Invest in a diverse range of property types from luxury townhouses to boutique apartments and land sub-divisions
Since the Global Financial Crisis, investors continue to seek alternatives to the share market to diversify and build a balanced portfolio. Investors want greater control and independence to make simple investment choices for their hard-earned money outside volatile share markets and bank owned financial planning products.
As a result, Self-Managed-Super-Fund’s (SMSF) are now close to 600,000, managing $653.8 billion in assets, according to the latest statistics released by the Australian Prudential Regulation Authority (APRA), and the Australian Taxation Office (ATO).
A typical self-managed super fund is heavily weighted to three main asset classes – shares, direct property and cash. The average SMSF has 27% of its funds allocated to cash or term deposits, according to the latest data from the Australian Taxation Office, whereas pooled super funds have only 7% in cash.
Real estate syndicated investment Bonds or ResiBonds, provide the ability to invest smaller amounts across a broad range of property types. ResiBonds are like Corporate Bonds, they have a “coupon rate’ and a “maturity date”. ResiBonds facilitate “syndication” on a single property development project to 20 investors as a Small-Scale Offering.
ResiBonds can have a maturity date of 2,3,5 or 10 years from execution and are transferable.
If you are a sophisticated Investor or SMSF looking for a high yielding property investment, then ResiBonds may be your solution. Gain exposure to real, direct assets in the property development industry, with fixed yields and terms that are far above the current cash rate, government and corporate bonds or current high yield debt.
What is a ResiBond
A ResiBond is an agreement between a company and an investor that the investor will lend the company money at a predetermined rate, based on terms and conditions, to be repaid on an agreed date.
ResiBonds are a type of hybrid security that property developers, builders or renovators can issue to investors to fund small-scale residential development projects.
For investors ResiBonds generally deliver higher returns of around 8% per annum or higher compared with the current low returns investors receive from fixed term deposits. ResiBonds are short-term investment of between 12 to 36 months.
ResiBonds are primarily a debt instrument, but can be converted into bricks & mortar at the discretion of the investor. This enables astute investors to acquire an (ResiShare) interest in a property at wholesale prices.
Investors realise they need to place cash to better use to achieve sufficient returns, but have limited options when it comes to investing in fixed income
How does a ResiBond work?
The ResiBond, like a standard bond, has the terms and conditions agreed to before issuance. The interest rate, redemption dates and other conditions will be agreed upfront, so all parties are comfortable before proceeding. Interest is usually paid monthly or quarterly in arrears, with coupon rates of from 10% per anmum.
The ResiBond issuer can create a competitive environment for your capital, leading to improved returns, reduced funding costs and retention of funding headroom.
ResiBonds are unique in that they allow multiple parties to gain exposure and finance a property development. Much like shares allow fractional ownership of a company, the ResiBonds allow fractional funding of a development.
Investor demand for a greater variety of investment options is driving innovation
Interest on ResiBonds is paid either monthly, quarterly, annually or cumulative to investors with a maturity date that dictates when the principal will be paid back in full (redeemed) together with any interest accrued (usually at project’s end) or, part or all of the ResiBonds (plus any accrued interest) may be converted into bricks & mortar real estate (ResiShare) ownership on title (as a tenant-in-common) at the option of the investor(s)
Investor profile of a typical SMSF
The latest ATO statistics on SMSFs (representing SMSF activity up to the end of September 2016) highlight some interesting facts that can be learned about the current group of SMSF trustees.
- One-fifth (19.1%) of all SMSFs have $200,000 or less in assets, with 6.1% of SMSFs (about 36,000 SMSFs) holding less than $50,000 in assets
- Another quarter (23.7%) of all SMSFs have between $200,000 and $500,000 in fund assets
- Just under a quarter (24.2%) of SMSFs hold between $500,000 and $1 million in assets
- Just under one-fifth (18.8%) of SMSFs have at least $1 million in assets and up to $2 million in assets
- The remaining 14.2% have more than $2 million in fund assets with 0.5% of SMSFs holding more than $10 million
- Note that 2.8% of all SMSFs (around 16,000 SMSFs) have fund balances worth $5 million or more
Australian investors face 5 key threats to wealth
Key findings from the annual Russell / ASX 2017 long-term investing report identifies the following threats to investors who rely on a single assets class;
- Rear-view mirror investing
- Lack of portfolio diversification
- Reliance on residential property
- Investing in over-prices traditional assets
- Set and forget investment portfolios
ResiBonds, like standard bonds, can play an important part in your investment portfolio.
High coupon rates, paid monthly or quarterly in arrears
- Government bonds are yielding 2-3%.
- Corporate bonds is 3-5%
- ResiBonds offer rates from 10%-20%
- Diversify from fluctuating equity markets into fixed income bonds
- A minimum investment of 100k will balance your portfolio, ideal for the average SMSF, who are mostly over exposed to shares and property
- ResiBonds rank above equity in the corporate structure, and can include physical assets as security
- 1st or 2nd mortgages are often offered, depending on the project total capital requirements