. or 12% p.a. with bi-annual or deferred-end-of-term payment, respectively. It’s worth noting and being careful of unsecured loan notes that naturally offer a higher return with a higher risk on capital.
ISA’s with a Fixed Return (5.625% p.a.) or Fixed Targeted Return (up to 7% p.a.) Typically 2 – 4 years, with bi-annual payment. ISA’s are available from one end of the risk scale to the other and it’s a great way to reap tax benefits on the money invested, up to £20,000.