Buy to let is not exactly a new phenomenon, but it has seen a popularity explosion over the last decade. Whenever this sort of growth phenomenon occurs, it is almost inevitable that hybrids and variations are spawned. Buy to let is no exception and in this week's Viewpoints article, we look at how one London company is vying to attract investors to its own version of the idea.

First Property Investments was launched in the UK by The Delph Property Group at the end of March this year. Delph Property Group has been investing in or managing property for 53 years and has a portfolio of 750 units, mostly in central London.

Initially, FPI bulk buys new apartments in a single block, and it now has a portfolio that includes a range of properties in some of London's latest developments in locations such as Battesea, Wimbledon and Maida Vale. It generally buys two bedroom flats, though there are also a fair number of one bedroom flats available.

It often buys directly from the developer, allowing them to get a good price for the individual units. This in turn means that they can offer them to investors at a price that is 25% lower than the market value. If they wish, buyers can instruct their own valuers to check the validity of the pricing.

The flat is then leased back to First Property Investment for a period of 12 years. During this time FPI takes care of letting the property, as well as the management. This leaves the investor with no ongoing landlord responsibilities and no outgoings, charges or costs. The property company essentially sets the rent, lets the flat and keeps the income. If the flat is left empty, then it is the property company who absorb the costs.

Each year, the landlord is paid a 2 percent return on the investment. Although this is essentially a risk free guaranteed income, it is considerably less than the 5 to 6 percent they could expect as an annual rental return if they let the property out through an agent.

The investor is able to sell the property at various escape points after 3, 6, or 9 years. However, there are penalties - after 3 years they must pay back 20 percent of the market price, after 6 years this falls to 15 percent and after nine years 10 percent.

At the end of the 12 years, the investor is able to cash in, or take occupancy as they are given back the flat with vacant possession. If they prefer, they can go on letting the property privately. The 12 year term also means that full advantage is taken of Capital Gains Tax tapering relief, leading to further potential savings.

Obviously, having bought the property at a substantial discount, there is a huge opportunity to make a killing when the time comes to sell. Assuming prices have stayed the same, there is an immediate gain of 25 percent. Obviously, historic trends in central London mean that prices are far more likely to grow substantially over the period of the scheme, leaving investors with a sizeable return on their capital.

These gains are amplified by the fact that the investor bought at a discount and any increase also affects the portion of the property value that was not initially paid for in the asking price.

Further benefits relate to the favoured property type in which the scheme invests. Many of the two bedroom flats which are generally bought tend to be priced at just over £250,000. The investor is only required to pay stamp duty on the discount. This means that the discounted price is pushed down into the lower stamp duty tax band, saving thousands from the initial outlay.

As has already been mentioned, there are some issues with the liquidity of the investment. But the main problem centres around the 2 percent annual return.

Firstly, it is far too low to cover mortgage payments, meaning that the investor must be able to pay cash for the deal, else meet mortgage commitments with funds from elsewhere. This may make it suitable only for those with a large sum to invest, so the mortgage repayments are minimised or excluded.

And secondly, since the 2 percent is fixed, the value of this income will be declining in real terms as inflation erodes its worth.

The scheme works best if you to commit to and see it out for the full 12 years. While this is not necessarily bad - especially given that property investments can tend to benefit from a long term outlook - it does mean that the liquidity is removed, making it difficult to get cash out from the scheme if it were required.

It is a new alternative and like things new, there can be an initial struggle to gain the understanding of the investor. It will need to attract people who are willing to take the time to familiarise themselves with an unusual type of investment and also aim for those people willing to sacrifice regular income for the potential of a larger capital gains.

The scheme is radically different to the rigours and full on involvement of being an investor landlord. Nor does it expose the investor to the fluctuations and risk posed by void periods and varying rental levels. And because the investment company makes its money from the rental income, you can be sure that they are going to be buying properties in sought after locations and developments.

You can find out more about the company and the scheme at:
www.delphpropertygroup.com