The world is changing fast and to keep up you need local knowledge with global context.
Covid-19 has changed the rules of the game for property investors, with retail real estate owners under pressure because shopping centre tenants have been ordered to shut and, with no cash coming in, cannot afford to pay rent. In this sponsored podcast, seasoned real estate investor and property entrepreneur Mr Scott Picken of Wealth Migrate shares how his organisation identified opportunities in medical buildings where doctors are reliable tenants – before Covid-19 struck. A South African entrepreneur and property investor who has built a global property business, Mr Picken picks up on how the digital revolution is increasingly playing a role in the property investment arena. And, he shares the details of how “collaborative investing” has been gaining popularity, setting out some of its potential risks and rewards. – Jackie Cameron
In simple terms, we help people invest in property – be it local property or international property – using technology. As an example, if you and I were to buy a house in London we would basically set up an SPV, a special purpose vehicle, and if you put in 60% of the cash and I put in 40%, that company would own 100% of the property. You would own 60% the property I would own 40%. That’s how it’s been done for centuries. You and I would have to be friends and trust each other. All we’ve done is use the exact same concept, but put technology on top of that, which allows investors to come together and have the buying power of the institutions and buy much better quality assets. Whether people want to invest $1b or an institutional amount of money or $100 they get the same return. So the old way of looking at property was property syndication. Some of the newer ways are proptech, retech, crowdfunding – all different words that people use – it’s none of those.
So if I were to invest $100 a month what would I be earning?
You invest in direct property, you would also get the capital growth which came with the property and so when the property is sold or exited after 5 years, you would get your capital back plus you would get your capital growth and you would have earned your income during the 5 years.
Are you locked in for a period or can you cash out at any time and how would you do that?
Each deal is specific. When you go on the platform, the shortest deal period on the platform at the moment is 12 months, the average is about 3 years and the longest is 5 years. And so when someone invests in a specific deal – in the same way that when you and I bought our house in London – we would have to agree that we want to hold it for at least 5 years. What’s very important is that people make decisions when they invest in deals that suit them because each deal has a specific timeframe.
And what are the risks associated with these deals?
At the end of the day, you are investing in property and so there are obviously always risks involved with investing – property investments, stock market investing even putting your money in the bank has risks – and it’s very important that one understands the risks. We highlight the risks on the platform. The first thing we do is that every property is ring fenced, so it’s not like a property fund or a real estate investment trust, where if one property is performing and the other property is not performing, they can rob Peter to pay Paul. This is a direct property investment and because you’re using technology, you can diversify and be in multiple properties (you still get that diversification). The second thing is we never touch your money. The money is actually handled by a third party based out of Europe. It’s protected by European law. It’s backed by the top 5 banks in Europe and the third party company we work with. I did over $2bn in transactions just last year and even if we were to go bankrupt or disappear, it doesn’t matter because we facilitate the transaction to help you invest directly in the deal and therefore you own a piece of the deal. You can actually look and see all the due diligence that’s being done on the different partners and the different projects…
Where are the regulatory authorities that help safeguard your investors?
A digital wallet provider. It’s actually based out of France at a global compliance level – ASIC (Australian Securities & Investments commission) – and any of the properties that you invest in you have to comply with the regulations of that country. So if you invest in Australia it would be ASIC. If you invest in South Africa it would be the FSCA, if you invest in England it’s the FCA and if you invest in Australia it’s the SEC. Structuring the regulation and the compliance to do cross-border global investing is extremely difficult – providing people with a safe and simple and compliant way .
And what kind of properties are you investing in? In the light of this current coronavirus climate a lot of properties look like they aren’t very good investments.
Well it’s an interesting one. If I could tell you 3 stories very quickly. I bought my first house in London in 2002 when I was 24 years old. All my mates at the time said don’t do it. They’re clever accountants and England was going to war with Afghanistan, we just had September the 11th, inflation rates were going up, interest rates were going up. My mate wanted to buy this nice 2 bedroom apartment up on the Hill in Wimbledon (in London) and I said no let’s buy this 3 bedroom house where we can put a conservatory on the back and by doing that we can turn a 3 bedroom house into a 5 bedroom house and we can have multiple income streams. It’s all about passive income. Most middle class and professional people chase capital growth. They go and buy something that suits their ego and then when the world changes capital growth goes against them. So wealthy people invest in income producing assets and I learned that back in 2002 when I bought my London property which has paid me more than £1,000 passive income every single month for nearly 20 years. During the crash, interest rates go down and so your passive income actually goes up. It’s amazing. Back in 2009 I met two very wealthy businessmen in Bondi Beach Sydney. I’d helped 2500 people invest in houses and apartments. I asked them what they were investing in – we were right in the heart of the last major crash – and they said they’re investing in medical buildings. I said “why medical?” I’ve got 2 degrees, an honours degree and a masters degree – both cum laude – and helped 2500 investors invest and I’d never heard of this. They said “think about it Scott, no matter what happens in the global economy people need doctors”.
Secondly, doctors never leave their premises. I thought back to my childhood and doctors didn’t leave. And thirdly doctors make very good doctors but they’re not accountants and so they sign very good long term favourable leases. I remember thinking to myself, this is an absolute no brainer. Why have I never been taught this? And then I realised the problem, to get into that deal I needed 5m Australian dollars which I didn’t have. This is what we call financial exclusion and why we built the platform in 2013, to allow investors to come together to invest in deals like that. And since 2014 we’ve been helping people invest in medical deals in America, in aged care deals in England, in industrial development deals in Australia and sectors that are very economically resilient. So as an example – to answer your question Jackie – yes, right now we have the Coronavirus, the world markets were going to crash anyway. Coronavirus was merely the pin prick to the bubble. Those people that are focused on capital growth are betting against winter and now winter’s arrived. Whereas those people that focus on stable income producing assets – with predictable income – they ride through these storms and so they don’t worry about when the storm’s coming. A classic example of this is medical buildings in America as you can imagine, doctors and medical facilities are overrun right at the moment. Some of our partners’ facilities on the ground, have actually got Covid licenses which makes them even more valuable. And remember the license stays with the building and so it makes the tenancy in the lease even more valuable. We do multi-family medicine which was the most economically resilient asset class in America – 10 years ago – in the middle of the last crash. This is proving to be the same. England in aged care is a classic example. But different markets present different opportunities. What’s really important as an investor is that when the world changes the fundamentals of investing don’t change. And the number one fundamental is the stability of the income, multiple income streams and diversification across assets, countries currencies and even partners. And what I get excited about is technology now allows people to be able to do that, where previously they couldn’t. And then the last thing that I believe is critically important, is to look at the medical REITs in America. Consistently for the last 5 years they’ve paid people around 4.5% to 4.75% and we’ve consistently paid our clients more than 8% cash on cash in US dollars. I always joke with people, are we cleverer, did we go to better universities, are we better negotiators, and it’s none of the above. It’s exactly the same as Uber. We’re just cutting out all the middlemen. We’re cutting out all the costs and we’re putting the investors directly in contact with the partner on the ground who’s doing the deal which is giving people far better returns.
Okay, so if I was one of your investors, putting in say $100 U.S. a month into a fund, where would this money go?
So let’s be very clear, it’s not per month. You can put R100 a month into your digital wallet. It’s your wallet and you can set up a debit order – or whatever – if you wanted to. But every time you invest in the direct deal it’s a closed investment. So let’s say we need to raise $1m to close the deal and you put in $100,000 – to keep it simple – you will own 10% of the deal when the deal closes, its closed. You can’t keep adding to it. So, someone like myself, I’ve got a global portfolio now of residential and commercial properties diversified across 4 different continents. Each time I invest in a new deal, my money all comes back to my digital wallet and I don’t need to worry about bank accounts, tax structuring and all the complicated things that previously were there, but it’s not a fund. You’re investing directly in direct property with a direct return.
If you’re investing directly into property, why do you not need to worry about the tax? Do I have to worry about that with my own tax advisor?
We’ve got people in 133 countries who get paid a net return and obviously depending on where you live in the world, you are responsible for your own income tax. What I mean by tax is that – as an example – if you invest in America right now and you’re a foreigner there will be 30% withholding tax if you don’t set it up in the right structure. Now the right structure means you’ve got to go and create an LLC which is a limited liability company et cetera, and a couple of thousand dollars later – and probably many months later – you haven’t even got around to buying property yet. Before you’ve been worrying about trying to set up your structure, your tax and your compliance, that’s all taken care of on the platform. Literally the moment you’ve done your KYC, you can literally invest – in a couple of minutes – into quality assets. It’s all owned in a compliant regulated and tax efficient structure and it pays your returns directly into your digital wallet which is held in Europe as I said.
So I’m just trying to get my head around what I actually own here.
You own a piece of direct property, but in simple terms, the SPV – the company – owns the property 100% and if you put in 10% of the cash you own 10% of the property, which means you own 10% of the income – 10% of the capital growth – basically 10% of any of the returns.
I own 10% of the SPV which in turn owns the property.
If returns are to good to be true it probably is too good to be true. What do you say to people who are worried about those great returns you’ve been offering?
We’ve got a 6 year track record and we’ve got thousands of investors and the returns that I’m telling you are not based on gut feel or projections, they are based on actual returns that investors have received over the last 6 years. We’ve paid out more than $12m in dividends and we’ve got literally hundreds of investors – thousands of investors – who people can go and talk to. There’s a lot of social proofing now in terms of where the world is going. It’s changed the way we buy stuff online. 3 months ago there were only 10 million people on Zoom. There’s now 200 million people on Zoom. That’s 20 fold in 3 months. Corona is pushing us up the adoption curve whether we like it or not. 10, 20 years ago cell phones were only for the early adopters. Now everyone’s got a cell phone. We have online investing, we have social media, we’ve had e-commerce, now we have social commerce which is ultimately where people come together safely and simply invest with a lot less risk and they get far better returns. Are there no risks? Definitely not. Does technology solve any problems? Definitely not. People need to take accountability, they need to do their research, they need to do their due diligence but whether they want to invest with us or anyone else, technology is changing industries. It’s changing the way people invest. I believe it’s very exciting because it will allow the 99% to be able to invest like the top 1% and if you invest like a wealthy person, you’ve got a far better chance of becoming wealthy.
Can South Africans invest in this easily or do you have to go through exchange controls?
Whether you live in South Africa, India, China etc, if there is exchange control in your country, you would have to apply for exchange control, so when you move your money into a digital wallet, you will do your exchange control application. You’ve got a R1m discretionary spend, R10m per person per year and you would move your money into a digital wallet. No different to if you were doing any other offshore investments. Once the money is in your digital wallet then it’s yours to choose to use freely with whatever you want to invest to receive your dividends, to reinvest or to go on holiday to Disney World. Whatever it is. But yes. And again, previously these things were only available to people with hundreds of thousands of dollars, now people can get started with $100.
That was Mr Scott Picken, founder and CEO of Wealth Migrate.
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