Passive investment for beginners

Disillusioned with stocks, shares and ISAs? Christopher Browne reports on the advantages and disadvantages of property portfolios
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The Independent Online

You'd expect most mothers-of-three with a tricky divorce behind them to fall back on their friends and relatives for emotional and financial support. But not 39-year-old Margaret Swift; she invested in property.

Though she had bought ISAs in the past, she decided to be more adventurous, putting all her divorce-settlement cash into a company called Property in Britain (PIB). "My first thought was to buy a house for me and the three children, but the local prices were too high, so I chose property portfolios instead," says Lincoln-based Swift. "Everybody was offering me different pieces of advice and the ISAs I had bought for £14,000 were worth about £9,000. It was a walk on the wild side or nothing," adds the homeopath who works in a small local practice. She met up with PIB's finance director, Bill Ryan, and together they did a deal.

Swift put £35,000 into a four-pronged portfolio of off-plan, refurbished, new-build and buy-to-let property. "I had a gut feeling about it - I liked the idea of putting cash into bricks and mortar and dividing it into different sectors. I also liked PIB - we seemed to be on the same wavelength and they had a pleasingly ethical approach." But Swift also knew she was taking a risk. "It's funny really - instead of having sleepless nights because of worry, I found that I couldn't sleep out of sheer excitement."

Her other option was to invest in buy-to-let. "A lot of my friends had done it very successfully, but I soon realised that to do it properly would mean a lot of work with any changes of tenants, repairs and general maintenance. It would have been too time-consuming."

Events show that Swift made the right decision. Putting cash into property is known as passive investment as it is solid, relatively stable and attracts long-term growth - unlike the more volatile shares and equities markets. And if, like PIB, you use several investment sectors instead of one it gives the investor greater stability, hedging against potential loss if a fund fails.

The aim of plcs such as PIB and the not dissimilar Invest-in-Property, founded by London estate agent Andrew Reeves, is to improve their shareholders' returns at roughly the same pace as their own. It is thus an ideal alternative to buy-to-let, especially if you don't have much spare time, prefer a less hands-on approach or, perhaps, lack the necessary funds.

Buoyed by the housing boom, several other interested parties have sprung up to make their fortunes out of property. Some, like PPP (Practical Property Portfolios), have faltered as, funded by hundreds of investors, they grow like topsy only to topple over like so many houses of cards due to low-grade stock and poor tenant demand. Others have bought up plots of the Green Belt and sold them off on the promise of future building projects, thus flirting with high risk and low returns.

Meanwhile, a growing network of half a million private landlords have invested in the sector, some with swelling portfolios, others joining consortia like the Southern Belles, an all-woman investment team in the south east. As the number of buy-to-let mortgages rises, so do the support groups. Anyone can now pick up the basics of buy-to-let on 20 or so web-based training and investment schemes.

If, however, you have a busy career and/or family to support, investing in a holding company might be your preferred option, taking much of the hard work and risk away from you. After putting in your first stake, you can then choose when and if to reinvest and/or the best time to cash it in. For most people, a minimum investment term of 10 years is advisable.

With its 135 shareholders, each with a stake of £20,000 or more, PIB iscurrently investing in eight Welsh new-build and refurbishment projects, growing buy-to-let portfolios in Hastings, Canterbury and London and 12 other south-east locations, plus off-plan projects in Spain's Costa del Sol and several other overseas locations.

Founder/chairman John Foote, a former property and mortgage specialist, started the company at the end of 2000, and was joined a year later by Bill Ryan, finance director and ex-human-technology consultant, and PIB's commercial director Chris Howard, whose CV includes the Cabinet Office, Unilever and the British Tourist Authority.

All PIB's investors make contact via the company's call centre or website. There are no investment fees - and shareholders receive regular electronic newsletters or surf the website for a progress report. Though no investment is completely foolproof, Margaret Swift's has certainly paid off so far: after 12 months the value of her stake has risen by 20 per cent.

PIB, 0800-180 9077; www.propertyin britain.com. Invest-in-Property, 020-7881 1355; invest-in-property.co.uk

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