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Bonds vs. HISA: some new insights

Discussion in 'Medium/Long Term Investing' started by Zaxon, Oct 12, 2019.

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  1. Zaxon

    Zaxon The voice of reason

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    Property certainly can be a good investment. I feel, however, that buying an investment property is like having kids. It's a massive commitment. You need to have it tenanted, you're bound to get bad tenants at times, and then there's all those repair costs. Then you go to the tribunal to fight over the bond, and then you go grey...prematurely.

    The civilized version of holding property is via a REIT. They're mostly office, warehouse, and retail, they're not really a drop in replacement for residential property. And REITs did badly in 2008. Mind you, physical property in the US did terribly in 2008. But I feel that REITs are more aligned with the share market than physical residential, so I don't know how much diversification they really add.
     
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  2. SirRumpole

    SirRumpole

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    AirBnB, short term tennants less likely to wreck the joint.
     
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  3. Zaxon

    Zaxon The voice of reason

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    And a much higher return, as long as it's in a tourist area. It still needs inspecting and cleaning though. Bring me the AirBnB REIT, and I'd be interested :)
     
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  4. qldfrog

    qldfrog

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    That is an interesting idea actually
    Either as owners of properties or as airbnb management
     
  5. Value Collector

    Value Collector Have courage, and be kind.

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    There is also a good amount of unlisted property investment trusts, also managing a small property portfolio is not as hard as poeople make out
     
  6. aus_trader

    aus_trader

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    Thanks VC, but what about the credit default risk if there is a major downturn ? Wouldn't most of the loans given out by Rate Setter be at risk especially if individuals who borrow money lose jobs or companies that borrow money goes belly up ? I have looked into Rate Setter and some other P2P lenders before but this is the worry that I have. I know that rate setter is a little better than some of the others that I have come across due to having a "provision Fund" in case things go bad.
     
  7. Value Collector

    Value Collector Have courage, and be kind.

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    Yeah, Property investment is as broad as the economy itself, you can invest in houses, office buildings, hotels, supermarkets, shopping centres, factories, warehouses, farmland, renewable energy sites, theme parks, medical centers, local strip shops the list is endless.
     
  8. Value Collector

    Value Collector Have courage, and be kind.

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    You can be diversified across hundreds of loans, and as you mentioned the provision fund is there to cover losses.

    But let’s say for a year during a recession loan defaults sky rocket from the current 1.5% default rate to say 12%.

    The provision fund would more than cover the first 6% of those defaults, that would leave you taking a 6% hit.

    However, you have been earning 8% interest, so that 6% hit you take just reduced your take home return from 8% to 2%.

    So in that bad year of 12% losses you just end up matching the return of today’s term deposits.

    And if that bad year happens 1 out of 15 years, the 14 good years more than offset even a huge loss.

    As I said it’s all about risk vs reward.

    When you put your money into a Term Deposit, the bank is taking it and making similar loans to what ratesetter does, and keeping the margin for the shareholders and executive bonus, while you take the inflation hit and low income.

    You don’t have to put all of your cash in Rate Setter, as I said it’s a good place to store a portion of it, along with a mixture of other assets.
     
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  9. Value Collector

    Value Collector Have courage, and be kind.

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    My Disney shares are my exposure to Hotel / tourism and leisure market.

    Disney has 40+ hotels that operate with close to 99% occupancy, it also operates a time share business called Disney vacation club, and 4 (soon to be 6) cruise ships that sail with almost 100% occupancy.

    Have you guys seen the size of the Disney property in Florida, 2x the size of Manhattan, all owned freehold, and they control the local governing body, so they can build new hotels or resorts etc and they only pay construction costs, cause they have owned the land since the 60’s
     
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  10. Zaxon

    Zaxon The voice of reason

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    Any listed REITs that hold primarily residential properties?
     
  11. aus_trader

    aus_trader

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    Don't know of any in Australia other than Retirement Village operators but there is a US residential property trust that's listed on the ASX that's been on a downward slide for the last couple of years called US Masters Residential Property Fund (URF).
     
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  12. aus_trader

    aus_trader

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    OK, sounds good. I'll investigate and consider putting around 5% of my HISA balance into Rate Setter to diversify. Cheers VC.
     
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  13. Value Collector

    Value Collector Have courage, and be kind.

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    I am not sure about listed, but I think I have seen some Unlisted ones a while back.
     
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  14. systematic

    systematic

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    Resifund is one I’ve run into, but beyond the name I can’t tell you anything more about it.
     
  15. BlindSquirrel

    BlindSquirrel

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    Now there's an ironic ticker!
    That's the noise I'd be making if I'd been invested in it! :roflmao:
     
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  16. aus_trader

    aus_trader

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    Don't know how that fund works. If we were smack in the middle of GFC, I understand URF falling like that. But US residential property prices are fairly stable over the last couple of years, so the fund does not seem to reflect that.
     
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  17. So_Cynical

    So_Cynical The Contrarian Averager

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    The vast majority of URF holders were clients of Dixon advisory and Dixon sold them their own product, add to that (now) Evans Dixon
    has taken some reasonably hefty "managmant" fees out of the fund and it all starts to look a little dodgy, not super dodgy but certainly
    suspect, Evan Dixon has been bleeding FUM for the last 12 months and different advise has lead to a wave of at market selling - SP decline.

    Thats my conclusion anyway, Bottom has been missed as the URF share price has now been rallying due to the ridiculosly low valuation and high yield.
     
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