Investment Idea.

[hungsunday]

Ok. This is a little idea that just popped into my head the other day. Hear me out and Id appreciate any comments, criticism or feedback about whether or not its a possibility and whether it sounds like a good enough idea to sway a potential investor..

I have a handful of investment properties at the moment which currently see returns from 6.5 - 19.1% p/a. My latest deal I'm hoping to land will see a return of 32.5% after a small budget renovation.

Before you ask, these are all residential properties. The returns are on the purchase price and all my houses are currently tenanted.

My idea is simple. To sell 'shares' in the various properties (10% per share) and limit the shares sold in a particular property to 50%. I would retain the other 50%

I would then offer a guaranteed rental return of 8.5 - 10%, paid monthly. I will not charge any fees, rates, insurance etc. I cover these costs.

The cherry for me would be to sell the shares for double the value of the property e.g. If I have a property valued at 180,000 I would sell 5 x 10% shares at 36,000 each totalling 180,000 with a guaranteed return of 58.00 - 69.00 per week.
The buyers would receive the returns above, paid monthly and with the capital I have raised, frees me up to buy another property, rinse and repeat.

So it would work by me basically selling the property worth 180,000 too 5 investors for a total of 180,000. I still own 50% (90,000 equity) and up to 10% of my rental returns are forfeited to the new owners. As most of my properties return much higher than this, this would cover the costs associated with owning the home.

The capital raised will not be spent, it will simply offset the mortgage on that particular property, giving me the option to buy another.

Anyone wanna give me a bit of feedback so far?

 

[Hooray]

Why should the investor trust you? And what protections would there be if you go belly up?

 

[hungsunday]

For a start id list my phone number and address on my website! lol. But seriously, gaining the trust is probably the hardest part. The way I see it, If I can continue to find properties that give me huge returns of 12+% for example, I still make 2% after giving the investors 10% and I have offset the mortgage to buy another one.

I wont lie, the whole point would be to expand the portfolio. As long as I make an average of 2-3% per property, I don't mind giving the rest away. I don't think anyone would invest for any less to be honest.

 

[eggnog]

Im lost. Someone gives you 20% of the property's value in cash for a 10% share. How does that work? And how on earth do you give someone 10% of a house. There is no security being transferred. And what is to guarantee you will not run away with the cash or stop the rental payments.

 

[Hooray]

If can find lots of props yielding 12%+, you'd be in high demand as a buyers agent.

 

[hungsunday]

It would work on returns. The returns would still be 10% whether or not you own 10 or 20% of the property. The return is calculated on your investment figure, not on what percentage you own, if that makes sense.

If you invested 20,000 for a 10% share, in theory the 20,000 share may only be worth 10,000 to the real estate market, but you would still receive a return based on your 20,000.

There would of course be some kind of share certificate issued to the investor stating the ownership amount.

 

[hungsunday]

If can find lots of props yielding 12%+, you'd be in high demand as a buyers agent.

True. But then essentially I'm just selling somebody a lead to a great investment. If I find a property with a return like that, ill put an offer in myself.

 

[Hooray]

There would of course be some kind of share certificate issued to the investor stating the ownership amount.

Unless you put them on the title, the certificate is literally not worth the paper it's printed on.

 

[Scott No Mates]

Sounds good in theory....BUT.....you want a 50% premium, just not going to happen. A valuer (even if they considered at the capitalisation of the returns), would not give you a 50% premium. Even shares are priced on their net tangible asset value, when it comes to REITs, they generally sell at a discount to their NTA, so they look attractive on a yield basis.

Buyers want security, if you go down the path of exceeding a certain number of investors, you will need to issue a prospectus (and it soon becomes unviable). Buyers will want to be on title in the % of ownership they have purchased - with 5 - 6 owners not so much of an issue.

 

[Mr. Fabulous]

So let me if I've got this right. You sell me a share in one of your properties for double the value of said share and I get a guaranteed return? Where do I sign up?

Edit: in all seriousness, are you going to tell all the beautiful people that the share they purchase is worth half of what they are paying?

Mate, if you can find people that are dumb enough to do it (and sadly, you probably would, look no further than the ASX for proof), then good luck to you. People that are that stupid deserve to have their money taken from them.

 

[TMNT]

wait a minute........12-30% returns!!!!!

gimme gimme gimme


For sale: One used 30 something year old kidney in average condition.. Offers accetped

 

[D.T.]

hungsunday - are you willing to share whatever it is you're smoking?

 

[Aaron_C]

If you can convince someone go ahead but it just won't make sense.

 

[jrc]

Probably would be classed as an investment scheme or property syndicate - a lot of hoops to jump through to do it legally. There ws an article in API in Jul - Sep 2005 from memory

 

[greedy2000]

so let me get this straight, you're gonna convince people to buy a house for twice what its worth, based the promise that you'll give them a good rent....

why not just sell 100% of the property, make a 100% return, reinvest your money, rinse repeat and be a trillionaire by the end of the year?

pretty good Ponzi scheame you got going there

 

[Paul@PFI]

Ok. This is a little idea that just popped into my head the other day. Hear me out and Id appreciate any comments, criticism or feedback about whether or not its a possibility and whether it sounds like a good enough idea to sway a potential investor..

I have a handful of investment properties at the moment which currently see returns from 6.5 - 19.1% p/a. My latest deal I'm hoping to land will see a return of 32.5% after a small budget renovation.

Before you ask, these are all residential properties. The returns are on the purchase price and all my houses are currently tenanted.

My idea is simple. To sell 'shares' in the various properties (10% per share) and limit the shares sold in a particular property to 50%. I would retain the other 50%

I would then offer a guaranteed rental return of 8.5 - 10%, paid monthly. I will not charge any fees, rates, insurance etc. I cover these costs.

The cherry for me would be to sell the shares for double the value of the property e.g. If I have a property valued at 180,000 I would sell 5 x 10% shares at 36,000 each totalling 180,000 with a guaranteed return of 58.00 - 69.00 per week.
The buyers would receive the returns above, paid monthly and with the capital I have raised, frees me up to buy another property, rinse and repeat.

So it would work by me basically selling the property worth 180,000 too 5 investors for a total of 180,000. I still own 50% (90,000 equity) and up to 10% of my rental returns are forfeited to the new owners. As most of my properties return much higher than this, this would cover the costs associated with owning the home.

The capital raised will not be spent, it will simply offset the mortgage on that particular property, giving me the option to buy another.

Anyone wanna give me a bit of feedback so far?

This isnt so hair brained people. Its actually a model that has been used for a long time by some massive investors. Westfield, Stocklands, Goodman Fielder, etc....They all operate property trusts.

Companies don't work. The Corporations Act allows Director discretion over dividends so its not a suitable vehicle to receive a FIXED share of income and capital.

Some of the difficulties:
- Stamp duty will apply to put the properties into a trust - Triggers your CGT too. Basically you would sell 100% of the property to the trust and hold 50% of the units..Maybe 51% ??? You issue the remaining units at say $1 for each $1 injected.
- Your reputation. The Trustee must be controlled by you. Nobody will trust you. Maybe. Who else is a Director of the Trustee ?? They will manage the property on behalf of all unitholders. You can be personally sued for your actions as Directors.
- The deed and its explicit terms will be relied on by all investors. Must be sufficient that it confers a fixed right and entitlement, deal with valuation, those who enter, those who leave etc...
- Corporations Law....A managed trust is limited to a small number of investors without being licensed and offering PDS etc.... Exceed the rules and its jail.
- Costs of compliance
- Will you offer mandatory right of redemption ? If not, what liquidity or rights do investors have ?? This can affect a few outcomes. If I demand out how will a new investor be found and how quickly ??
- Stamp duty on unit changes ? Which states have which laws and how do you avoid the duty problem... Your scale is too small.
- Your trust may not or may comply with SMSF rules ...A widely held trust CAN BORROW. If you have borrowed a full refinance is also needed.

Many small - mid builders and developers use these arrangements and build small groups of investors. Fees may be required to financial advisers.

Something to explore...

 

[hungsunday]

This isnt so hair brained people. Its actually a model that has been used for a long time by some massive investors. Westfield, Stocklands, Goodman Fielder, etc....They all operate property trusts.

Companies don't work. The Corporations Act allows Director discretion over dividends so its not a suitable vehicle to receive a FIXED share of income and capital.

Some of the difficulties:
- Stamp duty will apply to put the properties into a trust - Triggers your CGT too. Basically you would sell 100% of the property to the trust and hold 50% of the units..Maybe 51% ??? You issue the remaining units at say $1 for each $1 injected.
- Your reputation. The Trustee must be controlled by you. Nobody will trust you. Maybe. Who else is a Director of the Trustee ?? They will manage the property on behalf of all unitholders. You can be personally sued for your actions as Directors.
- The deed and its explicit terms will be relied on by all investors. Must be sufficient that it confers a fixed right and entitlement, deal with valuation, those who enter, those who leave etc...
- Corporations Law....A managed trust is limited to a small number of investors without being licensed and offering PDS etc.... Exceed the rules and its jail.
- Costs of compliance
- Will you offer mandatory right of redemption ? If not, what liquidity or rights do investors have ?? This can affect a few outcomes. If I demand out how will a new investor be found and how quickly ??
- Stamp duty on unit changes ? Which states have which laws and how do you avoid the duty problem... Your scale is too small.
- Your trust may not or may comply with SMSF rules ...A widely held trust CAN BORROW. If you have borrowed a full refinance is also needed.

Many small - mid builders and developers use these arrangements and build small groups of investors. Fees may be required to financial advisers.

Something to explore...

The properties are in a trust fund. Investors would be limited to 5 per property and they could be added to the title providing stamp duty isn't an issue. Either this or they receive a share certificate from the company that is the trustee of the trust.

At the end of the day it was just an idea. Some of the responses have been a little negative without really an explanation? Which is fine, tread with caution so they say.

Some have mentioned the method of selling the shares at twice the value of the house. If I sold for the true value of the house I'm basically getting nowhere in terms of capital growth and I'm giving away my returns. Plus I'm covering the costs and risks associated with being the owner.

When I'm giving away returns on capital invested I don't see the problem in how much each share is. The property is basically the vehicle used to generate the returns. Just like your super invests in shares, bonds, property etc. You don't physically own any property or shares to play with but that's the reason for your returns in your super.

Matt

 

[property_girl]

So you would have to see a lawyer to set up a property trust and then list it on the stock exchange? People can then buy shares in the property trust. Is that correct?

 

[Scott No Mates]

So you would have to see a lawyer to set up a property trust and then list it on the stock exchange? People can then buy shares in the property trust. Is that correct?

Not quite. ASIC registration of a prospectus, need undertake a initial public offering (IPO), need to have a proven business model, years of track record (ie not a start up), some heavy hitters on the board, a few $m to get it to float status, find an underwriter (to buy the unsold shares if you aren't fully subscribed prior to listing, if you're lucky you might get second board listing.

 

[Asheam]

Sorry but you have your figures wrong.

You are receiving a 10+ yield on the purchase price, not the current market value. On current market value im sure your yields will be under 10%.

If you are offering people 10% on there investment which at 50% x 2 = 100% of the investment cost you will have negative cash flow.

You cannot compare your yield on purchase price to the yield on their investment and call them the same.

Ta