mikes1531
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Post by mikes1531 on Jul 12, 2014 13:45:58 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! You can add my name to the list of those who would like to see a worked example showing exactly what investors would receive when a property is sold. I've been an investor for a while and I thought I understood the process, but now I'm not so sure. Another way frazerf could help us understand would be to share with us the results of the projects that have been sold. In the regularly updated list of projects on their website -- a very useful feature, IMHO -- there are at least two completed projects shown. HCP002 was sold for "26% gross profit (before fees)" and HCP008 was sold last month "with a gross profit of 23%". If we knew when the original investment was made, as well as the amount and timing of any dividends and other returns to investors paid out (per £1000 of investment), we could work out the sort of returns those investors received. I realise that the House Crowd are working to a 'buy-and-hold' plan now instead of the 'buy-refurbish-sell' plan that was in effect when these early projects were set up, but the above info would tell us a lot more than the 26% and 23% numbers quoted above.
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pikestaff
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Post by pikestaff on Jul 12, 2014 16:33:22 GMT
I think bigfoot12's calculation is correct, and I attach a worked example in the form of a simple spreadsheet so that you can play with the assumptions. I've used bigfoot12's figures for cost, sales proceeds, selling expenses and interest. I've added my own assumptions for rental income and other expenses during the life of the investment. These are critical to whether or not there is an additional profit share at the end of the day. In case 1, net rental income is sufficient that there is a small additional profit share to be paid out. In case 2 there is a shortfall, so there is no profit share to be paid. I have assumed that lenders do not actually lose money in case 2, but I don't know for sure. I am not a lender on THC so I have not read the full Ts and Cs. I'm just working on what Frazer has said. bigfoot12 has said this "can't be correct as it makes no allowance for our cost of capital". I'm afraid it can, and it does. You are taking a punt on the capital growth and the level of rental income. It's closer to being a real property investment: you may do very well, or you may not. Attachments:THC example.xls (22.5 KB)
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j
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Post by j on Jul 12, 2014 22:54:32 GMT
Having looked at the issue again, this is my conclusion: THC rent props at around 10-12% gross net. This, imo, is enough to both pay 6% divi payment & account for regular yearly maintenance once property is renovated (barring any major incidents). THC take some money out of raused funds initially to ease cash flow (exact figures unknown) & also take a 50/50 cut upon property sale. From the sounds of it, THC do not charge a yearly management fee, or do they, as the leftover amount from the gross rental yield is either left in the spv pot or used to pay for property upkeep (can we get confirmation on this from someone?). All in all, if what has been intimated over the last few days is true, then THC's offering does not seem as attractive as initially thought & if one is happy to put up with being a landlord, it might provide a better return if one is able to afford buying properties on a sole basis, to do so. AM I misreading things here? I think I'm going to email frazerf directly & draw his attention to the discussion here to see if he can give a clear & definite answer to all our queries, especially a worked example on a property purchase, rent & sale over a 5-10 year horizon. |
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j
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Post by j on Jul 13, 2014 0:04:24 GMT
Having looked at the issue again, this is my conclusion: THC rent props at around 10-12% gross net. This, imo, is enough to both pay 6% divi payment & account for regular yearly maintenance once property is renovated (barring any major incidents). THC take some money out of raused funds initially to ease cash flow (exact figures unknown) & also take a 50/50 cut upon property sale. From the sounds of it, THC do not charge a yearly management fee, or do they, as the leftover amount from the gross rental yield is either left in the spv pot or used to pay for property upkeep (can we get confirmation on this from someone?). All in all, if what has been intimated over the last few days is true, then THC's offering does not seem as attractive as initially thought & if one is happy to put up with being a landlord, it might provide a better return if one is able to afford buying properties on a sole basis, to do so. AM I misreading things here? I think I'm going to email frazerf directly & draw his attention to the discussion here to see if he can give a clear & definite answer to all our queries, especially a worked example on a property purchase, rent & sale over a 5-10 year horizon. Done!
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mikes1531
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Post by mikes1531 on Jul 13, 2014 16:54:53 GMT
From the sounds of it, THC do not charge a yearly management fee, or do they, as the leftover amount from the gross rental yield is either left in the spv pot or used to pay for property upkeep (can we get confirmation on this from someone?). All in all, if what has been intimated over the last few days is true, then THC's offering does not seem as attractive as initially thought & if one is happy to put up with being a landlord, it might provide a better return if one is able to afford buying properties on a sole basis, to do so. AM I misreading things here? Except for the ongoing confusion as to what happens exactly when a property is sold, I think you've got it right. THC is taking a share of the gain in return for finding the property, refurbishing it, renting it, maintaining it, and selling it. If an individual is prepared to do all that themself then they'd keep that share of the gain. I'm not prepared to do that, and I suspect most people aren't. The other big difference is that instead of putting a large investment into a single property, THC allows you to spread that money over a large number of projects, which provides diversity and should make returns less hit-or-miss. As long as it doesn't require a huge price increase over the holding period to produce some return over and above the dividend then I'll be happy. And that's why a worked example and info about THC's sold projects would be most helpful.
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Post by frazerf on Jul 14, 2014 7:45:48 GMT
Dear All
Thank you for all your interest.
I am sorry that we haven't made this clearer and in emails from now on we have removed the 'plus 50% profit share' element
A requested, here's a worked example, keeping it as simple as possible,:
Total Cost of property and refurb/ transaction expenses: £60,000
THC upfront profit share/ contingency fund: £4000
Rental income: £6000 pa
Term : 5 years
Total rent : £30,000
Sale price net of costs: £90,000
Total capital gain £30,000
Total Profit: £60,000
50% share : £30,000
Investors have received: £19,200 (£3840 in rental income per year @6% of £64,000)
So would be entitled to another £10,800 upon sale
THC have already received £4000 up front and have received £10,800 (£2160 per year) in rent. Total: £14,800.
THC would be entitled to a further £15,200 upon sale.
I hope that clarifies things -
BUT THIS WILL NOT BE RELEVANT TO ANY NEW PROJECT AFTER NEXT WEEK - AS WE ARE ALTERING THE STRUCTURE, REDUCING OUR PROFIT SHARE AND REMOVING THE FIXED ELEMENT SO RETURNS WILL BE MORE FAVOURABLE FOR INVESTORS
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bigfoot12
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Post by bigfoot12 on Jul 14, 2014 8:27:21 GMT
Thank you Frazer for clarifying that.
Recalculating my example above using this method gives a capital gain of £60.71, which is lower than I had previously expected, but not as bad as my post feared.
I look forward to seeing details of your new investments.
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bigfoot12
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Post by bigfoot12 on Jul 27, 2014 20:26:04 GMT
Sorry posted in wrong thread
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shimself
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Post by shimself on May 13, 2015 20:03:41 GMT
Dear All Thank you for all your interest. I am sorry that we haven't made this clearer and in emails from now on we have removed the ' plus 50% profit share' element A requested, here's a worked example, keeping it as simple as possible,: Total Cost of property and refurb/ transaction expenses: £60,000 THC upfront profit share/ contingency fund: £4000 Rental income: £6000 pa
Term : 5 years
Total rent : £30,000
Sale price net of costs: £90,000
Total capital gain £30,000
Total Profit: £60,000
50% share : £30,000
Investors have received: £19,200 (£3840 in rental income per year @6% of £64,000)
So would be entitled to another £10,800 upon sale
THC have already received £4000 up front and have received £10,800 (£2160 per year) in rent. Total: £14,800.
THC would be entitled to a further £15,200 upon sale.
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BUT THIS WILL NOT BE RELEVANT TO ANY NEW PROJECT AFTER NEXT WEEK - AS WE ARE ALTERING THE STRUCTURE, REDUCING OUR PROFIT SHARE AND REMOVING THE FIXED ELEMENT SO RETURNS WILL BE MORE FAVOURABLE FOR INVESTORSSorry Frazer, I'm feeling dim, could you please redo this worked example using the modern structure, Thanks
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mg
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Post by mg on May 18, 2015 12:11:23 GMT
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j
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Post by j on May 20, 2015 12:30:34 GMT
Looking at the exmaple quoted, the aim seems to be for 9% pa value growth on the property to appreciate the 11% pa full return. Or have I miscalculated?
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adrianc
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Post by adrianc on May 20, 2015 20:07:33 GMT
Dear All Thank you for all your interest. I am sorry that we haven't made this clearer and in emails from now on we have removed the ' plus 50% profit share' element A requested, here's a worked example, keeping it as simple as possible,: Total Cost of property and refurb/ transaction expenses: £60,000 THC upfront profit share/ contingency fund: £4000 Rental income: £6000 pa
Term : 5 years
Total rent : £30,000
Sale price net of costs: £90,000
Total capital gain £30,000
Total Profit: £60,000
50% share : £30,000
Investors have received: £19,200 (£3840 in rental income per year @6% of £64,000)
So would be entitled to another £10,800 upon sale
THC have already received £4000 up front and have received £10,800 (£2160 per year) in rent. Total: £14,800.
THC would be entitled to a further £15,200 upon sale.
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BUT THIS WILL NOT BE RELEVANT TO ANY NEW PROJECT AFTER NEXT WEEK - AS WE ARE ALTERING THE STRUCTURE, REDUCING OUR PROFIT SHARE AND REMOVING THE FIXED ELEMENT SO RETURNS WILL BE MORE FAVOURABLE FOR INVESTORSSorry Frazer, I'm feeling dim, could you please redo this worked example using the modern structure, Thanks Yes, it'd be very helpful. COO-EE! FRAZER!
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j
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Penguins are very misunderstood!
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Post by j on May 21, 2015 9:36:57 GMT
Sorry Frazer, I'm feeling dim, could you please redo this worked example using the modern structure, Thanks Yes, it'd be very helpful. COO-EE! FRAZER! We'll try tagging frazerf, see if that elicits a resonse. If not, I'll send him an email directly. In fairness, he responded very quickly last time.
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Post by rudry2677 on Jun 1, 2015 21:09:33 GMT
It's exciting waiting isn't it?
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Post by rudry2677 on Jun 8, 2015 6:49:35 GMT
Yes, it'd be very helpful. COO-EE! FRAZER! We'll try tagging frazerf, see if that elicits a resonse. If not, I'll send him an email directly. In fairness, he responded very quickly last time. Some folk appear to have far longer holidays than most. Either that or do not wish to respond.
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