Trogdor, congrats on the investment, and I hope it goes well. It seemed odd to me reading the subsequent posts. After over 30 years in the RE business, I have made a couple of obseverations, which I am sure at not my own. Generally, the level of return, is balanced with the element of risk. There is no doubt the return from CIP, is generally, superior to resi. However, when you go to the bank to finance, what LVR do they require with CIP, RESI, or for that matter shares. In my view, and please call it a simple view, the banks view of level of risk, may in fact be close to actual level of risk. Some years ago in Vic, a friend of mine advertised an industrial shed for lease at $1 per week, and the phone did not ring. Sorry did I mention this was just after the the Tri Continential disaster ... I have just listed a retail building, at $1.5m where the owner paid $850K. It the same time, local RESI has trebbled in value. What has contributed to the thinking of selling, is. 1. the last lease took 18 months to secure and 2. the second tenant is not renewing the lease. So the capacity of the tenants to pay the rent, has a big bearing on the return. No doubt the GFC has hit some tenants, which in turn hits some Landlords. I own both, and all I am offering is my view, both have risk, and keep educating yourself on what is happening where your investments are, and if you choose to push your LVR to limits, try to work on a plan "B". At the end of the day, everyone who steps outside the square, and takes the risks, and commences the "investment" journey is worthy of encouragement and support. Happy Easter
First CIP - Some interesting observations
- Thread starter Trogdor
- Start date
Congrats
Late to the discussion thread, but congratulations Trogdor and thanks for posting your observations.
Great thoughts from you as well Dazz.
Mrs H and I are getting up to speed to put the toe in the CIP water. Just when we thought we had your list ticked off, another list materialises.
Late to the discussion thread, but congratulations Trogdor and thanks for posting your observations.
Great thoughts from you as well Dazz.
Mrs H and I are getting up to speed to put the toe in the CIP water. Just when we thought we had your list ticked off, another list materialises.
RIPs are a great base for building wealth, even CIP bulls here would agree with that I'm sure.
But after a certain point it has its limitations, let's just admit this and move forwards.
Personally, the only RIPs I plan to buy in future would be PPOR's and upgraded PPOR's, so I can keep up with the jones'.
i don't agree, both types of properties have limitations and both have benefits. The key is knowing when to invest in each.
To categorically state one is better than the other is ignorance in the extreme.
Here is a nice excercise, go to the following link:
http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&allinfo=&asxCode=RNY
and download 'Annual Report to Shareholders' (30/3), its 96 pages, so a fair bit of reading.
But it does highlight the risks of getting it wrong with commercial property coupled with high debt, coupled with a change in the market cycle.
Whats also interesting to note is that the net tanglible assets are US$0.43 per unit, but the market trading price is only AU$0.09.
Quite a difference wouldnt you say?
Now if it was just a case of hey its commercial property: tally ho boys lets charge ahead
then surely seakers of arbitrage opportunities would be all over this stock pushing the market price back up to something closer to US$0.43
http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&allinfo=&asxCode=RNY
and download 'Annual Report to Shareholders' (30/3), its 96 pages, so a fair bit of reading.
But it does highlight the risks of getting it wrong with commercial property coupled with high debt, coupled with a change in the market cycle.
Whats also interesting to note is that the net tanglible assets are US$0.43 per unit, but the market trading price is only AU$0.09.
Quite a difference wouldnt you say?
Now if it was just a case of hey its commercial property: tally ho boys lets charge ahead
then surely seakers of arbitrage opportunities would be all over this stock pushing the market price back up to something closer to US$0.43
I'm not sure anyone has categorically stated this, especially in this post. I think the words used in the first post by the OP was "this is one of those anecdotal posts" about his experiences comparing what he has owned, and continues to own, and what he is getting a taste for with his new acquisition.
Your assertion might be true though, I'd be more than happy to agree with you, and quite proud to wear any label you wished to throw at me. I love lotsa labels, more labels the better. As long as it comes with buku equity and buku cashflow, I'm your man for pinning labels on if it makes you feel morally superior.
I'd go for the combo of wealthier and morally inferior every time.
Arrogant, ignorant, egotistical, pig headed, racist, sexist, ageist, disablist, chauvanistic, a couple more 'ists' for good measure. No problem at all. Just point me in the direction of the props that the big instos are happy to invest in and I'm there baby !! Label city here we come !!
Sniff sniff. Looks like a share. Feels like a share. Smells like a share. Tastes like a share.
Doesn't have any resemblance to a property at all.
Ahhhh....thought so, it's a share.
nah of course not, its just a company whos sole purpose is to own commerical property, no resemblance at all, how silly of me.
Dazz is absolutely right I.V.
If you understand the concept of a suitable capital structure (which for all shares / listed units is outside your hands and in the control of the managers), then think about how an inappropriate capital structure brought this stock undone. When you're going to breach loan covenants under a listed structure the equity market will always factor in a discount to the "NTA" price to get away a recap raising, and of course if it goes too far equity will be worthless almost worthless.
I'd suggest that holding indirect interests in actual property magnified the situation and factor number three would be falls in the actual property.
Yes you are spot on, there should always be some form of 'premium' because you dont have control. During good times, investors forget this, just as in bad times they refuse to buy at any price (does it smell like a share, nope not interested at any price) Thats why investing in shares can be so profitable for those with patience (by the way i dont hold shares in this entity).
But disregarding the capital structure, look at the movements in the underlying assets (both asset valuations and rental streams) and the risk when the cycle moves against you in commercial property. Then compare this to say the risk of rents from residential property.
By this way this post was not directed at you Trogdor, congratulations with your purchase.
The point i am trying to make is that its not SOLEY the asset class that dictates success or otherwise.
That company is carrying a big heap of losses.
Liabilites exceed expenses, and most leases up for renewals next few years.
Considering that renewal rate was 77% last time with an 8.6% rent decrease (if i remember correctly), taking into account how this will effect future income & profits, well chances of the later seem slim for quiet a while.
That of course given the current economic circumtsances, which tend to change weekly.
Should there not be a premium for someone else doing the work while you sit back and take the profits?
A prudent investor, IMO, should disregard all words written after the above exclusion.
funny how titled threads can go much of course? I was loving the CIP talk then bam....stocks.
the posts were not supposed to be about stocks. It was about reading the annual report of a listed REIT.
Lots of valuable information can be obtained from annual reports.
But then maybe its just a share, so nothing of value can be obtained.
