shimself
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Post by shimself on Jul 25, 2014 12:34:54 GMT
If you receive more input from THC, please share it with us here. Thanks. They will be doing some work on averages. They will be changing the info pack to make the distribution as described above abundantly clear
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mikeb
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Post by mikeb on Jul 25, 2014 18:09:35 GMT
It's been bugging me, THC, THC, ....I remember now, ahem yes, I got it from some guy in Moss Side yer honour. It's not just the returns that are high, it's the investors
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bigfoot12
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Post by bigfoot12 on Jul 25, 2014 21:02:19 GMT
Assuming 5% capital growth and the initial 11% capital growth and other things as in the prospectus I see my gross IRR somewhere between 6.05% and 7.31% depending on cost assumptions. My mid is 6.68%.
By gross I mean before tax, but after all other fees and time delays.
I assume 170 day initial void (average of recent projects), an annual void of 1 month after each year (12/13), and a final void of 90 days between deciding not to renew current tenants and sale completion.
I have included a 5% charge paid to HC, legal and survey fees, for buying, and legal fees, estate agent fees and some tidying up fees for selling.
I have made some assumptions about costs, many starting at £0 in the low case.
Considering the mid case (6.68%), if property inflation is 3% this becomes 5.40%, and if it is 7% IRR is 7.98% (over 5 years in all cases).
For a tax payer the net return is much better than it might seem. For example for a 40% taxpayer, assuming the dividends are eligible for the tax credit and not liable to any corporate tax, and assuming that the capital gain is indeed a capital gain for tax purposes and you don't currently use your £11k allowance, then assuming (big assumption this one) that I have got my numbers correct the 6.68% gross becomes 5.83% after tax. This falls to 4.99% if you have to pay 28% capital gains tax. Still quite good for the higher rate tax payer.
For the mid case for 3% and 7% capital growth this becomes 4.53% and 7.15% respectively (assuming no capital gains tax).
Apart from the capital appreciation most of the other risks are on the downside. For example major repair, or fire if the house isn't let for an extended period, or non payment by tenants. Considering the mid case again if a tenant refuses to pay and it takes about a year to evict them the gross IRR falls from 6.68% to 6.00% (5.83% to 5.33% after tax). This assumes no costs involved in the eviction. With the changes in housing benefit I'm assuming that this risk is increasing.
On a final note these numbers all assume a £68,000 investment as per the executive summary. The prospectus has a £70,000 investment. This lowers the IRR from 6.68% to 6.48% as the returns are unchanged (same house same tenant) but it is shared out amongst more investors.
As this seems to be the season of full disclosure I have invested in HCP in the recent past, but not yet in 069. If the details become clearer I might.
BTW I have assumed a constant rent and costs. Over five years rents will probably increase, there are probably other things that I should consider but haven't.
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mikes1531
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Post by mikes1531 on Jul 26, 2014 0:45:21 GMT
Assuming 5% capital growth and the initial 11% capital growth and other things as in the prospectus I see my gross IRR somewhere between 6.05% and 7.31% depending on cost assumptions. My mid is 6.68%. ... I have made some assumptions about costs, many starting at £0 in the low case. ... BTW I have assumed a constant rent and costs. Over five years rents will probably increase, there are probably other things that I should consider but haven't. bigfoot12: Thanks for sharing your analysis with us. I'd say THC looks like a reasonable investment for me, particularly because it would be a diversification from the other P2P I'm in which are all pure lending. It's encouraging to me that the returns aren't that sensitive to the house price increase rate. And the benefits of the income being dividends and capital gains are positive too. I'd be curious to know whether or not assuming that rents and costs go up at a rate in line with house prices has much impact on the calculated returns. (I suspect it won't.) With respect to the cost assumptions you made, what is their range in terms of expenses as a proportion of rent?
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bigfoot12
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Post by bigfoot12 on Jul 26, 2014 6:58:50 GMT
bigfoot12: Thanks for sharing your analysis with us. I'd say THC looks like a reasonable investment for me, particularly because it would be a diversification from the other P2P I'm in which are all pure lending. It's encouraging to me that the returns aren't that sensitive to the house price increase rate. And the benefits of the income being dividends and capital gains are positive too. I'd be curious to know whether or not assuming that rents and costs go up at a rate in line with house prices has much impact on the calculated returns. (I suspect it won't.) So my base (middle) case on costs (see below) and 5% house price growth (plus 11.3% gain on the refurbishment) returns 6.68% (5.83% after tax, see above). If I increase rents and deductions by 2.5% per year this increases to 6.84% (5.95% after tax). If rents increase by 5% then the IRR hits 7.01% and (6.08% after tax). This calculation increases the regular costs at the same rate. There is a minor error as my assumptions on some of the final costs (mainly legal costs) doesn't change , but I should probably increase it at the same rate of inflation. The range of my cost estimates are from 17.4% for the low case, with my base (mid) case being 31.6%, and up to 45.9% in the high case.
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mikes1531
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Post by mikes1531 on Jul 26, 2014 20:47:18 GMT
Thanks for the further analysis.
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j
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Post by j on Jul 27, 2014 17:38:32 GMT
I'm still in two minds having recently had the clarification from THC about the returns made on investments. Many of us had misunderstood the terms (nothing cynical aimed at THC). I am happy with my current investment for diversification-sake but will freeze it till returns become clearer & we also see how some newer projects outside of Manchester develop
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bigfoot12
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Post by bigfoot12 on Jul 28, 2014 7:35:06 GMT
I still like it, mainly from a diversification point of view. This is different form most other things I am doing. I am very happy to do more in Manchester, and would be happy with Newcastle too. In most cases this new scheme seems to be better than the old scheme, the few cases were my analysis shows it to be worse are those with higher maintenance costs and lower capital growth, which is what most of us would expect.
I won't be investing for now, however, as I managed to misunderstand the previous deal, and I don't fully understand the current one. They have been running for a while now and they should be able to provide better details on average costs. Also I would expect better details on refurbishment costs, for example the current estimate is £9,000, might this be £8,200 or £9,750 or is there some fixed deal arranged with a builder. Finally I need a worked example with all the detail.
There is no rush, if they are successful, which I expect, there will be more to invest in a month or two.
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mikes1531
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Post by mikes1531 on Jul 28, 2014 12:17:54 GMT
Also I would expect better details on refurbishment costs, for example the current estimate is £9,000, might this be £8,200 or £9,750 or is there some fixed deal arranged with a builder. Only THC can answer this question for sure. Based on my experience, however, I'd say that the pre-purchase refurbishment cost is just an estimate, though probably a pretty good one because of their experience. IIRC, one of the first things they do after purchase is to draw up a schedule of works, and I presume that is used to obtain bids from builders, at which point they'd have a definite cost quote. See THC's investment list on their website which reports how each is progressing. For instance, Project 57 says "Property purchase completed 14th July 2014. We will shortly be picking up the keys and drawing up a schedule of works."
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