Risk Vs Return – What Is The Niche?
I do not think that I am delving into the financial advice arena by noting the old adage of “the higher the return the greater the risk”. This is however a generalism and Investors should make further enquiry.
GPS has traditionally delivered returns to Investors in the 8% to 9% range (past performance does not guarantee future performance). We achieve this for a number of reasons which include:
- We endeavour to position ourselves where we do not compete against the banks or other larger financial institutions. Our niche is residential construction and development for loans between $1.5 million and $5 million. Such lending has traditionally been too large and complex for a branch manager (or whatever they are now called) and too small to be viable for their property departments.
- We offer service, skill and experience to the Borrower. We know that there will be problems with some loans and we take an active role in the resolution process. After nearly 20 years of doing this type of lending and having been involved in several hundred projects, I hope that GPS knows a thing or two by now. Borrowers like to be able to deal directly with the owner of the lending company and not be pushed from one department to another, and have decisions made by faceless people. Borrowers are conducting a business and they will pay for the value of service, skill and expertise.
- GPS has the 2-hour rule. The majority of the developments on which we lend money are within 2 hours drive of our office in Brisbane. I was born and bred in Brisbane and we like to “stick to our knitting”.
- Another of our rules is that we would sooner not take an Investor’s money than not give it back. GPS is a smaller fund and we intend to stay that way. We are not driven by having to get monies out the door so as to grow our book, and believe that if you do not look after your Investors you will not have them for long.
- While GPS operates relatively small funds, we have available to us, through our Valuers, Quantity Surveyors, Lawyers and other consultants, a great depth of knowledge and experience. Our relationship with firms such as Savills (valuation), Mitchell Brandtman (quantity surveying) and McCullough Robertson (lawyers) dates back to shortly after GPS started in solicitors’ private lending in 1994. Our view is that if we sought to directly employ people to perform such specialised services, then we would only be able to afford average people. With our business model we not only reduce costs, but get the right person for the job. Loyalty to consultants does have rewards.
- While on the subject of loyalty I note that the loyalty and trust to date of the GPS Investors has helped us through tough times such as the GFC, and is a key reason why we have been able to deliver good results (past performance does not guarantee future performance). GPS has a direct investor base (no financial planners) and we know most of our Investors as individuals. This is a cultural aspect of GPS and provides the drive to do the best we can for our Investors.