Peter Spann's new book title

[Peter Spann]

Good idea

why not make it a download from your site?

Good idea but Harper Collins owns the copyright.

Anyway most of it is already in this thread if you go back through it!

 

[Jas]

I was looking at dividends for shares as you where writing on porperty trusts.

Unsurprisingly, I found property trusts had the highest dividend. While they where around 9% yield, the capital growth on them went backwards.

Not something I'm looking for in an investment...

So now I'm looking at unlisted ones.

Jas

 

[voodoo]

Actually no, I get paid as a percentage of sales so you owe me .80c !

Remember that I have a very limited cash flow at the moment.

cheers

 

[Peter Spann]

More on CPT's

Unsurprisingly, I found property trusts had the highest dividend. While they where around 9% yield, the capital growth on them went backwards.

There are lots of listed CPT's that had good capital growth over the last few years but you will find their yield more in the 5% to 8% bracket.




The unlisted trusts do tend to yield higher - 9% to 18%. There are also funds that invest in a diversified group of property trusts that do well. One of our favorites has yielded 9.04% PA, tax advantaged, paid quarterly over the last 7 years with an average capital growth of 6.5%.


If you are able to get high LVR’s (and it is appropriate for the time in the economic cycle and here at the end of 2004 I do not think it is), and you can afford any negative gearing residential property should outperform due to the leverage.



But, and may of our clients find themselves in this position… If you are getting or wanting lower LVR’s and you want cash flow positive, then I believe quality CPT’s will outperform virtually all cash flow positive residential properties over the long term and perform in a similar manner to negatively geared, high growth property.



Let me demonstrate on a quick example I did this morning in a team training…



If you had $100,000 to invest in property that would buy you about $400,000 in residential property at 75% LVR (about right for the current market according to my reckoning).





Alternatively that could get you about $350,000 in this fund.



Against those historical performance figures (and remember historical performance is no guarantee of future profits) yield on the $100,000 would have averaged (and remember this would be up and down) $9,040. If this was cash this would be pure income. If you were borrowing the cost to borrow would be, say, 7.25% fixed for 5 years so $7,250 PA or a net yield of $1,790 PA.



Cost of the loan would be (at the moment) 8.2% fixed for 5 years or $20,500. Yield would have been $22,600 or a net cash flow of $2,100.



While you have to allow for variance (and I do not have that data available so can’t comment) that would be an annual income of $3,890 for the 100% leveraged example or $11,140 for the 60% LVR.



Let’s stay with the 100% LVR.



Most people would argue that $3,890 PA will not make you rich.



OK, but the average income in Australia is just $31,000 so that an increase in income of over 10%. Most of our clients have a household income of about $80,000 PA so that’s still a “pay rise” of 4.8% and remember there is also $3,342 of tax credits on that income so even if you are paying the top marginal rate there is no more tax to pay, and if you are on lower rates you may even get a tax return on that, so it’s the equivalent of earning about $7,500 extra in salary a year.



That $3,890 in income is $74.80 a week which should (give or take) pay for the servicing on one negatively geared residential property in a high growth area (so making that property cash flow neutral).



At the end of 10 years that the average rate of capital growth the $350,000 invested in this fund would have been worth $656,998 or $306,998 net.



Compare that to the residential investment of $400,000. Theoretically it should be worth $800,000 at the end of 10 years (presuming of course that it grows at the average rate). Say the average cost of ownership was $50 per week (and that doesn’t include maintenance, rates, land tax in some states, vacancy, insurance, the irritation of dealing with tenants and so on) over the 10 year period, probably starting much higher and then gradually getting less, the cash outflow would be $26,000.



So, capital growth would be $400,000 minus $26,000 or $374,000.



Capital growth on the CPT would have been $306,998 PLUS the $38,900 yeild or $345,898, so a marginal under performance, however you have had the benefit of the cash flow over the 10 years, which could have funded another negatively geared residential property plus all the benefits of a highly liquid investment.

If the $100,000 had been cash then:

Your reisdential property probably would have averaged out at cash flow neutral over the 10 years so a net gain of $400,000.

Your CPT would have had capital growth of $306,998 plus cash flow of $111,400 for a total of $418,398, so here we have an outperformance.


To “cash out” your residential property investment you would be up for $20,000 in agents fees, about $15,000 in other selling costs and in NSW you’d now be up for $18,000 in tax so your $374,000 net is now looking like $321,000, plus even in a buoyant market it takes about 3 months to sell and settle.



To “cash out” your CPT costs you nothing and you have the money in your bank account in 24 hours.



So now the CPT outperforms again.

While I am certainly not suggesting it as a replacement to residential property (especially if you are first starting out), to me it is an exciting cash flow positive alternative to JUST residential property investing and certainly has a place in a balanced portfolio.


If you read this post in the context of everything else that has been written by me and the responses to that on this topic I think you will get a balanced view.



Disclaimer: Peter Spann is an Authorised Representative of Freeman Fox Securities Limited, the Holder of an Australian Financial Services License. The material in this article is of the nature of general information only and neither purports nor intends to be advice. No consideration has been given or will be given to the individual investment objectives, financial situation or needs of any particular person. Investments can rise and fall in value. The decision to invest and the method selected is a personal decision and involves an inherent level of risk. None of the information in this article constitutes, and must not be construed as, an offer of securities or other financial instruments. Nor is it an invitation to you to take up securities or other financial products. Nor is it a recommendation to deal in any securities or other financial products. Before making an investment decision on the basis of any information presented in this article the investor or prospective investor needs to consider, with or without the assistance of a Licensed Financial Adviser, whether the strategies are appropriate in the light of their particular investment needs, objectives and financial circumstances. Peter Spann, Freeman Fox Securities Limited and their associates may hold shares in the companies presented and will be entitled to commissions on certain products. While every effort is made to ensure accuracy the laws and strategies relating to investing, financial services and taxation are constantly changing as does the factors that effect the likelihood of investing success for example, but not limited to, the economy, government policy, market sentiment, and time, therefore the writer does not warrant or guarantee the accuracy, voracity or timeliness of any of the information presented. Any examples presented are for illustration purposes only and previous results are no indication of future profits.

 

[Peter Spann]

Cf+

Remember that I have a very limited cash flow at the moment.

Now if you had invested your $19 in a CPT that would have produced a $2.43 PA yeild so you could have paid me my .80c and STILL be in front $1.63!

 

[geoffw]

Peter,

Are you looking at PTs in just one segment? For instance, a PT investing in CBD Office space in Melbourne would perhaps not be performing too well just now.

 

[JohnK]

Peter, Which type of trusts do you currently invest in?

* Industrial
* Office
* Hotel/Leisure
* Retail
* Diversified

 

[Peter Spann]

Change Your Life

I was asked an interesting question in another forum.



It is very much "me talking about me" so if that turns you off stop reading here, but it has received an excellent response and has generated over a dozen PM's of congratulations in the "other" forum, so seeing I have had such a warm reception here I thought I might take the liberty to post it here as well and I am happy to receive a clip over the back of the head if the moderators think it inappropriate.

Originally posted by *:

May I ask you what’s the life of a millionaire really like? Being wealthy does it give your life a lot of excitement? I’m quickly climbing my way to the top but what’s the view like up there?



A very interesting question. The view is very nice - thank you.

How has my life changed?

Mmm, well, first I don’t eat Black and Gold Brand Tuna any more.

That’s a good first start!

I'll let you decide for yourself if my life is exciting - to me it is just my life...

Really, the most important thing is that I have more choice about what I do, when I do it and who I do it with.

My life didn’t change much at all until my net worth was well into the millions.

There really needs to be a new “benchmark” for us to set our goals towards. While I understand that most people would LOVE to be a millionaire it really is not that much if you have any form of desire for a materially extravagant life.

If you just want to sit and meditate a mil will still buy you a nice farm in Byron Bay!

I always say that money doesn’t buy you anything important – love, family, health, happiness, purpose – those are not the domain of the wealthy and people with money have just the same problems as people who don’t - no more, no less.

Wealth is all about choice and ease.

So, on a material level my life has changed a lot.

Some of the changes I notice from the days I didn’t have any money…

I have a beautiful home in one of the most expensive suburbs in Australia – Darling Point as well as my home in Brisbane which was the 3rd most expensive sale for a house in Brisbane when I bought it.

My personal space is important to me and so to have so much room in the house means I can always find myself a quiet spot (different from living with 21 other people in a condemned house which is where I started) and the outlook is lovely.

I have a full time housekeeper, gardener and cook who keep the house in an immaculate state at all times so no cooking, cleaning, washing, ironing or gardening for me. Of course, most people will know that allows me and my partner a LOT more free time.

While my favourite dinner is still grilled chicken and salad with Sarsaparilla to drink, our cook can and does whip up some quite exotic meals when we have guests over for dinner (which is about 3 nights a week and when home, Sundays for a pool side party) and, while not super extravagant, the wine on the table is usually in the $50 to $100 a bottle range.

It also means that all the (5) spare rooms are always made up and ready so when we have guests they can be accommodated at a moment’s notice. Most of my friends prefer to stay with me than 5 Star hotels – they say they get better service!

When I do stay away – which is a lot - I stay 5 Star and usually in suites that I have stayed in many times before so I have a sense of sameness or homeliness (very important for a “Crab”) – the staff at the boutique hotels where I stay usually recognise me and do those little extra things for special guests – again important to me. To people who do not travel a lot they don’t get why spending so much extra is worth it. Just to have a Butler press a shirt so I can have 20 more minutes sleep or 20 more minutes to myself is virtually priceless though when you spend over 200 nights away from home.

I have a nice collection of cars and I love driving my Ferrari on quiet country roads to just revel in its sound. I don’t wait in Taxi cues as my limo driver is always there waiting and I fly at the pointy end of the plane (First Class is a joy) and every now and again as an extravagance I charter a plane to remind me of my goal to again own one.

I go to Europe once a year, another international destination a least once per year, take my partner skiing once a year and head up to the Whitsunday’s to spend time on my 63’ boat as often as I can. (although now I have to fly Jetstar to Hamilton Island there’s even more incentive for me to earn more so I can afford my own jet again).

I throw excellent birthday parties and as I don’t like Christmas away from home bring my family and my partner’s family to me every other year.

I get invited to a lot of special events – charity balls (and you can get fantastic deals at the auctions – like I bought $15,000 in fine wine for just $3,200 and an all expenses paid cruise valued at $32,000 for $11,000 which was less then the return First Class airfares that were thrown in), concerts, theatre, gallery openings, parties, product launches (recently the arrival of the Maybach at our local Mercedes dealer) and enjoy not going to most.

I get to follow my favourite sports up front and personal – F1 in the Paddock Club at Monaco, Melbourne and Imola this year, the swimming and beach volley ball at the Olympics, The Brissy Lions from a corporate box and so on.

I get to meet some great people… Mother Teresa, Nelson Mandela, Bill Clinton, Michael Schumacher, all sorts of sports people, movie stars (I got invited to Cannes Film Festival by Sandra Bullock this year), politicians, businessmen and the like.

I hate lining up for things and a little bit extra “flash” (as they say in the good ol’ USofA) usually fixes that.

My Doctor was the President of the AMA (they most definitely do not bulk bill) and I have the best specialists in the country looking after me when I need it.

I don’t have to worry about many things – like where next month’s home loan repayment is coming from, can I afford this that or the other, will my credit card bounce if I hand it over, what I have to sacrifice to afford something and so on (and I acutely remember what that’s like from when I was less wealthy and the red face when it did get declined).

All of this I am extraordinarily grateful for. Coming from where I did I understand deeply how lucky I am to have all this, and on the flip side I also like to give back.
I have established a private foundation, and apart from the tax benefits it has allowed me to give away a lot of money to charity. These days I invest the funds I give to the foundation and the other funds we raise. 50% of the profits go back to the fund and 50% are donated. This has resulted in lower donations in the short term but will produce a sustainable fund that will in perpetuity donate to charity and continue to grow (Like J.P. Getty’s fund which is now almost $100 Billion).

I also like to do practical projects, so for example this coming weekend I have, with a group of my Platinum clients organised to build a barn on a farm that helps errant teenagers get skills and trades so they can get back into society.

We have 200 people coming and intend to build it between 9 am Saturday and 6 pm Sunday. This is the 7th such project I have started.

I still go to work most days and have a great company with a great team who I am proud to work with but what has changed is that I get the feeling that, most days at least, we are really making a difference in people’s lives. The company has a small amount of influence with certain people which helps get things done. The Qld government for example were most helpful in assisting us to move our head office to Brisbane and in the process we made friends and contacts in the government and public service which would help us again should we need it. It also means we have the resources to do what we need to do to run our business and move it forward.

The influence extends well beyond that. In our western world people respect people with money more (sad but true). It’s easier to get things done. People are always offering me free things, discounts, extra services and so on to impress me just because they perceive I may have a bit of wealth. Odd that the more money you have the less you have to pay for!

I could go on but I think you’ve got the picture.

If having money has downsides I can’t find many of them…

Maybe a greater sense of responsibility. Maybe a greater sense of guilt when you see things not quite right in the world that money could fix (lot’s more than I have might I say), like hunger and so on.

But most of the downsides in my life come from my public profile not necessarily from money (ie I could have chosen to be wealthy without seeking public attention). Having people recognise you is mostly fun but sometimes difficult.

Like the other night I was running late for my flight home. I got to the airport late but was excited to see that they hadn’t started boarding the flight. The check in person called the gate and the gate said no, so I politely but firmly asked her to try again. The gate still said no and so I asked to speak to the gate person myself and finally after a bit of argy bargy got on the plane. The check in person said “I have been to one of your seminars and now I’m disappointed because I have seen another side of you.”

I mean, what am I supposed to do with that? I was tired and just wanted to go home after a long and difficult day. Somebody making a comment like that just makes it worse, like I always have to be on my best behaviour and never demand anything just because somebody might recognise me. I have seen people do far, far worse than that at check in time! No wonder genuine celebrities get lumbered with the “spoilt” tag. I can imagine the story she told when she got home (although it probably would have been funny to hear).

But to my own personal credit I handled it, I believe quite well. A few years ago I would have full on chucked a tanty and made a real scene, so I’m making progress on the personal development front.

And this leads me to, more importantly, having a bit of wealth (and I do not consider myself rich) has enabled me to spend time on myself. Going to courses, reading books, working with coaches and so on to try to become a better person. I have a long way to go but I am enjoying the journey.

I think I lead a full life, and while I want to live for a long time, believe I have packed as much as I possibly could into my little life, and wealth gives me the freedom to continue to do so.

I always say that money acts as a giant magnifying glass, amplifying whatever you already have inside.

So if you are happy, money can make you happier, if you are sad then money will make you miserable. This is why I work on myself. To find happiness in everything I do, to find peace and harmony in my life.

So has my life changed since I have had money – absolutely.

Has money changed me – yes, mostly for the better I hope.

So set your goals around what will make you happy. Money has no use in the world apart from helping us fulfil our purpose. And for that, it is extraordinarily useful.

And if you set your goals around happiness then you will be happy today with or without money, and if it ever happens (not that it will), I will be happy without money too.

 

[Peter Spann]

What type of CPT?

Peter, Which type of trusts do you currently invest in?

* Industrial
* Office
* Hotel/Leisure
* Retail
* Diversified

{Still unable to do multiple quotes so I hope this answers both your and Geoff’s question}.

Industrial is off the boil. Office has peaked. Retail is Hot at the moment. But all of it goes through cycles and that’s why I like diversification.

So generally I look at either Diversified Trusts, or Funds that invest in a diversified group of trusts (because of the risk mitigation and counter cyclical yield provided by the diversification) or single building trusts (in any sector) that I like.

For example, (NO RECCOMMENDATION HERE - DO YOUR OWN RESEARCH) at the moment the building our company is in, Waterfront Place is being sold off by Stockland. This is Brisbane’s premier office building and although 20 years old looks like it was finished yesterday and has been maintained in immaculate condition by the AMP Henderson Trust who were the previous owners. And, being the top of the office market for this cycle it is not likely to be matched in prestige for at least 10 years.

I can borrow up to 60% from Westpac at 7.25% fixed.

They say the forecast yield 8.05%p.a. for cash investors and 9.25% for geared investors. My maths says that’s $490 positive yield for every $4,000 invested, and it has a limited liquidity option (not too crash hot but available in an emergency).

My clients ask “why would you buy this now when it’s at the top of the market?”. My answer is simple – “I will never be able to buy this building again and whatever I pay today will look cheap in 10 years.” AND I would stack up the performance of Waterfront Place against just about any dinky flat any day.

It’s being advertised now in the Financial Review if you are interested or contact your financial adviser (or call our customer service team) for a PDS. Make your decision ONLY on the basis of that document.


Seems to be worth considering an investment like this as part of a diversified portfolio.

Disclaimer: Peter Spann is an Authorised Representative of Freeman Fox Securities Limited, the Holder of an Australian Financial Services License. The material in this article is of the nature of general information only and neither purports nor intends to be advice. No consideration has been given or will be given to the individual investment objectives, financial situation or needs of any particular person. Investments can rise and fall in value. The decision to invest and the method selected is a personal decision and involves an inherent level of risk. None of the information in this article constitutes, and must not be construed as, an offer of securities or other financial instruments. Nor is it an invitation to you to take up securities or other financial products. Nor is it a recommendation to deal in any securities or other financial products. Before making an investment decision on the basis of any information presented in this article the investor or prospective investor needs to consider, with or without the assistance of a Licensed Financial Adviser, whether the strategies are appropriate in the light of their particular investment needs, objectives and financial circumstances. Peter Spann, Freeman Fox Securities Limited and their associates may hold shares in the companies presented and will be entitled to commissions on certain products. While every effort is made to ensure accuracy the laws and strategies relating to investing, financial services and taxation are constantly changing as does the factors that effect the likelihood of investing success for example, but not limited to, the economy, government policy, market sentiment, and time, therefore the writer does not warrant or guarantee the accuracy, voracity or timeliness of any of the information presented. Any examples presented are for illustration purposes only and previous results are no indication of future profits.

 

[Corsa]

This statement (without the dots)

[.QUOTE=Peter Spann]Still unable to do multiple quotes so I hope this answers both your and Geoff’s question[/quote.]

equals..

Still unable to do multiple quotes so I hope this answers both your and Geoff’s question

This statement (without the dots)

[.Quote=Geoffw]Peter, Are you looking at PTs in just one segment? For instance, a PT investing in CBD Office space in Melbourne would perhaps not be performing too well just now.[/quote.]

equals...

Peter, Are you looking at PTs in just one segment? For instance, a PT investing in CBD Office space in Melbourne would perhaps not be performing too well just now.

Great post! Just thought given this is the second time Peter has indicated he is not sure how to do multiple quotes, the above illustrates how, just add [Quote = User] Quoted text [/quote] to do this for multiple quotes.

Cheers

Corsa

 

[Jas]

Thanks for that Peter. I appreciate the depth.

Does those sums use gross (before managment fees) yeild?

Jas

 

[Peter Spann]

Net - yahoo

Does those sums use gross (before managment fees) yeild?

They are actually NET of fees.

 

[JohnK]

Peter,

A novice question if I may ask. What is the difference between a listed trust and a unlisted property truts? Would you know any good material to read up on about property trusts? Basic things like:
What drives the price of a Listed Property Trust?
What are the main benefits of investing in a Listed Property Trust?
What type of assets do Listed Property Trusts own?
Who manages the Listed Property Trusts and what are the fees and charges payable?
What returns can I expect over time?
When and how will I receive distributions?
Are there any tax advantages?
How can I select the Listed Property Trust that will perform and suit my needs?

Cheers,

 

[voodoo]

Now if you had invested your $19 in a CPT that would have produced a $2.43 PA yeild so you could have paid me my .80c and STILL be in front $1.63!

Peter, if I had not invested my $19 in the book, I would still be blind to CPT's.

Can you explain to me the difference between Listed and Unlisted trusts.

thanks,

 

[Robyne]

Peter, I am very interested in this stuff. since I have hit the servicability wall I think CPTs could be useful but I can't find this section (box) in your book. I am only half way through so far but have searched for this section. Can't find it. Where is it?

Thankyou.

Robyne

 

[voodoo]

Peter, I am very interested in this stuff. since I have hit the servicability wall I think CPTs could be useful but I can't find this section (box) in your book. I am only half way through so far but have searched for this section. Can't find it. Where is it?

Thankyou.

Robyne

Hi Robyne,
I just went back thru the book but could not find the page.
It is very brief.
Peter mentions that he off sets some negative geared property with Commercial property trusts, thats about it.
I became very interested as well, and I am now researching a few different options.

Goodluck.

 

[The Y-man]

Hi Porscha,

Listed propoerty trusts are traded on an exchange - for example the Australian Stock Exchange. As such, you can trade them in the same way as shares - i.e. thru a broker.

The advantage of this is liquidity - you can enter / exit the trust at any time without needing to fill in an application form on a prospectus etc.

The down side is that the yield is generally lower (than an unlisted one). You receive distributions (much like share dividends) and it is net of management fees / costs.

Being on the exchange, the price is subject to market forces (and rumours...).

Assetts vary on the trust in question. Some examples of listed property trusts: General Propoerty Trust (GPT), Investa (IPG), Centro (CEP), Gandell (GAN), Westfield (WDC), Ronin (RPH). Each of these have a website explaning their holdings, structure etc.


Hope this helps!

Cheers,

The Y-man

 

[luckyone]

So how do you find out about unlisted property trusts?

 

[The Y-man]

Unlistes Trusts

So how do you find out about unlisted property trusts?

Hi Luckyone,

I've seen them advertised in the papers and investment magazines.

Otherwise your local financial planner will be happy to talk to you (they get commission).

You will be sent a prospectus to read through.

Cheers,

The Y-man

 

[Peter Spann]

This just in...

I'll be back to answer some of the otehr questions a bit later (life gets in the way), but this was in this morning's Financial Review and I thought it was interesting given Geoff W's earlier question / statement...

Premium grab shores up rents
Sep 30



Despite a rising vacancy rate in the Melbourne CBD, the city's premium-grade office buildings remain in demand, with commentators forecasting rent rises in the sector.

According to Jones Lang LaSalle leasing director Kevin George, a surge in tenant inquiries is threatening to use up the remaining supply of premium space by early 2005.

"There is a run on premium space that has already stopped the slide in prime rental levels and has put the brakes on incentives," Mr George said. "In the next six months, it may lead to a flicker of rental growth in the sector for the first time in more than two years, and it will have a flow-on effect to the lower grades over time."

Premium-grade vacancies have halved during the past six months, from 12.9per cent in January to just 6.4per cent, according to the July Property Council of Australia office market survey.

"Tenants that don't commit by the end of 2004 will be forced into secondary A-grade and B-grade office space. It's a 'move it or lose it' scenario," Mr George said.


In a recent smaller deal at 120 Collins Street, the incentive was just 5per cent of the lease term, while in another deal at Melbourne Central no incentive was given, he said.

This compares with incentives of up to 25per cent in the new office towers and the more widely accepted 15 to 20per cent at other major office buildings.

"The next round of leasing deals could provide a turning point in the supply cycle and see reductions in incentive levels or, in simple terms, growth in real rental levels," MrGeorge said.

JLL research reported average premium net-effective rents in Melbourne were $213a square metre in June this year, compared with $228a sqm six months earlier and $240a sqm 12 months earlier.

Mr George said tenants were now looking for 68,500sqm of premium-grade space in the Melbourne CBD, compared with the total available of 52,000sqm.

He said the 20,000 to 25,000sqm Optus requirement was the largest in the market, despite the telecommunications group having re-signed on a short-term basis at its Collins Street office.

No vacant building now could accommodate such a big space, with the 15,000sqm soon to be vacated by Ernst&Young at 120 Collins Street the largest single contiguous floor offering, he said.

In another Melbourne leasing trend, agent Colliers International has warned businesses against taking short-term leases for office space while keeping their options open on relocations and hoping for rent reductions.

Short-term leases were being promoted to board directors as a way of keeping businesses flexible and open to more property options. But it could also cost tenants tens of thousands of dollars in additional costs, or lock them out of cheaper long-term deals.

Colliers tenant representative Peter Walsh said yesterday businesses taking out four- or five-year leases, rather than longer 10- or 12-year terms, were ignoring cyclical rental peaks and troughs and the benefit of negotiating better deals when a long-term lease was involved.