bernard
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Post by bernard on Jun 11, 2014 9:12:58 GMT
Hi all. I just wanted to post on the exact returns from THC (not the income only option). I have found the literature somewhat confusing (I blame the lawyers, not infering any obfuscation) and wanted to share the experience in case there are others like me (and also to double check). My initial read of the project returns was a 6% return, plus 50% of whatever profit is made over and above the preferred 6% return. However, my current understanding is that the 6% preferred return actually represents a 'prepayment' of the 50% share of total profits. Anyone concur/diagree? Thanks
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mikeb
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Post by mikeb on Jun 11, 2014 17:41:09 GMT
Hi all. I just wanted to post on the exact returns from THC (not the income only option). I have found the literature somewhat confusing (I blame the lawyers, not infering any obfuscation) and wanted to share the experience in case there are others like me (and also to double check). My initial read of the project returns was a 6% return, plus 50% of whatever profit is made over and above the preferred 6% return. However, my current understanding is that the 6% preferred return actually represents a 'prepayment' of the 50% share of total profits. Anyone concur/diagree? Thanks As I understand it, the 6% pa return is paid until the house is sold. You then additionally receive 50% of your share of the profit of the sale. And your original money back. This is why the other option (temporarily in retirement) is 7.5% pa and nothing at the end. Other than your money back. Bird in hand, or two in bush, you decide! Otherwise, with your more pessimistic interpretation, who would EVER go for 6% vs 7.5%, if at the end you got nothing further? Where did you acquire your current understanding that the 6% is a prepayment?
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j
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Penguins are very misunderstood!
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Post by j on Jun 11, 2014 18:06:07 GMT
Hi all. I just wanted to post on the exact returns from THC (not the income only option). I have found the literature somewhat confusing (I blame the lawyers, not infering any obfuscation) and wanted to share the experience in case there are others like me (and also to double check). My initial read of the project returns was a 6% return, plus 50% of whatever profit is made over and above the preferred 6% return. However, my current understanding is that the 6% preferred return actually represents a 'prepayment' of the 50% share of total profits. Anyone concur/diagree? Thanks As I understand it, the 6% pa return is paid until the house is sold. You then additionally receive 50% of your share of the profit of the sale. And your original money back. This is why the other option (temporarily in retirement) is 7.5% pa and nothing at the end. Other than your money back. Bird in hand, or two in bush, you decide! Otherwise, with your more pessimistic interpretation, who would EVER go for 6% vs 7.5%, if at the end you got nothing further? Where did you acquire your current understanding that the 6% is a prepayment? My interpretation/understanding was the same as mikeb
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shimself
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Post by shimself on Jun 11, 2014 19:54:11 GMT
Hi all. I just wanted to post on the exact returns from THC (not the income only option). .........snip........However, my current understanding is that the 6% preferred return actually represents a 'prepayment' of the 50% share of total profits. Anyone concur/diagree? Thanks What words are you looking at?
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mikeb
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Post by mikeb on Jun 12, 2014 17:43:24 GMT
The clearest unambiguiest version in the opening offer email says :-
"Please remember that we are currently only offering our income and equity option: 6% per year plus a 50/50 profit share on sale of the property (minimum investment of £1,000)"
(My bold)
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shimself
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Post by shimself on Jun 13, 2014 15:28:48 GMT
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mikeb
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Post by mikeb on Jun 13, 2014 17:52:31 GMT
George Bush moment. There has to be a superlative word meaning "most unambiguous", but it appears there isn't.
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j
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Penguins are very misunderstood!
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Post by j on Jun 13, 2014 20:27:01 GMT
George Bush moment. There has to be a superlative word meaning "most unambiguous", but it appears there isn't. Can you imagine Arkwright trying to pronounce that word?!
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bernard
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Post by bernard on Jul 6, 2014 10:12:32 GMT
Hi all. I would suggest you check with the horse's mouth with a specific example (I have). Totally agree that the strap line is, ahem, confusing.
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mikeb
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Post by mikeb on Jul 6, 2014 19:11:32 GMT
Hi!
My question still stands :- Where did you acquire your current understanding that the 6% is a prepayment? (and therefore to be deducted off the final returns)
As for checking with the horse's mouth, the quotes I gave above are from THC directly. In what way are they confusing?
You seem to be hinting that something has been revealed to you that fundamentally changes what investors understand from the documentation etc. that we have received.
I'd like to see what it is that you're alleging is different from our understanding, if it's not a secret ...
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Post by frazerf on Jul 7, 2014 5:53:50 GMT
Hi all. I just wanted to post on the exact returns from THC (not the income only option). I have found the literature somewhat confusing (I blame the lawyers, not infering any obfuscation) and wanted to share the experience in case there are others like me (and also to double check). My initial read of the project returns was a 6% return, plus 50% of whatever profit is made over and above the preferred 6% return. However, my current understanding is that the 6% preferred return actually represents a 'prepayment' of the 50% share of total profits. Anyone concur/diagree? Thanks Hi Bernard I am sorry you have found this confusing. We thought the offer was was very clear - it states in numerous places on our website it is a 50 /50 profit share. It's that simple. The confusion I think arises because we take a share of the profits up front for cash flow reasons. We will use this money as a contingency if required. Investors receive (for the sake of certainty) the fixed return during period of ownership. Upon sale everyone all income and all payments are taken into account. It states this categorically and very clearly in the Investment Memorandum and details all the expenses that are deducted and how the accounting will be done. However, I appreciate you are not the only person who has been confused by this and that being the case we realised the issue needed to be addressed. It is one reason we have decided to simplify the model and do away with the fixed return during ownership. The change will be announced to coincide with the launch of the new website - now 7 weeks late but hopefully ready by next week. Best wishes Frazer
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pikestaff
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Post by pikestaff on Jul 7, 2014 6:11:29 GMT
Now that IS confusing. But, if I have understood it correctly, it sounds like Bernard's current understanding is correct, and the advertised "6% per year plus a 50/50 profit share on sale of the property" is somewhat misleading.
I can see why they are the same - it's just a question of defining the profit. But the profit for the purpose of the calculation is not what somebody reading the headline would assume it to be. Definitely a case of read the small print.
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mikeb
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Post by mikeb on Jul 7, 2014 10:08:38 GMT
It seems that I fell for the "big print, not the small print". It's not bernard that's confused ... frazerf Thanks for clarifying, having re-read the Information Memorandum with bernard's interpretation, I get the interpretation now. From the Information Memorandum, my bolds :- "Fixed return: Shareholders will be entitled to receive a fixed 6% annual dividend on the total amount they invest. That equates to £60 each year for every £1000 invested over such period. Any amounts paid shall be taken into account in the calculation of net profit upon sale of the property." "Net profit payments will take into account all monies already paid out to the parties including interest payments, any dividends and any unused contingency funds paid to The House Crowd or held in the Company." And on the other hand from the offer emails :- "Please note we are only offering the income and equity option for this project which is 6% per year plus a 50/50 profit share on sale of the property (minimum investment £1,000)." Of course the semantics argument here is whether the "profit share" does (or doesn't) include the payments you've already had. And clearly it DOES, so payments received at 6% are interim payments and count against the final payout. Well spotted bernard. New reading glasses for me and everyone else who didn't get this right "and do away with the fixed return during ownership" That's a shame, that was a good feature. This change will only be on new projects going forward though? Can't wait to see the new site!
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bigfoot12
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Post by bigfoot12 on Jul 10, 2014 21:14:28 GMT
Oh dear, it seems like I am confused too. frazerf is it possible to work through this simple example for me? Imagine a £70,000 total investment, all shares (the 6% type). It buys a flat holds it for 5 years and sells when the price has risen by 25%. I expected to receive (for each £1000 invested) £60 each year for five years plus a capital gain. And a 25% increase is £17,500, assume £2,000 of costs to sell the place; I expected my share of £7,750 or a further £110.71. If what I read above is correct then my capital gain might well be a loss. Let's assume that your annual costs are 30% of the rent and the rent is 10% of the value of the investment. If this is unrealistic let me know. Total income is now £7,000 x 5 plus £17,500, and costs £2,100 x 5 plus £2,000. Total gain £40,000. Half of that is for us, but we have already received £21,000 so we now get our share of a £1,000 loss. This can't be correct as it makes no allowance for our cost of capital. Please can you work out the numbers for me using the above assumptions, or more accurate ones if you are able, but based on a total of £70k which takes 5 years to increase by 25%.
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j
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Penguins are very misunderstood!
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Post by j on Jul 10, 2014 22:12:34 GMT
Oh dear, it seems like I am confused too. frazerf is it possible to work through this simple example for me? Imagine a £70,000 total investment, all shares (the 6% type). It buys a flat holds it for 5 years and sells when the price has risen by 25%. I expected to receive (for each £1000 invested) £60 each year for five years plus a capital gain. And a 25% increase is £17,500, assume £2,000 of costs to sell the place; I expected my share of £7,750 or a further £110.71. If what I read above is correct then my capital gain might well be a loss. Let's assume that your annual costs are 30% of the rent and the rent is 10% of the value of the investment. If this is unrealistic let me know. Total income is now £7,000 x 5 plus £17,500, and costs £2,100 x 5 plus £2,000. Total gain £40,000. Half of that is for us, but we have already received £21,000 so we now get our share of a £1,000 loss. This can't be correct as it makes no allowance for our cost of capital. Please can you work out the numbers for me using the above assumptions, or more accurate ones if you are able, but based on a total of £70k which takes 5 years to increase by 25%. You can count me in the confused club too! It would be good if frazerf can give a definite answer to bigfoot12's question posed. I'm sure I've read frazer quoted in an article somewhere that the average return achieved/expected for each investment would be 25%. How is that calculated & how does it tie in with the actual final figure calculated. After reading all this, one assumes that 25% figure is before deduction of expenses, divi payments, etc, which means THC should be more clear in their headline quotes!
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