A very good question if you don’t know…and you’re unlikely to as this is not a well known sector. However, as we like to do at Discover and Invest, we can prove to investors that this route offers a high level of secured income backed by some surprising macro-economic fundamentals. It is also a sector we know well and can fully manage for you. Allow me to explain….

The investment concept exists because of the need of many farmers for short-term funds. This is down to either expanding or restructuring their businesses, particularly in light of many new EU directives which require new and costly upgrades. Farmers, as is widely known, are cashflow poor but are extremely asset rich, an asset which can be used to generate an income. This asset is of course their farmland.

What many investors are unaware of is how robust farmland prices actually are. Documented evidence shows that since records began in 1945, UK farmland prices have remained steady in each of the recorded recessions and in many places have barely dropped at all in the last 2 years. Therefore it is important for investors to understand that UK farmland is not affected by economic cycles in the same way as residential or commercial property does. Evidence from a number of independent sources is available in our packs.

So why are farmland values so robust? It is a question of supply and demand. In the UK , farmland for sale is a rare occasion and an exceptional opportunity for a neighbouring farmer to expand his business. In 1945, 1m acres per year were recorded as transacted. The numbers since then have steadily decreased to only 100,00 acres, a huge 90% drop in supply. This has been in the main because farmers have moved from tenants to actually owning their own land. Farms are passed down the generations and in order to succeed, the farmer needs to expand not contract. Therefore a chronic lack of available-for-sale supply coupled with a farmer’s ongoing expansion requirements ensure that values remain robust, regardless of lifestyle buyers. What this means to investors is that farmland, as part of a farm, is a robust product when protecting capital that also produces an ongoing income.

With the lack of funding available from banks, farmers are prepared to enter into leaseback style agreements for their farmland with private investors for an agreed timeframe of typically 2,5 or 10 years. The investor buys a portion of the farmland (usually not the property) at between 50-70% of today’s market value and rents it back to the farmer at around 8% per annum; a very competitive rate in today’s marketplace. Typically the farmer will also pay for the buying costs. The farmer pays his “rent” and then buys the farmland back from investor at the end of the agreed period for the same % discount based on the then market value. Therefore this offers the investor a superb capital gain opportunity and allows the farmer to improve his business profitability in the short-term.

Strong leaseback deals will utilise an agricultural project management team, (as we do), to ensure that a new business plan is in place and so that the farmer is monitored on a quarterly basis for the investor. This ensures a smooth, hands-off and full managed product that so many investors fear they will not otherwise receive. The product is also SIPP/SAAS compliant.

With regards risks, with such a strong initial equity position, you would need UK farmland to fall by more than 30% in order for your capital to be at risk; something which has not happened since records began, nor is it likely when taking into account global demand for food and the fact that we still have not found ways of making food without the use of farmland!

So in difficult economic times, it is possible to find deliverable, high income, secured products. If you wish to find out more, please register or email enquires@discoverandinvest.com

2010; a new year, a new start. But in some ways, we have been here before.

This is not the first time we have experienced a recession, and as tends to happen, governments spend their way out of them. New infrastructure projects, more public sector jobs, and that now oh so familiar phrase, Quantitative Easing, or QE. In other words, the government is flooding the markets with money to stimulate action.

Although deflation has been an equally used buzzword in 2009, as the lack of demand has in some instances had a downward effect on pricing, the smart discussions revolve around inflation, the natural consequence of “too much money chasing too few goods”. Inflation, that by-gone concept of the 1970s! In fact inflation is all around us, with a particularly constant pressure on currency over the years. How many remember when a chocolate bar was 10p?

Although there is a split between forecasters, significant evidence points toward a higher inflationary period and an increasingly weak Sterling/Dollar fuelled by unprecedented government debt. Current house price rises, driven by a lack of available supply are likely to be short-lived rather than upward demand (as sellers wait for prices to go back to “break even” levels) , as the resultant supply increase will outpace demand does increase through higher interest rates. The stock market is having one of its roughest periods on record. Therefore, where can investors look for not only safety, but also results?

In volatile times coupled with vulnerable and weakening currency values, tradable hard assets become investments of choice. The likes of gold, silver, farmland, wine and stamps have proven to retain value in tough times as the measurement and value of cash becomes uncertain. Regardless of the measurement of exchange, or currency, these products show value and become excellent locations to park and secure wealth whilst the world begins anew.

Throughout January and indeed 2010, we will explore inflation hedges in more depth, with the next blog giving investors a comparison of the available options. There are some cracking opportunities even in these times, so I look forward to welcoming you back for another instalment in the next few days.

Since the commodities boom of 2007, investors have increasingly come to realise the underlying benefits of investing in farms. An often misunderstood sector largely due to an unbalanced media view point, this article hopes to redress the balance and inform

In the current climate and to help educate, below are the top 10 reasons to invest in UK Farms:

No over-supply, robust local demand

It has been said many times regarding land, and it is as true today as it ever was, they are not making anymore of it. On top of this, less and less parcels each year are coming onto the market to be sold. According to Reed Business Information’s The Farmland Market Report, there is a huge dearth of land for sale and the volume of sales has been on a steep decline since in 1950. 1 million acres were traded then compared with around 100,000 in 2008; only 10% of the previous high. This is mainly down to the fact that there are many more landowners now than 60 years ago and most do not look to sell unless absolutely essential.

As a result oversupply issues that have hit the commercial and residential property markets are highly unlikely to effect the farmland market. In fact, evidence from experts shows that farm prices remain stable in this and previous recessions and are going up slightly compared to residential property.

As for demand, levels remain strong from local farmers, who are always interested in local businesses as they tend to be “once in a lifetime” opportunities to buy. The only drop has been from lifestyle buyers, who make up a much smaller percentage of the overall market.

Excellent defensive investment against inflation

It is widely regarded that higher inflationary times are around the corner given the extraordinary levels of global government spending combined with the rare sight of extremely low interest rates at the base of a recession. The value of currency has always been eroded by inflation and the next few years may see this increase. There is much talk of a global currency in the future if fiat currencies continue to decline in value. Therefore, the smart investors are looking for tradable assets which can retain their value in more volatile times. UK Farms, and in particular the primeland that they sit on, present such an opportunity to investors.

Tax/pension benefits

Depending on the type of vehicle used, a number of tax reliefs are available to investors, such as Inheritance Tax relief. It is also worth noting that in many cases, farmed land qualifies for SIPP and SASS, the popular UK pension schemes.

The UK presents an extremely secure environment

Due to the UK’s property and land laws, the country is considered one of the safest environments to invest in globally. Although returns may be higher in emerging markets, those investments quite often carry a very high degree of risk.

Undervalued due to weak Sterling

Not only is the UK secure, but its prime farmland can be considered undervalued. The first of these reasons is down to the currency movements. Sterling has declined sharply over the last 18 months, which effectively means the country has a “30% off” sale sign over it. International investors who buy now will have the benefit of profiting from any reverse currency movements as the economy improves.

Buy at 70%, re-mortgage at 100% of the valuation

The second reason for the argument of value is that farms can be picked up in the UK at around 70% of their valued price. This presents not only a capital gain opportunity but also presents a liquidity opportunity. Banks will lend at 100% of the valuation which means an equity release is entirely possible.

8-15% yields achievable

Depending on the project, 8% yields are achievable in the UK; with leaseback deals buying at 60% LTV, the yields are as much as 15.9% based on a project available right now. Compared to the options available in the UK ie. Bank deposits 1%, volatile stock market, property yields dropping below 5%, income is a particularly pleasant current upside for investors.

Buyback option can provide extra investor security

One facet of investment that is always of concern is the exit strategy. If a lease agreement is in place, investors can have extra security that the tenant farmer will buy the farm back at an agreed price level 2,5 or 10 years into the future. If they cannot, this would trigger an event of default, which raises the next benefit of farm investments.

Strong evidence shows farms sell quickly

Again, mainly due to the lack of supply in the marketplace, farms and farmland usually takes 3 months to sell from agent instruction. If you are investing through the right companies, there should be an all-in-one solution available in terms of managing and selling the farm, either by choice or in event of default.

Investment period as little as 18 months

If the farm has been purchased and leased back to the farmer, the investment period can be as short as 18 months. Therefore tie up of capital is the same period unless you are able ot release equity and also allows for potential capital gain opportunities.

Therefore there is a lot to like about farming and agriculture from an investment point of view, particularly in today’s market.

‘Lafite prices climb as investors pile into wine’. Telegraph, 1st August 2009

Great news to tell you about, wine investing is the place to be! Our clients received information regarding the outstanding yield curve for the ‘1982’ vintage with strong evidence and support for the nearest equivalent ‘1996’ and ‘2003’vintages to potentially emulate performance. As of the last two months the ‘96’ has seen a hike of 11.76% which now means it is up 19% since March, the ‘03’ likewise by 4.7%……We conclude that both these wines as well as some select counterparts are trading at higher prices and are now entering a period of likely significant growth based on the same supply and demand characteristics previously outlined.

The wine investment market has rallied since the beginning of the year as the industry index for the top 100 wines moved by 1.5% per month; however the star performer amongst these wines has clearly been Chateau Lafite Rothschild. Several vintages have provided strong, tax free returns this year and more significantly, two of the vintages strongly recommended to Discover & Invest clients have performed as we had predicted.

Therefore a strong argument for the increase in further value remains and is also being echoed by the financial press, as demonstrated by the recent Daily Telegraph article below:

‘Lafite prices climb as investors pile into wine’. Telegraph, 1st August 2009

The graph below gives some perspective on the Lafites, particularly over the last year or so of turbulence. The relatively low price point for this luxury item compared with cars or yachts means its basement point is quite high. In other words, demand remains robust because buyers at both ends of the wealth spectrum are able to buy and continue to speculate.

As soon as I finish this blog, it will take its place in history. Admittedly, it won’t be up there with world wars, births of monarchs and world cup winning football teams, but it will indeed have its own place in history.

A funny subject for an investment related blog? Probably, but as an investor, history plays a massive part in the way we invest, but is it always an accurate version of what really happened. Yesterday will almost always define how we approach tomorrow.

Let’s roll back to a week last Wednesday. I tend to play a few arrows with a good mate down my local pub (this really is going somewhere, I promise). It was one of those nights where every dart I threw was a winner and for once I walked away the darts champion of the 7th of January 2009, for my local pub and our game anyway. All said and done, I won, that is history, it is there for both me and my friend to reminisce to the grandkids about if we achieve nothing else as life moves forward.

This is not a rant I promise, but as we prepare for another massive match tomorrow, we had a quick chat about times and venues, then nothing more than a passing comment was motioned into the conversation, he said I won 3 – 1, whereas I think I won 3 – 0. He is sure, I am sure, there was no cheering audience or passing local to back either of our opinions up. The fact I won is there, we both agree, but as to the score, we both have different opinions. So this one piece of history is covered in doubt, possibly controversy, and although history dictates that I won the game, the score is still up for debate, even though it happened only 6 days ago.

Moving back to the investment topic, as we all sit down and plan and prepare for our investments for the next few years, how will we look back at the history of our previous investments?

Some will say its been a terrible year with house prices crashing, but the houses they owned all had tenants and the rent covered the mortgage, so does the history of 2008 define a bad year because of the house price drop, or does it indicate a good year as all the houses had tenants and we are not out of pocket in the physical sense, only in the paper value of what the houses might be worth today. If the reverse was true and they had no tenants for 6 months but their house price rose by 5%, would this indicate a good year or bad year, with a big loss of physical money, but a rise on the value of their houses?

This is where history, although it does indeed happen, can be taken and interpreted in many different ways. England winning the football world cup in 1966 did indeed happen, but for some people it was the greatest game they ever saw, for others in the crowd that day it was an immense disappointment.

Even though history may indeed make 2008 look like a terrible year for investors, we must as investors and individuals look back and look at it from a balanced point of view. If we are still standing and investing, it couldn’t have been that bad, could it?

Some good news has been reported from the British Bankers’ Association (BBA) this morning, with early indications showing that mortgage approvals rose in January, with approval levels hitting 23,376 last month, up 4% from 22,416 in December.

But, as it seems with every other story that has some good news in it, there is also some not so positive reports, with the number of approvals in January still 43% lower than the same month a year earlier.

Hardly surprising in the current climate, but the fact that mortgage lending is continuing to rise month on month could be taken as a sign that we are starting to emerge from the gloomy mist which has been partially caused by the lack of lending over the past 6 or 7 months.

BBA statistics director, David Dooks, said of the latest data:

“The high street banks’ mortgage lending is still seeing double-digit annual growth, albeit in a much slower market. Lower borrowing costs and falling property prices have underpinned demand at these lenders, who are providing over two-thirds of all new mortgage lending. There is only limited demand from households for unsecured credit, while a fall in their deposits in January reflects a tendency to draw on cash or to move into alternative financial products.

“Lending to non-financial companies rose after two monthly falls, with modest increases in several industrial categories, while finance for other financial companies reversed the year-end fall in lending.”

The BBA also reported that in January, net mortgage lending rose by £2.9 billion, consumer credit rose in line with the recent average and overall company finance increased by £14.1 billion, reversing the previous month’s fall.

However, personal deposits fell by £2.3 billion as spending drained cash and savers sought alternative deposit products.

It is good to see some positive comments from the BBA, hopefully which will hopefully encourage more people to apply for mortgages who might not have previously considered applying, as they thought they did not stand much of chance in being approved. If we see another month of increased approvals for February, indications would suggest that the housing slump has reached its lowest bottom point and that the only way from here on in is up.

But, until we see the figures from the BBA and other leading bodies next month, we will take the positives from the news today and hope there is much more to come.

The US Dollar has weakened overnight following reports the US government may nationalise major US banks as a result of the financial crisis. Sterling has staged a minor rally following the publication of retail sales figures for January and EU leaders met over the weekend to discuss economic strategy ahead of the G20 summit in London in April.

Pound Sterling - UK markets

Sterling has strengthened overnight, climbing to 1.45 against the US Dollar and gaining 1.6% on the Yen amid news that the US government may nationalise major banks. The news fuelled a round of risk aversion but this failed to strengthen the traditional safe havens and Sterling gained on its major currency partners overnight.

PM Brown has announced a £14 billion credit injection into Northern Rock and the bank is to start lending again, expected to take on £5 billion worth of mortgages this year. This is a reversal of earlier government decisions and comes tempered with the warning that banks should end risky speculation and return to their more traditional role as ‘stewards’ of people’s money. Retail sales figures on Friday boosted the Pound as they rose by 0.7% for the month of January taking annual sales up by 3.6%. However this comes at a time when retail analyst Experian predicted 10% of high-street stores will be empty by the end of February and more solid trends may be visible in quarterly statistics. Nationwide housing prices are released in the UK today with new mortgage approvals out tomorrow.

US Dollar - US Markets

The Dollar has weakened for the third consecutive day on speculation that the US government may bail out major banks even further. The Dollar is down 0.74% on the Canadian Dollar and has also declined the Pound, Euro and other major currency partners.

Dollar weakness comes after Christopher Dodd, Chairman of the Senate Banking Committee announced that nationalisation of some banks may be necessary. Wall Street and equity markets fell to multi-year lows and the Dollar declined against the Euro and Yen. The Philadelphia Fed survey on Friday showed manufacturing has slumped to a 19 year low and a survey of business economists has shown the US recession is the worst in three decades. Consumer spending accounts for 70% of the US economy and this is expected to decline by 2.3% this year. There is no data out in the US today.

Euro – European Markets

The Euro has also rallied against the US Dollar, currently sitting at 1.28 after attempting to break 1.30 overnight. The Euro has also gained on the Yen and is currently trading at 0.88 against the Pound.

Leaders of Britain, France, Germany and Italy met over the weekend to formulate a position ahead of the G20 meeting to take place in London in April. Tighter market regulation and an end to risky speculative investments are expected to top the agenda. European leaders also agreed the IMF’s emergency fund for debt stricken countries should be increased to more than $500 billion. ECB President Trichet is to give a speech today.

Other Currencies - Highlights

The Australian and New Zealand Dollars have appreciated for the fourth consecutive day against the Dollar on speculation that the US Government is to increase its stake in the major US Banks. The Yen also declined amid speculation over the deteriorating Japanese economy expectations that export demand will continue to slump. This weakness could eventually undermine the safe haven status of the Yen. Minutes from the Bank of Japan’s February meeting are released today. The Canadian Dollar has gained against the US following weaker American equities and reports that Canadian core inflation fell by 0.4% in January. Canadian retail sales figures are due today.

New statistics were published today by the Council of Mortgage Lenders on mortgage arrears and possessions. Unsurprisingly, full year figures for 2008 show a sharp rise on 2007, but many steps are being taken to help borrowers facing difficulty. Interestingly, there were 5,000 fewer repossessions than expected and were forecast in the previous year, with the measures that were introduced towards the end of year seemingly having some kind of effect.

A few stats and figures released by the CML today:

* 5,000 fewer repossessions than forecast in 2008
* 40,000 repossessions in the year - 1 in 290 mortgages
* 10,400 repossessions in the fourth quarter - 1 in 1,100 mortgages
* 1 in 64 mortgages in arrears of 2.5% or more
* 1 in 53 mortgages in arrears of three months or more (inflated by lower interest rates)
* 75,000 repossessions forecast for 2009 remains unchanged.

Around 10,400 properties were taken into possession by first charge mortgage lenders in the fourth quarter of 2008, down from 11,100 in the previous quarter but up from 6,900 in the fourth quarter of 2007, according to the Council of Mortgage Lenders. The total number of first-charge repossessions in the year was an estimated 40,000. This was 5,000 lower than the CML’s original forecast for the year.

The fact that there were 11% fewer repossessions than expected, despite a worsening economy and rising unemployment, demonstrates that mortgage lenders are making strenuous efforts to ensure that repossession really is a last resort. It is important to recognise that repossessions include a proportion of abandoned properties and property fraud. They also include buy-to-let repossessions, as well as home-owner repossessions. In the vast majority of cases where home-owners are committed to working with their lender to keep their home, this outcome is successfully achieved.

At the end of 2008, around 182,600 mortgages - or 1.57% of the total - had accumulated arrears equivalent to 2.5% or more of the outstanding balance  - for example, £2,500 or more on a £100,000 balance (a £97,500 mortgage plus £2,500 arrears). This compares with 1.29% at the end of the third quarter of 2008, and 1.08% at the end of 2007.

On a “number of months” basis, 219,100 mortgages were in arrears of more than three months at the end of 2008, up from 166,600 at the end of the third quarter of the year, and up from 127,500 at the end of 2007. However, the big reduction in mortgage rates experienced in 2008 was a significant influence on the rise in the number of arrears cases measured on a “number of months” basis - as the same given sum of arrears represents a higher number of months payments as interest rates fall.

The vast majority of people who face temporary difficulties successfully work with their lender to stay in their homes, and get their mortgage back on track over time. Where borrowers contact their lender early, maintain good communication and are committed to paying what they can and resolving their arrears, lenders work hard to help wherever the household’s future prospects look feasible.

Source – CML Press Releases

The fifth of November 2008 is a day I will remember for some time. Now I know what you’re thinking, that’s the day a few centuries ago when a certain Mr Fawkes decided to try & blow up the powers that be, right? Or maybe that I went to a rather spectacular fireworks display? Neither of these were the case in this instance. That morning at around 10am our Ambulance Trading investment opportunity was emailed to one of our partner’s databases. I can remember telling my colleagues that I will be happy if we can generate 15-20 enquiries – after all, enquiry levels must be down as we prepared to head into recession.

After the eightieth enquiry had landed in my inbox just after 6pm you could say I had encountered my busiest day yet at Discover And Invest! Over the course of the following few days more filtered through ensuring that yours truly was putting in some seriously long hours!

Amongst this number was a variance in terms of quality, from those who were too afraid to hold a conversation over the phone to those who invested. In between were all extremes; those whose level of liquidity fell below the entry level, those who had no real interest, those who absorbed the information never to be heard from again, agents sniffing around and those who I simply could not contact! As all the enquiries are submitted in the same format, it’s impossible to gauge the level of quality until contact is established.

Investing is very similar in this respect. There are still so many opportunities out there ranging from property to bonds to shares to alternatives etc. How does one accurately appraise each individual opportunity? Which ones are most likely to do what they say on the tin and provide the promised returns? Which ones are the scams? Which ones are the big gambles?

Whilst there are no blueprints for what’s good and what isn’t, it’s fair to say that the usual rules apply. Over the course of sifting through the enquiries I received, the level of questioning was considerably higher than I expected – good! This goes to show that investors are doing their research, it shows that they are familiarising themselves with the workings of the opportunity, and it shows that where applicable they are using their experiences –both good and bad – to base their decision as to whether or not to take it further. Whilst this continues to be the case, those marketing the decent secure opportunities are certain to prosper.

If you’re a global investor, there is one country in the world today that is screaming value for money… and it’s the UK.  Why so I hear you cry?  Well, there are two main reasons why, the same two reasons in my view that has made the USA a value for money buy over the last 2 years.

The first reason is a weakening currency; typical of an economy in a downturn, one that is importing more than it is exporting or of one that is printing vasts amounts of money, or  potentially all three.  The weakening of a currency, relative to your own means better value purchases.  Many Brits indeed found that to be the case when buying American over the last few years at as much as 2 Dollars to the Pound.  Times they have a-changed though!..Xe.com tells me that 1 British Pound Sterling buys me but 1.38 US Dollars, a fall in the last 9 months of around 60 cents, or in percentage terms,  approx. 31%!!!  So if you’re making an investment purchase in the UK, there is certainly inherent value compared to even the most recent past.

The second major reason is falling house prices, which begins to give this type of investment market inherent value too.  Property prices have fallen approx. 20% from their peak 18 months ago, and therefore considered better value.  Discounts are also being offered in the region of an extra 20% on distressed and new build sales, which provides further value.  Therefore investors are  taking the view that these discounts provide built-in equity in case we have another year of falls.

Finally, rental yields are now in the region of 8-9%, which means on the typical mortgage, cashflow positive deals of around the £100 ($138) per month mark are starting to appear.  With interesting new 12 month insurance policies available from major brands to protect rental income, these deals are incredibly attractive.  Some valuers will even pay for your valuation for you so no expenses are necessary until you know you can get a mortgage and the valuation is accurate.

So it’s easy to see why property investors are taking the view that the current UK deals are great value, income producing straight away and extremely secure.  On top of this, a long term view means the profits are much more substantial than in a boom.  We are all taught to buy low, sell high.  Well here is the chance to put the first part of that equation into practice…whether it is property, or an alternative investment, companies like Discover and Invest can help you to see why the UK is worthy of your attention.