On my Monthly net worth reports, I refer to my UK real estate investment. The good news is that I made an exit, the bad news is that it didn’t go as I expected.
Not that it was a major loss. Just a little lost and not because of anything I could anticipate. That was BREXIT hitting this deal.
So, my aim with outlining and analyzing this deal is for others to learn from it and yes, things not always going as expected.
Here is how the story begins:
Hagshama is a fund in Israel that let small investors invest together in overseas projects in the UK and US. I’ve been following them for some time and a relative of mine got into one of their investments. I decided it was a good opportunity to invest.
Most of their business plans reflected 15-20% return a year while working with local property developers on different projects. That return was obviously mind-blowing. Considering who the company was, the margins and prior experience, it looked like a good deal.
Hagshama has many projects with varying periods of time. I wanted to start with the shortest possible of 18 month period with the smallest amount possible. The first opportunity that came of these criterions was on in central London. It was an existing of 9 floors building that would get an addition of two luxury penthouses on top.
The exit of the project was after selling those two penthouses. As this is a central location, I was even more confident that there will be no problems with exiting the project. All that was on April 13th, 2015. Now, the initial investment was 117400 ILS which at the day was 20000 GPB.
The first few quarterly reports were fine. They were all reporting about the progress of the project. The actual construction took 3 months more than expected which is ok. But then the expenses kept growing on top of the business plan. Now, that company had an agreement with the developer of paying 1% more of revenue for each month of delays up to 8 months and also an approval of any additional expenses. Then the Brexit voting came on June 23rd, 2016.
The story of the Brexit begins already a few weeks after making this investment as the conservative party in the UK got the majority on May 7th, 2015, started talking about Brexit. Here is the full story about this .
Editing: I spoke with a friend about this and he said there were talks over Brexiting even a year before. But even if I did read about this, I don’t think I would have understood the ramifications of this on the investment at the time. So, I told you there were two apartments in the project.
I finally got an update that the first apartment was sold for 3.55M pounds. That’s 10% more than what was expected in the business plan. Good news despite the Brexit voting! And then this update came in (I’m free translating from Hebrew here): Due to the Brexit and raising the tax on 2nd apartment buyers the London real estate market is in a slowdown.
There are 30% more people that are interested in real estate deals in London but a drop of 50% in the actual deals. This means buyers are waiting to see what’s going to happen after the Brexit. Then they kept going on that London is still expected to stay a financial and global center and therefore attractive to investors. The 2nd apartment was VERY hard to sell afterward.
They hired 3 different marketing agencies to do that and eventually that was sold for 2.8M pounds. Compare with the 1st sale of 3.55M. That’s a real drop for a similar apartment at the same location. During all this time since the investment where the GBP rate was pretty high compared to the ILS, it started declining. So, basically I bought GPB at a high price and because of the Brexit it kept dropping.
So, although when you look at GPB there is still profit to this project, when you convert this to ILS which the currency I’m living in and using I actually lost money. To compare: I bought the GPB at 5.871 GBP/ILS and got back my investment at around 4.84 GBP/ILS. That’s 17.5% drop from the worth of my investments on top of the delays and expenses the project had. But this is something I really couldn’t anticipate will happen. So, here is what I eventually got:
The expected return (in pounds) was supposed to be around 19% a year which is around 28.5% for 18 months. What a difference from the 19.415% I got in 3 years (6.47% a year)!! So, to sum up the totals: I got a yearly ROI of 4.37% (as I had a loan on this) in GBP or -2.18%/year in ILS.
It’s a loss, but not a major one.
The big loss is the alternatives investments I could have had for that money (Compare the 38% my stock portfolios went up in 2016). What I have learned from this? I’ve learned from my mistake. Political climate influences your investments. So do your due diligence on that area too. There are some things I can anticipate but I think at most I still can’t. This is why I still into diversifying my assets. On my Net worth monthly reports, you can see I’m diversifying between these:
- Israeli Stocks portfolio
- US stocks portfolio
- Real Estate (US and UK)
- Crypto currencies (a bit)
- P2P / crowd investing
Now over to you What have you learned from your investments that you can perhaps do better next time? Add that in the comments. Would love to learn from you.