Thoughts on a new investment product

[basilio]

I came across this new investment scheme that has been launched in Melbourne. Short story is that it invites people to join a fund that purchases carefully selected residential properties in prime Melbourne suburbs with a view to benefiting from their capital appreciation over time.

Minimum investment $10k. Minimum time 5 years. No entry fees or management fees. It is premised on the idea that quality properties on land (no apartments) will continue to increase in value by 7-10% a year and that this will be returned to investors in due course.

It has a proper prospectus. ASIC has gone throw it very carefully..

I'd be interested to hear other peoples thoughts on the proposition.
http://housebuyersunited.com.au/hbufund/how-hbu-works/

 

[skc]

I came across this new investment scheme that has been launched in Melbourne. Short story is that it invites people to join a fund that purchases carefully selected residential properties in prime Melbourne suburbs with a view to benefiting from their capital appreciation over time.

Minimum investment $10k. Minimum time 5 years. No entry fees or management fees. It is premised on the idea that quality properties on land (no apartments) will continue to increase in value by 7-10% a year and that this will be returned to investors in due course.

It has a proper prospectus. ASIC has gone throw it very carefully..

I'd be interested to hear other peoples thoughts on the proposition.
http://housebuyersunited.com.au/hbufund/how-hbu-works/

I have seen another one called BrickX. Pretty much the same thing.

https://www.brickx.com/

When they say no management fee I assume it means no management fee on the money you invested... there's still management fee on the actual rental of the property one would assume.

You got to research who's providing the liquidity to cash out if you ever want to. It might be fun to think you have exposure to the property when you only have $20k... it will be a lot less fun when you have $250k exposure and want to sell but there is no market to do so. On the other hand, perhaps that's not too different to owning direct property outright.

Another consideration is what makes this a better alternative than say listed property stocks?

In summary... best to let this model run a few years before committing serious funds imo.

 

[luutzu]

I came across this new investment scheme that has been launched in Melbourne. Short story is that it invites people to join a fund that purchases carefully selected residential properties in prime Melbourne suburbs with a view to benefiting from their capital appreciation over time.

Minimum investment $10k. Minimum time 5 years. No entry fees or management fees. It is premised on the idea that quality properties on land (no apartments) will continue to increase in value by 7-10% a year and that this will be returned to investors in due course.

It has a proper prospectus. ASIC has gone throw it very carefully..

I'd be interested to hear other peoples thoughts on the proposition.
http://housebuyersunited.com.au/hbufund/how-hbu-works/

Sounds like a Ponzi to me.

When investors want to redeem part or all of their units, where does the Fund get the money from to pay those units?

From what I read, and I could be wrong as I only scanned through the stuff, investors put in the cash into HBU... then some HBU Funds Management Pty. Ltd. manage those properties at no costs to the owner since all costs will be paid for from rental income. i.e. rent comes in, HBU Funds Management Pty. Ltd. use it to pay for maintenance etc., whatever is left they get to keep.

So where will the money comes from to repay investor who want to redeem their units? Probably got to find new investors who want in. Unless the excess rental income paid into HBU Funds Management Pty. Ltd. is the actual HBU Fund, but that does not seem to be the case.

Since they can't sell part of a property, and there are no other cash to pay redemption... or if there are cash, it won't be enough to cover more than 10 or 20% redeemed units... Does it mean that when "enough" investors wants out, they'd have to sell the entire fund at whatever cost at the time?

Other issues include:

-- Who determines the costs to maintain and administer these properties? If they're paying themselves, will the rate be market's rate, mate's rate or gotcha rate?

-- How in the world can the property market, at its current height, still gain that 7 to 10%p.a over next decade? That would mean a slightly more than doubling of the property. Over 30 years, maybe... but if the investor have to wait that long, might as well buy their own property, get some rental income, claim the tax losses to have big brother foot that loss.

 

[luutzu]

I have seen another one called BrickX. Pretty much the same thing.

https://www.brickx.com/

When they say no management fee I assume it means no management fee on the money you invested... there's still management fee on the actual rental of the property one would assume.

You got to research who's providing the liquidity to cash out if you ever want to. It might be fun to think you have exposure to the property when you only have $20k... it will be a lot less fun when you have $250k exposure and want to sell but there is no market to do so. On the other hand, perhaps that's not too different to owning direct property outright.

Another consideration is what makes this a better alternative than say listed property stocks?

In summary... best to let this model run a few years before committing serious funds imo.

i guess if people want exposure to property but have low fund, they can just buy stocks in property developers. Safer than these kind of lock-in investment.

 

[McLovin]

I hope they're better at investing than syntax!

Once they realised they was living in financial hardship simply because none of their assets were 'spendable', that they was all tied up in their house and all they needed to do was to convert the equity they'd built into their house and free it up into cash they could spend - they did.

I'm about to walk out the door, but I just had a quick look. Am I right that fund investors are only entitled to capital units? The manager owns all the income units and doesn't take a "fee" they just take all the income generated by the fund that is not capital in nature (ie net rental yield). If that's the case I'll take a very wide berth on it.

 

[skc]

I'm about to walk out the door, but I just had a quick look. Am I right that fund investors are only entitled to capital units? The manager owns all the income units and doesn't take a "fee" they just take all the income generated by the fund that is not capital in nature (ie net rental yield). If that's the case I'll take a very wide berth on it.

I didn't actually read the website in detail... but if that's the case, I don't believe anyone would knowingly accept such terms. Which also suggest to me that ASIC should never have approved such a product.

P.S. BrickX does pay a distribution based on rental income received... so I was incorrect in calling it similar to HBU.

 

[basilio]

Interesting thoughts. I shared the reservations particularly on the question of liquidity if/when people wanted to sell.

I also deeply query the basic premise - that house prices can keep rising 7-10% indefinitely. But they also point that out very early on.

Frankly I think it will be a challenge to get it off the ground. On my reading they need to raise approx $10m to enable sufficient properties to be bought to cover the costs of operation. Really wonder if they can find 1000 people with a spare 10k and 5 years to spare.

 

[McLovin]

I didn't actually read the website in detail... but if that's the case, I don't believe anyone would knowingly accept such terms. Which also suggest to me that ASIC should never have approved such a product.

P.S. BrickX does pay a distribution based on rental income received... so I was incorrect in calling it similar to HBU.

Well it seems pretty opaque and they make no mention of it on their website. The way they have worded it as nil managers fees, no doubt on purpose but from the PDS...



Seriously, is this a joke? Give me your money I'll go and buy some residential property and take the income and give you any capital gains. And I like how they generously offer to pay short-fall in "normal" expenses. If you can't make money with ungeared residential property...

What a business model! Some suckers take all the capital risk while you take all the income.

ASIC has gone throw it very carefully..

I sincerely doubt that.

 

[Smurf1976]

No comment on the specific investment funds being mentioned here but the emergence of such things as an easy way for the last remaining potential property investors to pile into the market absolutely screams "market top" to me.

I was invested in managed funds back in 1999 when an assortment of "technology" funds appeared. Thankfully I didn't put my money into them* but that's the sort of thing which happens just before the market goes "pop".

*I didn't invest in those funds but it turned out that the "diversified" fund I had invested in was heavily loaded with dot.com stocks anyway. Learned a lot, the hard way, out of that experience and won't forget anytime soon.

 

[OmegaTrader]

I came across this new investment scheme that has been launched in Melbourne. Short story is that it invites people to join a fund that purchases carefully selected residential properties in prime Melbourne suburbs with a view to benefiting from their capital appreciation over time.

Minimum investment $10k. Minimum time 5 years. No entry fees or management fees. It is premised on the idea that quality properties on land (no apartments) will continue to increase in value by 7-10% a year and that this will be returned to investors in due course.

It has a proper prospectus. ASIC has gone throw it very carefully..

I'd be interested to hear other peoples thoughts on the proposition.
http://housebuyersunited.com.au/hbufund/how-hbu-works/

What is the difference between these type of investments and REIT investments?

Wasn't there some controversy years ago when alot of REIT's halted redemptions?

Sounds a bit like an over the counter REIT...

 

[ROE]

Just like any other REITs to me but this one is on residential and closed for 5 years
They milk their fees from somewhere, they aren't working for free.

High-quality REITs with prime real estate would be a better option, you get yield while you wait for the capital gain to catch up.

There are plenty around on the ASX why would you want to invest into something that is closed
for 5 years and have won't be as transparent as ASX listed stock.

have a look at WFD I reckon current price isn't bad with plenty of redevelopment to come online in the next few years.

 

[skyQuake]

Seriously, is this a joke? Give me your money I'll go and buy some residential property and take the income and give you any capital gains. And I like how they generously offer to pay short-fall in "normal" expenses. If you can't make money with ungeared residential property...

What a business model! Some suckers take all the capital risk while you take all the income.

Whats stopping them from finding the highest yield apartments available?
And lock that in for 5 years too...

How do I join the board???

 

[skc]

Whats stopping them from finding the highest yield apartments available?
And lock that in for 5 years too...

How do I join the board???

Exactly. Find the highest yield and maintain it minimally. Maximise free cash flow (it's free cashflow in the truest sense for HBU) over the 5 year period and care nothing about capital gains.

What's the net yield on Melbourne apartment these days? 2-3%? So if they raise $10m they can potentially make $2-300k a year? It doesn't sound like a very lucrative deal either way.

A crappy deal for everyone.

 

[basilio]

Exactly. Find the highest yield and maintain it minimally. Maximise free cash flow (it's free cashflow in the truest sense for HBU) over the 5 year period and care nothing about capital gains.

What's the net yield on Melbourne apartment these days? 2-3%? So if they raise $10m they can potentially make $2-300k a year? It doesn't sound like a very lucrative deal either way.

A crappy deal for everyone.

Not the case.
The premise of the project is that house and land values in higher quality Melbourne suburbs will continue to rise. They specifically exclude apartments from intended purchase because clearly there is no land component.
There isn't much in it for the promoters. I notice that they intend to get 3-4% rental return on the properties but I seriously doubt the market will allow that. For example will an average $2 m suburban property in Brighton return 70K a year (3.5%) ? And of course rates, maintenance management and any necessary capital repairs will take a slice out of the package.

Still can't see how they would handle investors wanting to exit if the current rate of property growth changes.

https://www.realestate.com.au/property/92-asling-st-brighton-vic-3186

 

[luutzu]

Not the case.
The premise of the project is that house and land values in higher quality Melbourne suburbs will continue to rise. They specifically exclude apartments from intended purchase because clearly there is no land component.
There isn't much in it for the promoters. I notice that they intend to get 3-4% rental return on the properties but I seriously doubt the market will allow that. For example will an average $2 m suburban property in Brighton return 70K a year (3.5%) ? And of course rates, maintenance management and any necessary capital repairs will take a slice out of the package.

Still can't see how they would handle investors wanting to exit if the current rate of property growth changes.

https://www.realestate.com.au/property/92-asling-st-brighton-vic-3186

Hard to see an average property in Australia, no matter the quality of the location, could be going for $4M.

Not in the next five to ten years, and a lot less likely now that China is enforcing laws to curb capital flight from the mainland.

And if the property is to be rented out, where the manager's pay is what's left after maintenance.. .well there's not going to be any repair beside a couple of ductapes and a coat of primer. So investors would be looking at a real knock-down rebuild kind of scenario.

Then there's that liquidity... if it crashes, they can just sell to another company of theirs.

 

[ROE]

Not the case.
The premise of the project is that house and land values in higher quality Melbourne suburbs will continue to rise. They specifically exclude apartments from intended purchase because clearly there is no land component.

No one can guarantee that and can predict that, it all based on historic data just like all financial planning advice based on some average return and model, look good on paper and that the only place it look good ..Reality is far far different

 

[basilio]

Of course there are still property bargains to be had even in Brighton. Only $326k...

https://www.realestate.com.au/sold/property-house-vic-brighton-124169130?cid=pdp:recent-sales

 

[Klogg]

Not the case.
The premise of the project is that house and land values in higher quality Melbourne suburbs will continue to rise. They specifically exclude apartments from intended purchase because clearly there is no land component.
There isn't much in it for the promoters. I notice that they intend to get 3-4% rental return on the properties but I seriously doubt the market will allow that. For example will an average $2 m suburban property in Brighton return 70K a year (3.5%) ? And of course rates, maintenance management and any necessary capital repairs will take a slice out of the package.

Still can't see how they would handle investors wanting to exit if the current rate of property growth changes.

https://www.realestate.com.au/property/92-asling-st-brighton-vic-3186

If there's no mortgage on the property, I'm sure I can find a house that gives me a great rental yield.
Rental yields in Melbourne suburbs vary a lot (Hawthorn/Camberwell < 3% for houses, Melton 5.49%). [FWIW - I just did a quick google search on that, I reckon I could find 6-7% yields if I really searched. Townhouses are not excluded]

Given they haven't listed the suburbs, you can be sure they'll preference the income over capital growth - incentives are structured as such. If I'm getting 5% on somebody elses money, it seems like a dream... even if there is a 1-2% fee in minor renovations, property management, rates, etc.

This surely can't have been reviewed by ASIC.

 

[basilio]

If anyone is interested the nominal capital appreciation on the previous property was from 1k to 326k over 40 years.

Should we extrapolate that for another 40 years ??

 

[basilio]

If there's no mortgage on the property, I'm sure I can find a house that gives me a great rental yield.
Rental yields in Melbourne suburbs vary a lot (Hawthorn/Camberwell < 3% for houses, Melton 5.49%). [FWIW - I just did a quick google search on that, I reckon I could find 6-7% yields if I really searched. Townhouses are not excluded]

Given they haven't listed the suburbs, you can be sure they'll preference the income over capital growth - incentives are structured as such. If I'm getting 5% on somebody elses money, it seems like a dream... even if there is a 1-2% fee in minor renovations, property management, rates, etc.

This surely can't have been reviewed by ASIC.

No. Let's be clear. The established objective of the scheme is to punt on the continued appreciation of prime land based property (ie no apartments) located in upper middle class Melbourne suburbs. Brighton, Hawthorn, Surrey Hills whatever. The theory is that as the properties are purchased there will be a regular valuation to show investors how much capital gain they are (potentially) making. They would blow themselves up if they started buying highyield properties in Melton.

And be assured it was vetted very closely by ASIC. All that means is that there is nothing obviously shonky about the PDS. Still buyer beware.