Forums / Community / Opinionated! / What do people think of Steve’s the US Passive Income Fund?

Viewing 18 posts - 41 through 58 (of 58 total)
  • Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,053

    Hi Steve,
    Always good to have you posting on here. I was particularly interested in your recent comment :-

    Most currency gains, as required per Accounting Standards, are unrealised at this time and sit in the FCTR rather than the P&L.

    I am not conversant with the acronym FCTR, but the word “unrealised” seemed to mean (to me at least) that all gains in Unit price are totally based on the increasing valuations – i.e. Equity Growth? Is that right? Do currency differences play no part right now?

    Benny

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,709

    Hey Benny,

    Think of currency gains like capital gains. Some are realised when ‘sold’ (‘real gain’) whereas the others sit as unrealised (‘paper gain’).

    Often for smaller investors gains are not recorded until realised, but the Fund is a reporting entity and has to apply International Accounting Standard (IAS) 40 which says:

    “Investment property is remeasured at fair value, which is the amount for which the property could be exchanged between knowledgeable, willing parties in an arm’s length transaction. [IAS 40.5] Gains or losses arising from changes in the fair value of investment property must be included in net profit or loss for the period in which it arises. [IAS 40.35]”

    So, in our case we need to record movements in fair market value. The basis we use is an independent appraisal by a third party expert.

    In the case of currency movements, we need to apply IAS 21. This accounting standard draws a difference between monetary items like cash in the bank (where exchange gains / losses must go to the P&L) and non monetary items like property (where exchange gains / losses go to an equity reserve). This means that gains / losses on USD we have in the bank goes to the P&L, whereas exchange gains made on US property goes to the equity reserve (rather than the P&L).

    For the bean counters, the journal entry for a realised gain is:

    DR: Bank (Balance sheet)
    CR: Profit (P&L)

    But for an unrealised gain – as required by accounting standards, it’s:

    DR: Asset (as its value is increased)
    CR: Foreign Currency Translation Reserve

    The bottom line is this: unrealised currency gains on non-monetary items are included in the unit price calculation, but the gain is sitting as equity rather than profit, up until the asset is sold.

    Hope this helps.

    – Steve

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,053

    Hi Steve,
    Thanks for the clarification. The bottom line does it for me, but I am sure some others will also benefit from your very knowledgeable and informative answer. I tips me lid to you… ;)
    Regards,
    Benny

    Profile photo of GurtofenGurtofen
    Participant
    @gurtofen
    Join Date: 2016
    Post Count: 6

    Steve,
    Thanks for your replies in relation to this fund, however by the defensive and condescending tone used in your replies rather than simply a fact based reply, I am only further convinced that all is not as it seems.

    Steve McKnight wrote:

    Hi,

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

    There is a big difference between a valuation and an appraisal and I notice you have mixed both terms very loosely in your webinar/financial report. At least in your reply you have used the term Appraisal. From your own Financial Report – “Investment properties are properties which are held either to earn rental income or for capital appreciation, or for both. Investment properties are stated at fair value. The Fund has an internal Director’s valuation process for determining the fair value at each reporting date.”

    Your own FY14/15 report states an internal Director’s valuation process? If you are supposedly using Capright then even better for fund transparency but are these paid independent valuations that come with verified reports or are they free appraisals done every 6 months used to estimate properties for Fair Market Value assumptions? To state that my analysis is incorrect, displays a fairly arrogant response to a supposed fact signed of by yourself in your own financial report.

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

    Critical judgements are made by the Responsible Entity in respect of the fair values of investment properties. The fair values of these investments are reviewed regularly by the Responsible Entity with reference to external independent property valuations, recent offers and market conditions existing at reporting date. The Fund continues to obtain independent valuations of properties at least once every three years. Every 6 months or every 3 years?

    So, are these appraisals or valuations? There is a very big difference…………and independent or external? Your own financial report states internal but you seem quite offended by that position.

    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’. Either way, the redemption price still indicates a very healthy return since the life of the fund so hopefully those results are realised in the long run.

    In the end, I have no interest in the fund myself so good luck to those invested. I will watch this fund with interest and my concerns about the critical judgements and assumptions made by the Responsible Entity and the current reported financials do not stack up for me in terms of ‘realised gains’ and reported ‘investor returns’. Will this eventuate in the long run? Time will tell but I am happy to be an observer. My initial concerns about about the fund were genuine in that I had more answers than questions from an outside observer looking in and I have no desire to engage in a slinging match between myself and you, the fund manager. You are of the view that my analysis is incorrect and you are entitled to that view however your own reporting seems to contain conflicting information……is that my issue?

    Watching the webinar on your website was truly bizarre and your constant need for adulation from your subscribers on ‘unrealised gains’ was
    a bit disturbing. I just hope investors ‘realise’ the gains which are currently being reported and that this not another managed fund where management fees are the big winner.

    In conclusion, my concerns about the fund are summed up in your own financial report:

    The Fund makes certain estimates and assumptions which, by definition will seldom represent actual results.

    Good luck with the fund.

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,709

    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

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of RedwoodRedwood
    Participant
    @redwood
    Join Date: 2013
    Post Count: 339

    Gurtofen

    Most of stsevs reply’s are covered in my posts here https://propertychat.com.au/community/threads/passive-income-fund-usa-commercial-property-steve-mcknight.7489/page-2 go to post 24 and 30 – as I say, its simple due diligence, i’d prefer if you contact the fund manager direct, however you are encouraging discussion of accounting principles on a public board which is fine and Steve has provided his views as you have. Please remember its a managed investment scheme regulated by corp law – if the accounts are misstated then the auditors are in deep shit as are the directors. I have seen a heap of these over the last 18 years of investment management and its probably too early to tell here. Like I said elsewhere, currency is hard to predict – derivative overlay is a effective stratgey for most managed funds, maybe steve et al will continue to persue this with the AUD v USD coming down to $0.60-).65 in coming months.

    Cheers to all Ivan

    Redwood | REDWOOD | SMSF | PROPERTY | FINANCE
    http://redwoodadvisory.com.au
    Email Me | Phone Me

    SMSF - PROPERTY INVESTMENT - WEALTH CREATION AND FINANCE SOLUTIONS

    Profile photo of DeanCollinsDeanCollins
    Participant
    @deancollins
    Join Date: 2015
    Post Count: 363

    Steve,Thanks for your replies in relation to this fund, however by the defensive and condescending tone used in your replies rather than simply a fact based reply, I am only further convinced that all is not as it seems.

    It doesn’t come across that way to me.

    I have no dog in the fight one way or the other, I think the fund has been a great win for the investors and the exchange rate probably delivered a better return than any investment into Aussie property by far.

    Profile photo of Steve McKnightSteve McKnight
    Participant
    @stevepi
    Join Date: 2014
    Post Count: 4

    When the Fund started people found reasons why they didn’t want to invest, one of which was a lack of Fund’s management experience.

    Now, nearly four years on, I have to shake my head at the prospect that people think the returns are too large to be true.

    I guess that’s the best backhanded compliment I can expect from the peanut gallery.

    Don’t make this Fund about me. Make it about our ability to consistently execute our investment strategy as outlined in the PDS.

    Time will tell, but so far so good.

    Steve

    Profile photo of GurtofenGurtofen
    Participant
    @gurtofen
    Join Date: 2016
    Post Count: 6

    Steve,
    I have nothing to defend or any agenda other than my concerns about the funds claims. I posted my concerns on another forum and was directed here as the best source of info. I was unable to view and/or post here without joining. I did so and posted my concerns from my very first post as it is the only reason I joined. I don’t think I could be any clearer or honest than that.

    Your T&c’s didn’t state that I had to have previous history to post or that I had to use my real name (which is fairly standard for a forum)….yet you have stated that I clearly have an agenda to sow doubt. I think this is a massive assumption on your part however I do agree that people do join forums to simply stir the pot. I am not one of those people however you can make up your own mind. I only joined this forum to raise my concerns about this funds as was recommended and just because I don’t agree with everything you claim, the fund should be able to be discussed objectively but that doesn’t appear to be the case.

    Now back to business I agree…..

    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. One has legal standing, must be done by a qualified valuer, is comprehensive and is required for financing etc. the other is a price guide that has no legal standing. Your PDS and financial report clearly states that “the fund has an internal Director’s valuation for determining the fair value at each reporting date”. Whether you choose to use an independent “Appraisal” company or not, the fund is clearly able to make an internal decision on FMV. This is fact as per your own funds documentation. If you are having paid independent Valuations done, then they represent “true” value and would be easily disclosed as a written report that would be provided for each property. I gather this would be a very expensive process to do regularly on all properties and I fully understand why the fund would choose to do this every 3 years or as required as stated in the PDS. You have stated this is done every 6 months. If you are going above and beyond your PDS with 6 month valuations….then kudos to you but that is not clearly documented in your reports. My concern after viewing your EOFY webinar and viewing the financial reports are that some of these appraisals that have been used for FMV calculations and hence fund performance seem too good to be true and subject to internal Director input. If they are genuine valuations then that would be a very different matter.

    In the end, I have wasted far too much of my own time looking into your fund of which I have no financial interest in, even though I have other questions about the fund. Good luck and I hope the returns are realised as they are certainly well above average.

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,709

    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

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of GurtofenGurtofen
    Participant
    @gurtofen
    Join Date: 2016
    Post Count: 6

    Steve,
    Once again, you know the difference between an Appraisal and a Valuation and basing FMV on each method would/could have a very different outcome. Your post below intermingles both terms once again. Anyway, if there are paid third party arms length valuations these would be easily made available if you wished to do so.

    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.

    Now as I have stated, I have no further interest in this fund other than as an observer or in any other area of this forum. As such, I have requested from your admin section to have my account here deleted. I can’t see any reason not to request this. However, I stand by my concerns about the fund.

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,053

    Whoah !! There’s the clue:-

    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).

    Is it simply a matter of semantics (US vs Aus)?

    Does Australian Valuation = American Appraisal? And vice versa?

    Could that be the crux of this whole dispute?

    e.g. I have heard that an Australian in the USA, if wanting legal representation, should ask for a Lawyer and not a Solicitor. Apparently, in the USA, a solicitor is a hooker!!

    Benny

    PS I recall my wife and a new friend (from Chile) having a verbal tussle over whether they should discuss something, or argue. The Chilean didn’t want to discuss anything – too much violence and bad feeling. He wanted a nice, quiet, peaceful argument about things instead. On the other hand my wife wanted a nice peaceful discussion. Each wanted the same thing, but their language differences had them at odds.

    Semantics has a lot to answer for !! ;)

    Profile photo of Tracey BTracey B
    Participant
    @tracey-b
    Join Date: 2009
    Post Count: 158

    This is very interesting thread! At this risk of being shouted down I’d like to share my thoughts.

    As an investor in the fund I am very happy with it’s performance. In fact I’d be happy to invest 10 times more $ if I had access to the funds.

    Never before have I had access to an investment where the day to day management is transparent, both in relation to the upsides and the challenges encountered. The regular face-to-face updates, available only to investors in the fund, have provided me with many insights and strategies that I’ve been able to use in my investing activities here in Australia.

    I have absolutely no concerns about the valuations. Whenever you can purchase property for lower than replacement value you have a base line of support. I am comfortable with the all of the properties held by the fund, the reasons they were purchased and the levels of occupancy achieved since purchase to underpin the increasing valuations.

    In relation to the considerable gain on the foreign currency I have enjoyed being able to ride that wave. Whilst I am mindful it could head in the other direction before the wind up of the fund I can see the actions being taken by the managers to mitigate that risk. I also have an opportunity annually to exit the fund, should I choose to.

    In a nutshell – this fund is by far the best investment, managed by someone else, that I’ve ever put money into.

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,709

    Steve,Once again, you know the difference between an Appraisal and a Valuation and basing FMV on each method would/could have a very different outcome. Your post below intermingles both terms once again. Anyway, if there are paid third party arms length valuations these would be easily made available if you wished to do so.

    Good Golly! You’re like a dog with a bone on this. The definition I quoted, and the fact that I drew upon the varying names of the professional associations was a gentle nudge that in the real world of investing the terms can both have the same meaning, and my use of including them in the same paragraph was deliberate. It seems my attempts at being subtle have failed.

    As for your account being deleted, you can unsubscribe but we don’t delete accounts.

    Benny – is this an argument, or a discussion, we’re having? I’m confused!

    – Steve

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,053

    Benny – is this an argument, or a discussion, we’re having? I’m confused!

    Yes!!

    *roflmao*

    Profile photo of GurtofenGurtofen
    Participant
    @gurtofen
    Join Date: 2016
    Post Count: 6

    Steve,
    I had no intention of posting anything more on this discussion or argument (which ever one you and Benny prefer), however I believe in manning up where it is required. In this case, you are absolutely correct that in the US, the term Valuation and Appraisal can be one and the same…..this is not the same here in Australia where both terms have very different standings with respect to property values. For that I unreservedly apologise.

    Due to the fund being managed here in Australia, led me to believe that you would refer to the same terms as used here in Australia and although I did look into that briefly, it would not have taken much to ascertain that the terms can be interchanged in the US by some further research. Yes, you obviously had tried to indicate that to me in previous posts so can understand your frustration with respect to that and an apology is warranted as far as I am concerned.

    However, my main concern with the fund is still the reported increases in FMV on many of the properties in the fund, which I did not believe was based on true Valuations (in the Australian sense) from the information contained in the PDS and EOFY Reports….especially the reference to internal Director’s assessment. You have now stated that the fund is going above and beyond and having the Valuations/Appraisals done every 6 months. As I have said previously, kudos to you if that is what is occurring but I would imagine that is quite expensive to conduct on 6 monthly basis.

    Are these Valuation/Appraisal reports supplied to the fund members for their own transparent analysis? There was no reference to any valuation reports in the EOFY webinar or on the funds website but this maybe something that is provided privately to fund members? Transparency here is the key and that is what I was hoping to have answered by members invested in the fund to address my concerns.

    Now this really will be my last post on the matter (I thought the apology needed to be addressed) but I will check back and hope that my final questions listed above can be answered, which would more than likely address my main concern with the fund and its reported performance over the last 12 months.

    Good luck with the fund and tackling the US market.

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,709

    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

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of CJHCJH
    Participant
    @cjh
    Join Date: 2007
    Post Count: 6

    For anyone invested in the fund and is reinvesting their distributions, at what point do you think it’s best to take the cash instead of redistributing?
    I’m assuming there will come a point when reinvesting at a higher unit price could eventually not provide as good a ROI as taking the distribution as cash.
    Obviously it’s all a matter of opinion as it depends partly on how high you think the unit price will go etc.

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