Andrew Thompson is a co-founder of Investbay and our leading expert on selecting investment properties. To give you a closer look at our strategy, selection criteria and ways of reducing risk, we did a short interview with him that will answer a number of important questions related to investing.
Can you describe your professional journey in the real estate sector?
I studied for a master's degree in land economy, which in the United Kingdom and other markets is a kind of stepping stone to a career in real estate and a criterion for joining the Royal Institution of Chartered Surveyors (MRICS - Member of the Royal Institute of Chartered Surveyors), which is the governing body that oversees professionals in the real estate sector. The course is very rigorous; before you complete it, a really large number of exams await you.
I completed the course and became a member of the Royal Institution of Chartered Surveyors, which I have now been for more than 27 years. In 1997 I started working for the international agency Cushman & Wakefield, first in the United Kingdom. I started out in investment real estate, such as industrial buildings, office buildings and shopping centres. I then moved into the leasing of industrial and office properties.
Subsequently, I moved to Prague, where I led acquisition negotiations for large institutional tenants such as PwC, Ford, GE and Procter and Gamble. On the leasing side, I worked with major developers such as Europolis and the like. After seven years in Prague, I set up an office in Slovakia and for seven years I ran a 40-person office in Bratislava.
I was then brought back to Prague to lead the Colliers investment team. I did that for seven years again. Eventually I got to know the CEO of Investbay, which fit well with my usual seven-year cycle. Seven years in Prague. Seven years in Bratislava. Seven years back in Prague. And now I'm in my second year at Investbay.
What attracted you to the concept of crowd-owning?
Most properties are large assets that require a lot of money. In 1997, when I was starting out, only large institutions were buying real estate, but over the following few decades the market diversified. Family businesses, wealthy individuals and private groups of all kinds came along.
Real estate is an attractive sector and it has a different risk-to-return ratio compared with stocks, bonds, cryptocurrencies and other investment assets. So a lot has changed over the past twenty years, and I see crowd-owning as the latest evolutionary step so far.
We are now able to divide a property into smaller parts in order to allow even small investors to invest in these assets. Until now this was really only possible through funds, where you have no say in which properties the fund holds. By comparison, as a crowd-owner you can choose a property, read the business plan and effectively invest in it on your own terms.
This is something completely new, and I think it has enormous potential, comparable to how retail ownership of stocks changed the investment landscape. It's all about making real estate investment accessible to everyone.
What is your professional approach to real estate? Do you have any rules you follow?
A lot of those rules are kind of already ingrained in me, because I've been in the field for 27 years now. I worked with institutional investors, so my approach is about minimising risk and maximising return. Investbay, on the other hand, is in an entrepreneurial environment, so thanks to that we have a combination of approaches based on pushing the boundaries and on the safety of investments. I think it's a good mix.
What are the primary criteria for selecting a property for the Investbay portfolio? Why do you choose this particular location and not that one? What do you focus on?
Above all, we are an investment platform, so we focus on the yields and capital growth of the asset. Those are the factors I always keep in mind.
At present we have focused on Europe, but in the future we may expand to the rest of the world very quickly. I prefer newer buildings because they are easier to manage, the architecture lasts longer, and we want to be able to sell the property without having to redo the interiors and everything else.
Projects should ideally have a licence for tourist use. We also look mainly for smaller properties, so apartments or flats with one or two bedrooms, because those are usually the best investment, higher yields can be obtained from them, and they can be sold quickly more easily.
We really like it when properties are located in resorts. They have better marketing of the property itself, and you can rely on the operator, which also reduces costs. If one operator manages 120 units, it is cheaper because they can scale services, unlike if each unit were managed separately.
There is also the question of eliminating OTA costs, that is, the costs of platforms such as Booking.com, Airbnb and so on. They do provide fantastic services, but they want high fees of around 20 % for them. So every time you go to a hotel or on holiday, 20 % of the price you pay goes to these entities.
By directly connecting our investment community with rentals, we can eliminate OTA fees and pass the savings back to our clients. And if a property is part of a resort, this can apply to the entire project, not just our single property. So it's a fantastic way to solve a problem that everyone in the industry has, and it brings benefits to the investors themselves.
We also focus on ESG (Environmental, Social and Governance, that is, the criteria of how much an investment project impacts the environment or the community around it, and also to what extent it is transparent), because we think this will have an increasingly large influence on the travel sector in the future.
What happens after this preliminary selection?
I create a financial model with the costs of purchasing the property, legal costs, transfer tax, the purchase price, fitting out the property including an inspection of the furniture, fixtures and other items.
Then a cash flow model, which deals with the potential annual income and the potential costs, including cleaning, maintenance, utilities and everything else that needs to be paid in connection with operating this property, perhaps even fees to the homeowners' association and the like.
Finally I evaluate the business plan and the potential sale, and only then are we able to understand the total returns.
Do you have any strategies for minimising the risks associated with these investments?
Experience plays a big role in this - you know what the trouble spots can be, and you learn to double-check certain pieces of information that seem suspicious to you. Every ownership and management structure is different, and the devil is in the detail.
We have a set of conditions that every property must meet. As I already said, we prefer newer projects in resorts. We only choose properties where there is enough data to create a really thorough financial model and to confirm the forecast of capital value growth and the income forecast. We also want operators who have experience.
All of these things play a role in reducing risk. But a lot of it is precisely about experience and about knowing where to look and what to (not) believe. What's more, after 27 years in the field I know a lot of people I can turn to when I need to verify something or fill in some information.
We are preparing the second part of this interview, which will deal with selecting the right location or country, as well as a deeper dive into the financial criteria for choosing an investment property.
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