We recently launched our first development opportunity and it was very well received - funding in less than 24 hours. UOWN’s primary focus in the future will be on property developments…... This article explains the nitty-gritty of how our developments work from start to finish.
Before any investment goes live on the UOWN platform it goes through a thorough due diligence process, this includes the following areas:
● Research on the developer.
● Analysis of construction costs.
● Due diligence on any third parties e.g. contractors, sales agents.
● Market analysis of the area and projected valuations.
● Financial analysis to ensure projections are prudent.
In general, UOWN are targeting development that can achieve annual returns of 10% or more for our investors. We are also keen on projects that increase housing supply where it is most needed and building properties that people can afford to live in. If you would like to submit a development for consideration, please send as much detail as possible to firstname.lastname@example.org
Each development listed on the UOWN platform is a joint venture between the UOWN crowd and a developer. We form a new development company for every development.
The Developer receives A shares in the development company which entitled them to an agreed profit share and the UOWN crowd get B shares in the development company that entitle them to a certain profit share. The reason for the A and B shares is to allow for a difference between the profit share agreed between the developer and UOWN and the actual contributions.
For example, in Village Street the total Investment Amount is £275,188 and you can see the below table showing the difference between profit share and amount contributed.
In this example, the developer’s profit share is lower than their contribution, this is because UOWN secured a great deal for our investors. In most cases, developers will have a profit share greater than their financial contribution this is because they will be involved in finding and delivering the project and so they are compensated for this.
As well as becoming an equity shareholder in the company, a UOWN investor will also loan some money to the development company. We chose this structure in order to make the investment as tax efficient as possible for our investors.
For example, when you invest £1000 in a development, you actually loan £1000 to the development company and also receive 1000 B shares. When the development is complete you will be repaid the £1000 you loaned to the development company: this repayment is tax-free. Your 1000 B shares entitle you to share of the profits and this is paid to you as a dividend - you will have to pay tax on this dividend; how much will depend on your personal tax circumstances. In the case of Village Street, the expected dividend on an investment of £1000 is £149.90, and this structure makes sure you only pay tax on the profits and not on the £1000 you invested. Ultimately every user is responsible for their own tax affairs.
Unlike our buy-to-let investments, you will not earn any income until the development has been completed and sold. We will keep you updated as the project progresses. Posting key milestones, news, and photos on the website or via email. Not only does this allow investors to keep tabs on the development, but also lets investors learn about how property developments work.
Each project has a defined investment term -this is how long we expect it will take until funds are returned to investors. In most cases the ultimate goal is to sell the property on the open market and once all units have been sold investors will receive their share of the profits. Developments might take longer or shorter times to complete, but we make sure we are conservative when we give a projected timeline.
We have built in a provision into the development structure in case a development does not live up to the projections. If the sales price would result in profits that are materially less than our original projections, then investors will be able to vote whether to agree to the lower sales price or instead to hold the investment letting out the property until a better sales price can be found.
All investments involve risks and you should read our full risk warning to understand these fully. In particular, for property developments the main risks are:
● Loss of Capital: project costs or sale price may differ from the amount forecast, so returns may be different from those projected and you may lose some or all of your capital. We conduct thorough due diligence on all aspects of the development, especially the construction element. We also build in a contingency allowance to account for any unexpected costs.
● Delay of the project: One of the risks of property developments is that the construction or sale may take longer than anticipated. This means you may have to wait longer than estimated to receive your funds. We will build in conservative time frames and always set aside a marketing budget to make sure the project sells quickly.
● Illiquidity: When investing in this opportunity your funds will be tied up until completion of sale of the property. There will not be any ability to exit developments early, i.e. there will be no resale market.
We always take measures to protect our investors. In terms of security, as an investor, you will be an equity investor in a development company, and the title of the property will sit in the development company (i.e. the development company will own the property in question). We also structure investments so that UOWN investors are paid back before the developer.
We conduct extensive market analysis on the area, and will often consult local experts to help forecast the sales price. The projected sales prices are calculated based on the rental return we forecast the property to earn - again using market comparables. For example, in the case of Village Street, the projected sales price of £310,000 is backed up by a valuation from Castle Hill estate agents.
Due diligence is done on all aspects of the development, including third parties being used for the construction. We ensure that developers tender construction contracts and where possible prices are based off fixed maximum price bids. The building contracts are designed with financial penalties for delays. We use conservative timeframes for each aspect of the project.