Over the past couple of months, we have experienced unparalleled volatility across share markets. This has resulted in many investors seeing large retractions ‘on-paper’ of their portfolios. However, at Hewison Private Wealth we have been able to minimise the impact of the share market volatility for our clients by diversifying their asset base by including quality unlisted investments.
These quality investments are those not listed on the stock exchange. In this week’s blog, I will highlight a couple of these very investments and use recent examples to demonstrate how they work. The information listed below is general in nature and is not to be acted upon without first seeking professional advice.
Property that is not able to be traded on a stock exchange is referred to as unlisted and by combining your capital with other investors via a syndicated structure, you are able to gain access to high-quality properties without putting all your eggs in one basket (like buying a residential property). We prefer structures that own a single property as they provide the highest level of control and transparency.
Every client has their own goals and objectives, so these unique investment opportunities allow us to recommend them to the specific clients that they are suited to.
An example of a recent offer that we sourced for several of our clients:
Location: Australian Capital Territory
Property type: Three-level commercial office building with undercover car parks
Tenant: The Australian Institute of Health and Welfare (for which the building was purpose-built)
Lease terms: 9 years (from now)
Rental yield: 7.0% per year
Rental increases: 3.0% per year
Investment term: 6 years
Property value: $39.3 million
Loan to value ratio: 47.5%
The high level of transparency received with this single-asset property means that we could easily identify the quality tenant, strong income, as well as other key metrics that we believe made this an appropriate investment for some of our clients.
The next example is a success story that our clients have become very familiar with, as it has also become the home of HPW.
Location: 417 St Kilda Road, Melbourne
Property type: Mixed commercial
Description: 10 levels, 472 car spaces
Major Tenants: Oracle, Red Cross, Fluor
Cost: $81 million (December 2012)
Value: $145 million (Sold June 2017)
Annual Income: 9.2% on the original investment amount
Loan to value ratio: 45%
As you can see, this investment provided an excellent income return as well as significant capital growth over a short timeframe. This opportunity arose because of the relationship we have with the property manager, Newmark Capital.
Like term deposits, secured first mortgages involve investing your money for a pre-determined amount of time and in return the borrower pays you interest. Essentially, a mortgage is taken over a property (typically a residential property but sometimes commercial) at a specified Loan to Value Ratio (LVR). The higher the LVR, the higher the risk. The term of the loan is generally 12 - 24 months with interest paid monthly.
Our business has been using secured first mortgage investments for over 20 years to generate strong cash flow for our clients and is very experienced in selecting quality mortgages, such as the example listed below:
Security: Residential property in Mount Waverley, VIC
Income return: 6.00%
Property value: $4.14 million
Loan to value ratio: 59.14%
Loan term: 12 months
Each individual mortgage is reviewed by our internal Investment Committee to ensure it is appropriate for our clients.
We have had a lot of success using these types of investments due to our conservative selection process. We also gain access to these direct mortgages, as opposed to gaining access via pooled structures where you are invested in thousands of mortgages that you do not understand.
The above examples provide a small insight into different types of investments that are helping Hewison clients to smooth returns and maintain income. By spreading wealth across multiple asset classes and sectors you are more likely to have the ability to increase capital protection and achieve long term investment success.
It is always important to seek professional advice to ensure your investment strategy is tailored to your own personal goals and objectives. This is what we at Hewison Private Wealth specialise in; for a broader view on wealth creation, we welcome a conversation with you, contact us today.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email email@example.com or visit www.hewison.com.au
Please note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.