Investment Idea.

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

I calculate the returns on the purchase price, or the mortgage. Not current market value.
 
So you're selling shares at double the current value, but calculating the rental yield on your purchase price. Is that right?

This deal just gets better and better.
 
So you're selling shares at double the current value, but calculating the rental yield on your purchase price. Is that right?

This deal just gets better and better.

:rolleyes:

Ok.. here we go.. nice and slow.

Example 1.

I buy house for $80,000 (mortgage), house is worth $60,000 - $100,000 (market)

I sell 5 shares (10%) at $16,000 each = a total of $80,000 (mortgage value) offsetting the mortgage completely.

I receive rent of 15.0% p.a (10% paid out to investors = $155 per week) Please note: The 10% is the return on the $16,000 share, $1,600 a year, not 10% of the market value, which would be $6,000-$10,000.

Because I wouldn't be selling anymore than the total mortgage value (80,000) in which Im gauging my returns on, it cant run negative.

After wash up, I own 50% of property and 5% of returns.
 
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.

Scott, can the 12-20-2 exemptio be used in this case?

The Y-man
 
:rolleyes:

Ok.. here we go.. nice and slow.

Example 1.

I buy house for $80,000 (mortgage), house is worth $60,000 - $100,000 (market)

I sell 5 shares (10%) at $16,000 each = a total of $80,000 (mortgage value) offsetting the mortgage completely.

I receive rent of 15.0% p.a (10% paid out to investors = $155 per week) Please note: The 10% is the return on the $16,000 share, $1,600 a year, not 10% of the market value, which would be $6,000-$10,000.

Because I wouldn't be selling anymore than the total mortgage value (80,000) in which Im gauging my returns on, it cant run negative.

After wash up, I own 50% of property and 5% of returns.

Hey Hungsunday.

What will the exit allowance be for the investors (ie liquidity events etc)

The Y-man
 
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.

As an investor, I would be weighing up the risk vs return.
For your idea to take off, the stability of the return and as stated above the liquidity would be foremost questions in my mind.

As some above have stated, this is nothing new in the world of property.

To give you some idea of your "competitors" in the field, consider:

20 storey building in high growth Melbourne Suburb
97% of floor space rented to Australain Government organisation on 20 year lease
Fitouts specially made to special tenant requirements (less chance of moving)
Forecast 8%-9% pa net of management fees etc, and carrying depreciation.
Closed ended trust - exit plan to sell property in 6-10 years (with 10 years of Government lease to run and potential property value growth).

So for your 10% pa to be considered IMHO, you would need to present a projected forecast with similar leaase safeguards, backing etc.

The Y-man
 
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.

What is the trust set up like? They wouldn't be beneficiaries of a discretionary trust so you would have to amend the terms and possibly create a resettlement. If a unit trust then it could be done.

Are these properties mortgaged? If so you would need consider on mortgagee. What about personal guarantees for the loan. Lender may require, or will require everyone on title to give guarantee.

Having shares in trustee company is meaningless if appointor could remove trustee. Minority shareholder in a trustee company adds no value to the investors.

Could also be corporations act compliance issues - managed investment scheme, issuing securities or debentures etc.
 
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...

Like you said the big boys operate out of Property Trusts (Unit Trusts). Where you can buy and sell your units in the entity and receive distributions based on profits and your share of unit holding. Issue in this case is stamp duty, to resettle the property in a new entity would trigger stamp duty costs.

Correct unit holder agreements would also need to be prepared, succession agreements etc and this would come in at about 10k+ also.
Management of the entities and admin side would also become expensive.

Big fish idea in a small pond.

Regardless of the pricing of the units (double the asset's value) I can appreciate the overall thought that has gone into it, however I think for the 36K to buy in at, investors would almost be able to go cash down on a small IP of their own, with 100% control...
 
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