25% pa Index Linked Income
+ 500% Capital Growth over 10 years
Too Good to be True… or Actual Results?
I no longer work in the Financial Services industry, so I will get no payment by sharing this experience with you. Why am I sharing? Well I know that the majority of readers will simply ignore the potential and some will say that it’s not possible within their jurisdiction.
But there is the remote chance that a few of you will run with this idea, so joining me in the pleasure of serving clients well and benefiting financially.
I have changed the names of some of the people involved so as to protect those guilty of taking advantage of Inland Revenue rules. Politicians so hate it when voters put one over on them… maybe you can do this to yours.
In 1999 I was working in the United Kingdom as a Partner (aka Salesman) within The J Rothschild Partnership, advising private clients of Lord Rothschild on how best to make a return on their investments and avoid paying too much tax.
One of my clients, Roy, was running a very successful antiques business, which in part involved shipping 40′ containers of antiques to the USA. He ran this operation from premises which formed part of a large old dairy in southern England.
These buildings housed some 50 other business of all different types and sizes… one of the larger and more successful of these is run by John (at that time, not yet a client)
Roy at age 45 was wanting to sell his business and “retire” to Australia. Another client of mine, Gary, also in the antiques business wanted to buy Roy’s business. Question, could I bring them together and arrange the finance? Answer… Yes, all in a day’s work.
So far, so good.
Then one day, Roy phones me to say that the owner of the old dairy wants to dispose of the site and did I have any ideas as to how “we” might make a gain. Now, serendipity comes along since I had just been having a somewhat technical discussion with a representative of a publicly quoted firm of actuaries, ABC plc.
You will no doubt be familiar with collective investments – called Unit Trusts in the UK and Mutual Funds in the USA, for example. In the UK, for a Unit Trust to be sold to the public it is technically known as an Authorised Unit Trust.
However, there exists such a thing as an Unauthorised Unit Trust (which is actually more heavily regulated than the Authorised version), but which can only be used by private groups of people. Happily ABC plc knows how to put together an Unauthorised Unit Trust.
Unit Trusts of both types are a permitted investment for Personal Pensions (aka 401k in the US).
Using the services of ABC plc, we created an Unauthorised Unit Trust entitled The Old Dairy Exempt Property Fund (EPUT). Roy, Gary, John and I transferred collectively some £400,000 of our personal pensions’ funds to the EPUT – creating some 400,000 units by so doing and which are since held by our respective personal pensions, appropriately.
Through a normal banking source, EPUT then borrowed £1,100,000 to meet the vendor’s asking price of £1.5 million – secured against the value of the property for a period of 15 years, i.e. a normal mortgage (although EPUT did negotiate a capital repayment holiday of 3 years). Thus no personal exposure.
This did not happen over night – negotiations were sometimes tense – and solicitor’s fees etc., did stress us just a bit.
However the net profits derived from rental income have allowed us to pay ourselves individual “Management Fees” in hand (equivalent to 25% of our initial pensions investment) every year since 2001.
EPUT has re-negotiated the mortgage to reflect improved interest rates, yet the net value of the underlying property in a forced sale is estimated as currently £2 million (an increase of 500%)
ABC plc, paid me a commission of £7,000 for introducing the business.
John and Gary still run their respective businesses from the old dairy, so keeping an eye on our assets. We all meet up once every 3 months or so.
I sold my financial services business back to Rothschild in 2003 and moved to France, where I now run a reasonably successful internet services business. But if I were still working in that industry, I know what I’d be selling today.
On a lighter note, before coming to France I set up a similar Unauthorised Unit Trust for another client’s business, a practice of Veterinary Surgeons. In their case they already owned their practice surgery within their partnership. So in addition to the above scenario, when they sold the property to their Unit Trust, they each pocketed their proportion of the net sale proceeds.
They have called their fund “The Orchid Fund”
Those that have a classical or horticultural education will get the humour. An orchid is that part of a dog’s anatomy that forms the scrotum. When viewed from the rear it looks like the flower.
Yes, they think it’s the dog’s b*ll*cks!