Redwood wrote:

Steve – moving to the states? where will you based and why? All the best with the move

Moving over to the USA for 12 to 18 months for a change of scenery and life experience. Will be based in Florida. Will be interesting to see what opportunities arise. I have already been sounded out to be part of a big US property speaking tour, but that’s not of particular interest right now.

– Steve

Hi and thanks for the post.

We are just seeing how many tickets are left for Mega Conference and then will begin marketing this week.

My guess is that after the market updates we have less than 100 spots available.

FYI, Mega Conference will be in Melbourne on 20, 21 & 22nd May.

Another great line up of speakers this year, and I will be doing quite a lot of speaking as it will be my last public event before moving to the US for 12 to 18 months. I will be putting together an information page for release early next week.

If you really want a ticket and you’re reading this then email Romy ([email protected]) and see what she can arrange.

– Steve

Gurtofen,

I acknowledge your humility in making your latest post and greatly respect you for doing so.

Yes, there is considerable expense in getting six monthly US appraisals, but the cost is worth it for the accuracy and transparency.

We are working on getting an investor portal implemented where investors will be able to download all the appraisal reports, as well as other relevant financial information, pertaining to each property in the portfolio.

All the best with your investing,

– Steve

Gurtofen wrote:

Surely being a RE expert you are able to differentiate the difference between an Appraisal and a Valuation? You have consistently intermingled both terms as if they are one and the same.

Well, in my defence, here’s how dictionary.com defines appraisal:

“an assessment or estimation of the worth, value, or quality of a person or thing See also performance appraisal. 2. a valuation of property or goods.”

In truth an appraisal or a valuation can be something basic, like a broker’s price opinion, desk valuation by a banker, or frankly – anyone’s BBQ opinion. Or it could be something more structured and elaborate, like that given by a member of Australian Valuers Institute (who give valuations) or the American Society Of Appraisers (who give appraisals).

What’s not in dispute is this… the appraised value of the US properties in the Fund, as adopted by the Director’s, are based on the independent third party arm’s length valuations provided by Capright, who employ qualified and experienced appraisers.

– Steve

Gurtofen,

If you feel my reply was defensive and condescending then I can only say it is a mirror of your posts.

On some occasions people join, ask a leading question, only to really post a later reply for what they really wanted to say. In your case, no previous history, no apparent real name, and clearly an agenda to sow doubt.

In any event, my focus and priority is to serve the 1,300 people who are investors in the Fund. I’m not perfect, but I try very hard to be ultra transparent and do things that other Fund managers would never do. Those who are investors in the Fund will testify that this is the case.

Now down to business…

Director’s Valuation

The value in the accounts for the Fund’s US properties are the ‘fair value’ (as per IAS). The Director’s are charged with the responsibility for trying to ascertain what that might be, and in our case, even though our PDS says we will get an independent valuation (or appraisal, if you prefer that term) at least every three years, to be above reproach, we do it every six months.

We engage an expert appraiser, who is experienced and qualified, to do this. The appraiser looks at the net operating income generated and applies an industry cap rate AND also looks at comparable sales.

As Director’s we then review and (and in all cases thus far) adopt their recommendation. I have to say that in my opinion, the values given are on the low side, which is normal as appraiser’s are a conservative lot, but so be it. Those investors still in the Fund at the end will get the benefit, if any, at the time of sale.

Capright’s website is: http://www.capright.com/

Redemption Price

Your suggestion that The Redemption Price vs Buy In Price seems to be heavily waited to ‘adjustments’ which once indicates to me a significant discount to ‘true value’ implies the ‘true value’ in the accounts is incorrect. If so, then the in-house accounting team and the external auditors are all wrong. With respect, I will defer to those who know more, which has to be the trained accounting experts with access to the relevant information rather your accusation.

Accounting standards say we have to carry at fair value and in doing so we cannot include any sales costs. I personally think ignoring sales costs overvalues the property and also causes the provision for deferred income tax to be overstated (I have had this discussion at length with our auditors), but the rules are the rules.

However for redemption unit pricing we do adjust to add in sales costs (as is permitted under the Fund’s constitution when calculating the Redemption Unit Price), which can be as high as 10% of an asset’s value (6% sales commission, stamp duty, etc). If we didn’t make this adjustment then an investor could cash out before an asset is sold, get the gross value / higher price, and leave the sales costs to those who remain at the time of sale. This is not fair.

Now, what you (or I) consider to be a fair value, and what the accounting standards define it as, may differ. In any event, the accounts are audited to see if they are true and fair in accordance with accounting standards, so what we may think personally doesn’t count for much.

Final Comment

You stretch a long bow with your conclusion about estimates and assumptions which seldom represent actual results. That may be your opinion based on your experience, but it is not mine, especially when it comes to this Fund.

The numbers reported are not fictitious nor pulled from thin air. They are based on reliable data and opinions. But who is to truly know what a property is worth until it is sold? Up until that time, the best you can give is an informed opinion.

I thank your for your well wishes for the Fund. You can keep an eye on how it performs (and read the published financial reports if you’d like) at: http://www.passiveincomefund.com/performance/

– Steve

• This reply was modified 9 years, 10 months ago by  Steve McKnight.

Note the Fund is now full and closed to new and top up applications. The next redemption period will be September / October 2016.

Steve

Hi,

The appraised values shown in the accounts are independent, not internal, and values are recorded as required by Australian Accounting Standards.

The accounts are audited annually with the interim accounts subject to independent review too.

The appraised values are done by Capright and updated every six months.

It is true that a large part of the return is due to the fall in the value of the AUD, but that was part of the strategy.

We are looking at hedging options now to lock in some of our gains.

Steve

Hi,

Thanks for the post.

Unfortunately, I’m not able to recommend anything, but if you scan through the many websites of major developers offering off the plan developments you should be well looked after.

All the best,

– Steve

Hi,

I get this question a lot: about the use of a company / trust structure and acting as guarantor rather than borrowing in your own name.

Strangely, I get about a third of people happily report they can still do it with no problem, about a third of people say they’ve tried and it can’t be done, and about a third of people who want to know is it yes or no.

So here’s the best answer I can give: it depends.

“On what?”, I hear you say. Well, on your relationship with the lender. If you come in via retail channels or via a ‘off the shelf’ mortgage broker, then the answer seems to be ‘no’. If you apply via an established lending relationship (and in particular, business banking), or via a well networked mortgage broker, then the answer tends to be ‘yes’.

So, once again, this proves the importance of networking and in the case of finance, you need to start well before you need the money.

All the best,

– Steve