SIPP Investors Boosting Sales of Resort Property and Hotel Rooms

From the same government that gave us the HIP, we also have the SIPP. The Home Information Pack was called the worst piece of housing legislation the housing market has ever seen by many -- I called it a good idea with bad implementation. But the Self Invested Personal Pension was the right idea at just the right time, and SIPP investors are boosting sales in resorts and hotels around the world. Many resorts in places like Cape Verde were cancelled when the crisis struck, but are now being re-launched with rapid sales to SIPP investors.

A Self Invested Personal Pension is a government backed investment product, which allows all Brits to build their own pension fund of investments chosen by them or an appointed manager.

This came at just the right time for two reasons, one: because the state pension was (and is) being called into jeopardy as the UK population lives longer and the work-shy contingent grows larger (this is in reference to the XBOX crowd that do not want to work), and b: because the financial crisis took a scythe to investment funds and left many people who had invested all their lives facing a very small pension pot for their trouble.

In short: SIPPs came at a time when pensions were at the forefront of every working person’s mind, at a time when we all wanted to put money away for our retirement, and at a time when none of us would have trusted to put our money into a traditional off-the-shelf high street pension investment.

SIPP investors can invest in the following as part of a SIPP, UK Equities (including Investment Trusts AIM Shares & ETFs,) Gilts, Bonds, regulated Unit Trusts, & OEICs, Shares in recognized overseas Stock Markets (NYSE, NASDAQ, CAC to name but a few), and Commercial Property.

While residential property is not allowed as part of a SIPP (though changes are thought to be on the horizon), resort and hotel properties are allowable as commercial property when the developer structures them in the right way so as to make them SIPPable. Namely, resort properties that are bought, but stay under the rental management of the resort, and where the owner gets no personal usage. This type of investment opportunity is not only allowable under a SIPP, but they are mostly perfect for SIPP investment.

SIPP investors want to make as much money for their retirement as possible, but above and beyond that they want to make sure that their investments are safe, that they will not be left with nothing. Thus, the best SIPP strategy is to have some exposure to stock markets, for their high returns, and exposure to safer assets like property and bonds, to ensure the pot is growing if only slowly.

Most SIPP investors will have some exposure to property, because it usually always appreciates in value over the long term, and when researched properly has a sound exit strategy. In fact, most will have more exposure to property than to stocks and shares

So SIPP investors want a safe investment, with safe but good returns and a reliable exit strategy. Resort and hotel property deals almost always fit this profile.

Almost every SIPPable resort property or hotel property investment deal you will see will be under the management of a renowned brand, because quite simply they would not sell otherwise. It is common knowledge that for these investments to work you need to look for a brand that has the recognition and clout to achieve high occupancy and revenue all year round.

To be SIPPable the properties must be under the management of the resort, so by design this means that SIPP resort property investments are a serviced, hands-free investment, which is another fact that makes them a perfect SIPP investment. It means that they are earning solid rental income, with most SIPP deals packed with 15 years rental management, though investors should look for deals where the income is pooled -- many such deals will offer a rental guarantee for a given period of time.

So, we have a property investment in an established resort or hotel, fully serviced and maintained, with rental management, and our SIPP fund simply collecting its share of the rental income.

But the best thing is that such a property is unlikely to ever depreciate in value. Because such properties are valued by the revenues they can make in rentals, and because our established brands are bringing in strong revenues, our properties are almost certain to at least hold their value, and will have a strong chance of growth. In fact, many such deals will offer a guaranteed 125% buy back, usually after the rental management period ends.

An example of a perfect deal for a SIPP property investment is a 5 year guaranteed rental yield of maybe 5-6 percent, and a guaranteed buy back of 125% after the five years. What would make that even better would be for the buy-back to be optional, and for the investor to be able to try and sell for more on the open market before deciding.

Take the land plots for sale in Cayman Islands under the Dolphin Estates brand on Brac as a fine example of a SIPP investment. Here we have a 20% guaranteed return on investment over 4 years. This can either be taken annually at 5%, at the end of the term as a buy back at 120% of the asking price, or last but not least owners can sell the plot on the open market after 4 years, and still take the 20% from the developer, thus allowing them to make an even bigger return.

Another is the Melia resort properties in Cape Verde. Cape Verde is protected from overdevelopment by the government, and because there is very little land suitable to build on. This will ensure that Cape Verde properties hold their value, and with the Melia brand managing rentals this means a good overall return on investment is all but guaranteed on these deals.

So, as you can see there are some excellent investment opportunities for SIPP investors to build their retirement fund in overseas property. It is easy to see why SIPP investors are boosting sales in such resorts.

Article contributed by leading overseas property agent Select Resorts.

Like this? Then share with your friends and colleagues!