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'Income Funds'...> 8% pa income, do they exist??

Discussion in 'Managed Funds & Index Funds' started by JIT, 11th Jan, 2008.

  1. JIT

    JIT Well-Known Member

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    Hi there,

    When I looked at some tables in Smart Investor mag. briefly at the newsagent recently, the 'income funds' listed were returning less than an ING account would...do income funds even exist where the income generated is much higher than this, eg. >8% pa? (Not including Navra Income Fund, and not including debentures).

    Or perhaps I am looking in the wrong place??

    Thanks.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Traditional "income" funds are usually based on fixed interest, bonds and other such securities ... and they are never going to be more than the prevailing mortgage rates ... so in Australia we're talking about 6 - 7% right now.

    This is why so many people got suckered into "safe" debenture based investments like ACR and Bridgecorp - they seem to offer so much more than the traditional fixed interest ... and real estate is a safe investment isn't it ?? :rolleyes:

    Other investments like Navra and some of the derivative trading based funds out there are a completely different asset class with very different risk profiles (ie a lot more risky).

    I don't actually like calling them "income funds" (that's a specific class of investment as previously mentioned) ... I'd prefer to call them "income generating funds" - ie they deliberately aim to distribute high levels of income.
     
  3. FrankGrimes

    FrankGrimes Well-Known Member

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    Since the LPT sector has had a large correction it is now back into the “income” territory.

    While this isn’t a traditional "income fund" as such, you could buying something like SLF (XPJ index tracker) which is yielding an ok 8.5% paid 3 monthly.
     
  4. DaveA

    DaveA Well-Known Member

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    if only you could hedge that against lossing any more capital we could be on a gold mind...
     
  5. FrankGrimes

    FrankGrimes Well-Known Member

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    Yep - Not for me.. Not worth the risk for 8.5%
     
  6. DaveA

    DaveA Well-Known Member

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    But the yield is only going to increase.... :mad: CBD rents are predicted to increase by 20% this year alone....

    Every $ increase in rent increases buildings by $15, some as much as $20 (depending on asset qualities), so you can easily calulate how much value this adds ontop of an asset. A building with annual rent of $7mil (so something worth roughly $100m) with rents go up 20% the building value increases to $120m.

    Your yield the following year is going to be positive geared.... along with the capital growth...

    Over the past few years building prices have gone up due to people accepting lower yields, this is coming to a stop and its the rent who is going to add value (well occurding to Colliers and Savills anyway). The only way you can loose money in a UPF (as value is derived directly from asset prices unlike LPTs) is if the cap rates (yield accepted) increase.

    The 8.5% shows how much the sector is currently at a discount to its NTA's... The quality of asset which returns 8.5% is a neighbourhood shopping centre in the middle of Bourke, or a 25 year old factory which has no redevelopment potential. I would of said average yields is around the 7% mark (as ive used in my figres).

    **Interest - i have spend the past month dealing with retail, industrial and commercial property valuations for a large listed property company which is where the bulk of my detailed knowledge was obtained**
     
  7. handyandy

    handyandy Well-Known Member

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    Hi Dave

    I have always seen that commercial property is linked directly to the prevailing interest rate.

    As we are now going into a period of increasing interest rates the yields for the com sector will need to increase to stay attractive.

    There are two ways for the yield to improve one is the increase in rent the other is for a drop in value. I suspect it is the latter that we are more likely to see in the future.

    One argument against an increase in rent is a possible slow down by business brought about due to a restriction in credit.


    Cheers
     
  8. JIT

    JIT Well-Known Member

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    Which ones are these??

    Thanks.
     
  9. Bantam Roosta

    Bantam Roosta Well-Known Member

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    Why do you need 'income funds' paying 8% when you've got this:
    http://www.invested.com.au/2/person-person-loan-8-a-27651/:rolleyes:

    Look what you get, the offer of a lifetime:

    BR
     
  10. crc_error

    crc_error The Rule of 72

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