Portfolio Investing

Real estate portfolio investing is a deliberate strategy of diversifying one's investment over a number of properties within a well-chosen portfolio alongside other individuals and institutions. Investors deploy their cash to a portfolio of properties, which might comprise either multiple properties of the same asset class or properties across several asset classes like residential, commercial, and mixed-use properties. This strategy ensures “all your eggs are not in one basket”, i.e. all your money is not in a single property.

Portfolio investing strategies can be found in private equity funds, REITs and investment platforms like Novyy.  Private equity firms serve high-ticket investments while REITs are publicly traded. Novyy has a unique crossover advantage where it offers lower entry thresholds in institution-grade assets. Our current focus is on student housing which is an evergreen asset class in the UK. Please visit https://www.novyy.com/novyy-rooms to see our current portfolio.

While there are many unique features of our strategy, the 3 key differentiators are (a) all our assets are leveraged meaning institutional lenders have shown confidence and you are investing alongside them, which also enhances equity return (b) our unique annuity style offering will enable investors to plan cash flows for multi decades and (c) we do not charge management fees – instead we charge a share of profits in the operating income.

Apart from the obvious benefit of being in a diversified portfolio of assets, Novyy’s unique portfolio investing offering allows you to plan for decades of cash flow ahead in a superior asset class – i.e. student accommodation. UK university towns are seeing 3-5% annual growth in the number of students, both domestic and international. In addition, with the implementation of Article-4 nationwide, the number of HMOs offering student housing will be restricted to the existing stock only which helps command a better price over time.

Unlike fractional ownership which offers owning a share of a single property, portfolio investing, enables you to buy into a diversified share in several properties. By utilising the collective performance of the entire portfolio, the risk can be reduced and overall financial returns improved.

Portfolio investors hold preference shares in a UK Limited Company which in turn owns other UK Limited Companies which are Special Purpose Vehicles (SPVs) incorporated to own and operate the target property. By dint of being a preference shareholder, investors have a right on the operating income of the asset which is clearly specified in the Share Purchase Agreement.

Incomes and expenses for each property is accounted for in the Limited Company which owns and operates the asset - i.e. the SPV. Each SPV receives rents from its tenants and pays for operating expenses such as utilities, taxes and general maintenance expenses. 

The purchase of a share is governed by a Share Purchase Agreement and the Articles of Association of the Limited Company. It is similar to buying shares of any company globally.

The portfolio owns a range of 6 to 10 bed houses which have been converted into student accommodation and licenses by the relevant city council as HMOs (Houses in Multiple Occupation). Each house has its own HMO License and its own Lawful Development Certificate.

The investment carries a lock-in period of 5 years. The strategy comprises of a refinancing event between the 5^th and the 7^th year of investment during which we aim to payback at least 75% of the original investment, thereby reducing your capital investment to a quarter of the original equity. You will continue to earn a 50% share of the operating income in annuity for at least 20 years from that period, or until the assets are disposed.  

You can sell your share anytime but you need to inform us so that we can make the share sale effective in the register of shareholders, in favour of the new owner. Bear in mind that as soon as you sell your share, you stop receiving the share of operating income of the portfolio.

You are entitled to 85% of the net operating income attributable to the portfolio in proportion to your share of the total equity investment in the portfolio – for example, if you have invested £50,000 where the total equity investment in the portfolio is £5 million, you own 1% of the portfolio. This means, if the net operating income attributable to the investors is £500,000, your share would be £5,000. In phase-2 explained above, i.e. upon the refinancing event, your investment will be reduced from £50,000 to £12,500 and your income will be reduced from £5,000 to £2,500 if the incomes remain constant. However, usually incomes would be much higher in 5-7 years from the date of the investment that they are then.

Yes, every property held in a Limited Company has its own mortgage. The mortgage helps enhance the RoE (return on equity). For example, if a property price is £500,000 and the rental income from it is £40,000, the property yields 8%. Now, if we have a mortgage of £350,000 at an interest rate of 6%, we pay an interest of £21,000 leaving an income of £19,000 for individuals against an investment of £150,000 representing a return on equity of over 12%.

The Limited Company (the SPV) which owns the property and receives the rental income, services the mortgage payments from the rental incomes before paying an income to the fraction owners of the property.

Novyy has an in-house team to take care of the day-to-day management and operations of the property. For example, we have a Portfolio Manager based in Coventry who manages all the assets in Coventry.

Void periods are a risk that comes with every property and affects the income negatively. Novyy looks for properties that have an income coverage ratio of over 1.5x which means that fraction owners do not lose any money upto 33% void period. Most of our properties have an income coverage ratio of between 1.5x and 2x. However, investing in a portfolio means that void period risk is diversified across many properties.

No, our process is standardised and simplified. Once you have decided to make an investment, simply sign the share purchase agreement, and transfer the money to the Portfolio Company’s bank account. You are welcome to review the standard share purchase agreement and consult with your solicitors if you’d like. However, we will not be able to make any amendments to the agreement as it is standardised for all our shareholders.

Our fully powered account dashboard gives you all of the updates relating to all the properties owned by the portfolio. You are also welcome to have physical visits to any of the property – please remember to notify us ahead of time as the property may have tenants who need to be notified in advance (as per law) ahead of any inspections. 

Unfortunately, we do not. The current offerings of portfolio investing is an equity investment. Equity investments by the nature of it, do not provide income guarantees and are subject to market risks, hence the rewards are significantly higher than debt instruments which guarantee income. If you’d like debt instruments, we may have offers from time to time.  

The regulation comes around the structure of the ownership. For example, we use the Limited Company structure and thereby regulated by the Companies Act 2006 and overseen by the Companies House.