Gurtofen,

If you feel my reply was defensive and condescending then I can only say it is a mirror of your posts.

On some occasions people join, ask a leading question, only to really post a later reply for what they really wanted to say. In your case, no previous history, no apparent real name, and clearly an agenda to sow doubt.

In any event, my focus and priority is to serve the 1,300 people who are investors in the Fund. I’m not perfect, but I try very hard to be ultra transparent and do things that other Fund managers would never do. Those who are investors in the Fund will testify that this is the case.

Now down to business…

Director’s Valuation

The value in the accounts for the Fund’s US properties are the ‘fair value’ (as per IAS). The Director’s are charged with the responsibility for trying to ascertain what that might be, and in our case, even though our PDS says we will get an independent valuation (or appraisal, if you prefer that term) at least every three years, to be above reproach, we do it every six months.

We engage an expert appraiser, who is experienced and qualified, to do this. The appraiser looks at the net operating income generated and applies an industry cap rate AND also looks at comparable sales.

As Director’s we then review and (and in all cases thus far) adopt their recommendation. I have to say that in my opinion, the values given are on the low side, which is normal as appraiser’s are a conservative lot, but so be it. Those investors still in the Fund at the end will get the benefit, if any, at the time of sale.

Capright’s website is: http://www.capright.com/

Redemption Price

Your suggestion that The Redemption Price vs Buy In Price seems to be heavily waited to ‘adjustments’ which once indicates to me a significant discount to ‘true value’ implies the ‘true value’ in the accounts is incorrect. If so, then the in-house accounting team and the external auditors are all wrong. With respect, I will defer to those who know more, which has to be the trained accounting experts with access to the relevant information rather your accusation.

Accounting standards say we have to carry at fair value and in doing so we cannot include any sales costs. I personally think ignoring sales costs overvalues the property and also causes the provision for deferred income tax to be overstated (I have had this discussion at length with our auditors), but the rules are the rules.

However for redemption unit pricing we do adjust to add in sales costs (as is permitted under the Fund’s constitution when calculating the Redemption Unit Price), which can be as high as 10% of an asset’s value (6% sales commission, stamp duty, etc). If we didn’t make this adjustment then an investor could cash out before an asset is sold, get the gross value / higher price, and leave the sales costs to those who remain at the time of sale. This is not fair.

Now, what you (or I) consider to be a fair value, and what the accounting standards define it as, may differ. In any event, the accounts are audited to see if they are true and fair in accordance with accounting standards, so what we may think personally doesn’t count for much.

Final Comment

You stretch a long bow with your conclusion about estimates and assumptions which seldom represent actual results. That may be your opinion based on your experience, but it is not mine, especially when it comes to this Fund.

The numbers reported are not fictitious nor pulled from thin air. They are based on reliable data and opinions. But who is to truly know what a property is worth until it is sold? Up until that time, the best you can give is an informed opinion.

I thank your for your well wishes for the Fund. You can keep an eye on how it performs (and read the published financial reports if you’d like) at: http://www.passiveincomefund.com/performance/

– Steve

• This reply was modified 8 years, 11 months ago by  Steve McKnight.

Note the Fund is now full and closed to new and top up applications. The next redemption period will be September / October 2016.

Steve

Hi,

The appraised values shown in the accounts are independent, not internal, and values are recorded as required by Australian Accounting Standards.

The accounts are audited annually with the interim accounts subject to independent review too.

The appraised values are done by Capright and updated every six months.

It is true that a large part of the return is due to the fall in the value of the AUD, but that was part of the strategy.

We are looking at hedging options now to lock in some of our gains.

Steve

Hi,

Thanks for the post.

Unfortunately, I’m not able to recommend anything, but if you scan through the many websites of major developers offering off the plan developments you should be well looked after.

All the best,

– Steve

Hi,

I get this question a lot: about the use of a company / trust structure and acting as guarantor rather than borrowing in your own name.

Strangely, I get about a third of people happily report they can still do it with no problem, about a third of people say they’ve tried and it can’t be done, and about a third of people who want to know is it yes or no.

So here’s the best answer I can give: it depends.

“On what?”, I hear you say. Well, on your relationship with the lender. If you come in via retail channels or via a ‘off the shelf’ mortgage broker, then the answer seems to be ‘no’. If you apply via an established lending relationship (and in particular, business banking), or via a well networked mortgage broker, then the answer tends to be ‘yes’.

So, once again, this proves the importance of networking and in the case of finance, you need to start well before you need the money.

All the best,

– Steve

Hi,

There are about 1,100 investors in the Fund at the moment, with an average investment of approx $50k.

Be sure to read the PDS which is available at the weblink you mentioned.

The Fund will suspend accepting new / top up applications from 1 July, so if you are interested in proceeding then be sure to get your completed application form in before close of business on 30 June.

If you have any questions about the Fund you can call me in the office on 03 8892 3800.

– Steve

Hi Nathan,

To be clear, let’s get a couple of things sorted:

1. It’s unlikely you will need a loan for the sub-division, but rather the construction of the new dwelling(s)
2. Construction finance is usually based on stage of completion against the building contract, rather than an end value
3. Others on the site will have a better grip on this, but I would have thought that 70% would be a standard loan for construction
4. The land component may be treated separately, and if you have equity you may be able to refinance to pay the shortfall on the construction.

There’s a bit to understand here, so be sure to consult with an expert.

– Steve

Hi,

My experience from a decade or so was ago was that Aussie banks only wanted to lend against Aussie property, but NZ banks were happy to lend to Aussie investors buying NZ property.

I suggest you contact a NZ based mortgage broker, as well as a couple of banks direct. The Bank Of NZ lent to me based on my Aus tax return and the proposed income from the NZ properties.

– Steve

Hi Ben,

I sold the mentoring program back in 2009 to the coaches who worked for me at that time. You can find them now at http://www.resultsmentoring.com

The link to registering the book can be found on the right hand panel of the home page, but here is the link for easy viewing:
https://www.propertyinvesting.com/store/0-130-properties-revised/register/.

Glad you enjoyed the book.

– Steve