From understanding the concept of LTI, to how it works and what type of risk profile it’s suitable for – here is Part 1: Introduction to Life Tenancy Investment.
WealthUp (WU): What is Life Tenancy Investments?
Mark Blackwell (MB): Life Tenancy Investments (LTI) are a form of long-term property/real estate investing that is gaining popularity in the UK. The key difference to a regular property investment is that the tenants (who are usually over 60 years old) and property are pre-packaged for investors. The concept has actually been around a long time for more than 40 years, but has been kept within a small circle of investors for a long time.
With that said, MacBeale is bringing this to many investors around the world – especially with our strongest clients being in Singapore and Hong Kong.
WU: What type of risk are we talking about, considering properties are usually huge investments?
MB: LTIs are very low risk because you are always buying significantly below the market value. There would have to be over a decade of high house price deflation before a single (%) percent could be lost.
However, there is uncertainty on when the investment will ‘mature’ because that is down to the individual lifespan of the tenants. When it comes to risk profiles, LTIs suit cautious investors that simply want an asset that is appreciating steadily.
LTIs are very low risk because you are always buying significantly below the market value.
WU: Alright, so how does it truly work?
MB: It works by having both the investor and the tenant pay substantial proportions for a property. In exchange for their proportions, the investor will become sole owner of the property whereas the tenant will get the right to live in the property until their demise (i.e. they become a life tenant.)
When the life tenant passes away or move into assisted care, the investor can then sell the property, rent it or gift at which time it’s worth the full value plus years of house price inflation.
In short, here is a quick process of how it works at MacBeale:
After which, once the tenancy agreement completes (i.e. pass away or go into assisted care); the owner is free to sell, rent out or gift the property at which time it’s worth the full value plus inflation.
WU: Interesting, almost like a win-win situation. So, how fast can results be seen?
MB: It can be argued you that you are getting results from Day 1 as you are buying so much lower than the real value of the property.
However, profits are only truly gained the day the tenants pass away or move into assisted care; as this triggers the end of the tenancy agreement thus the property can be sold or otherwise.
What's Next In The Series:
Now that we’ve covered the basics of LTI, keep a lookout for the following part which will delve more on how it can really benefit investors, and why you should consider it.