Augusta - Deutsch Invest Fund (OEIC)

[MichaelDes]

The above company are offering an open investment opportunity which has the ability to be en-cashed after 12 months or can be kept for an indefinite period of time. The fund (like many others within its private syndicate schemes) intends to invest in commercial German real estate with yields of 7% plus. The primary function of the investment is to provide annual income of 5% of the initial investment, (although not guaranteed) with capital growth a secondary consideration.


However, all leases in Germany are inflation based and this usually positively affects its on-going property value. So if a building costs €1million with €75,000 rent charge per anum (7.5% yield) and the next year inflation tops 3%, then the value of the building, without any catastrophic issues, should be worth €1.030million and the rent at €77,250 to reflect the same yield.


The company have stressed to me the importance of each asset being able to wash its face, so all being well with the gearing at 65% LTV, then a 3% uplift in inflation property values should reflect in reality with gearing a 8.57% uplift on the initial investment.


For simple 101


€100k invested - 65%LTV borrow €185.714k = €285,714 pot


285,714 X 1.03 = €294,285.42


Property increased by €8,571.42


or 8.57142% on original investment.


Also there was the following investment comment concerning Augusta in a previous thread closed some 5 years ago, but to my mind the mathematics although correct has missed one or two issues.


Here's the thread

Right, here are the calculations as promised. Please feel free to point out any mistakes as I am fairly inexperienced at all this craic.

Inital cost of aquiring propertys = 8.65% of cost of buildings.


Inital 3% commison charge on 50K investment.

Inital investment from me = 50,000

Gearing of 80/20 from bank=200,000

Total investment(my share) = 250,000

Lets say cost of Building(my share) = 230,000

8.65% cost of aquisition = 20,000

------


Total cost of aquiring building=250,000

Annual 0.75% managment fee(0.75% of 250,000) = 1875 x 5 = 9375

Annual 0.3% owners maintenance charge = 750 x 5 = 3750

Total costs = 20,000 + 9375 + 3750 = 33125.

1st years rental income = 7.5% of value of property, Rental income increases 2.5% peranum there after.

7.5% of 230,000 = 17250

Minus 2% charge = 345
------

16905


Interest repayment on loan = 5.7% of 230,000 = 11400


This interest is subtracted from rental income

16905 - 11400 = 5505. This rental income is then taxed @ 26.375%

26.375% of 5505 = 1452. Therefore total net rental for year 1 is 5505-1452 = 4053.


I have calculated net rental yields from years 2,3,4&5 the exact same way except I have factored in the assumed 2.5% increase in the inital rental income figure per anum.


My figures work out as follows,

Year 1 = 4053
Year 2 = 4364
Year 3 = 4683
Year 4 = 5010
Year 5 = 5344

-----

TOTAL = 23454


So now,


Total investment(bank + my own) = 250,000

Minus costs(inital + per anum) = -33,125
-------
216,875


Minus inital 3% on my 50K = -1,500
--------
215,375


Add net rental income = +23,454
---------
238,829


Minus principle of 200K loan = -200,000
---------
38,829


So after all costs and interest repayments have been deducted and net rental yields added in I am left with 38,829 of my inital 50,000 investment.
They have stated that it is reasonable to expect a return of 97,983 (before CGT is applied) on an inital investment of 50,000.


So I am short 59,154 (38,829 + 59154 = 97,983). To make up this shortfall It would require the final value of my share of the property to be to be 309,154. This value of 309,154 minus the inital value of 230,000 makes up the 59,154 shortfall.


So in summary the for my share of the property to reach this value, the property would need to see 6.1% appreciation compounded per anum to realise a final value of 309,154. I really don't know if this is feasabile!!

In my opinion the OP although possibly no longer active on AAM may not be able to respond, but IMO two very important issues are missing (hence the reason for dredging up the thread to see if my assertions are correct by comparison).


It's right to assume the investment of €250k would be worth €238,829 after all costs under the posters economic parameters - BUT.

The Mortgage over 5 years would have drawn down from €200,000 to €168,950.98 and the capital value of the building would have increased 2.5% each year over 5 years therefore the correct assertion should have been as follows.


Edit fix - calculations fixed


€200,000.00
€168,950.98-
€31,049.02
€38,829.00+ (Profit from initial €50k as mentioned above by quoted illustration)
€69,878.02


Lets say the building bought with accquistion costs of 8% and the intial property value of €230,000 never moved a dime. Then the fund would have returned €49,878.02 or a loss of €122 before other realisable costs from the firm of which there will be quite a few.


If the building increased in value in line with rental increases of 2.5% growth p.a. then it would be worth €230k x (2.5^5)


€260,223.88
€250,000.00-
€10,223.88



Total

€10,223.88
€69,878.02+
€80,101.19


€80,101.19
€50,000.00- (original investment)
€30,101.19


A 60.20% return (9.65% compounded p.a.) on investment before other realisable costs from the firm (Augusta) of which there will be quite a few.

Am I missing something or would this be correct? Also please note the company intend to use some of the assets coming from the closed syndicates that are maturing so there would be no acquisition costs really.


Please note that I have nothing to do with this company but am only looking at the pro and cons of investing circa €100k pension monies (with 25 years to retirement) and want to get a bang for the buck so to speak.


Here's the website for the company - http://www.augusta.ie/invest


Many thanks - and sorry for such a long winded post.



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[mercman]

Quite simply if you are looking for the pros and cons of these type of funds, how about asking other investors in other property co-ownerships / syndicates for their opinion. I have been involved in many property co-ownerships and whilst some have lost money, the Management Fees always get paid.

All of these products have fancy glossy brochures but in the main they are not realistic. In the case of German property, the full costs of purchase includes the sale costs of the vendor. In cases these amount to 14 / 15 %.

I could but won't go on about these type of Property Investments as what you have shown beggars belief.

Frankly take it from a well seasoned Investor. Anything that looks too good to be true, normally is.

 

[MichaelDes]

Quite simply if you are looking for the pros and cons of these type of funds, how about asking other investors in other property co-ownerships / syndicates for their opinion. I have been involved in many property co-ownerships and whilst some have lost money, the Management Fees always get paid.

Thanks for the reply and you're correct that the management fee always gets paid irrespective. But isn't that the same in any managed investment product, whether in stocks, commodities, property or whatever.

I have bought into Crowley McCarthy CMC Bond 2 and as a result of the credit crunch this has been a bumpy ride, but at the same time the fund is making good progress despite limited banking re-financing etc coupled with the only players in the market being vulture funds, large pension trusts and investment banks.

All of these products have fancy glossy brochures but in the main they are not realistic. In the case of German property, the full costs of purchase includes the sale costs of the vendor. In cases these amount to 14 / 15 %.

You are correct that such companies are not regulated by the financial ombudsman, so they can make any assertions they like on paper compared to ordinary financial institutions that must state values extreme conservatively.

But in fairness Augusta's company literature considers heavily on the downsides and risks of gearing, and includes fall-out of European integration, death of the euro, dramatic increase in interest rates etc. They devote a number of pages to the risks but at no stage offer advice on return on investment. Their last syndicate recently matured at 65% growth over the last five years (series 3) but that's not to say the others will be similar. In regards accquistion costs of assets, the 15% charge would not apply as some of the good performing assets from previous closed funds controlled by the company would be rolled over into the new OEIC vehicle.

I could but won't go on about these type of Property Investments as what you have shown beggars belief.

Frankly take it from a well seasoned Investor. Anything that looks too good to be true, normally is.

What I have shown is to clear up the misunderstanding of a poster in a previous old thread postulating the Augusta investment would lose €12k+ and the only hope of redemption was a serious capital uplift of over 6% compounded yearly (or something to that affect). He forgot to consider

1. the capital value increase at 2.5% circa, that’s not un-usual or farfetched
2. the bank drawdown on the loan over the 5 years.

The OP was considering an illustrative example that was re-clarified by me, and I was asking people if my assertion was correct and the original quoted somewhat wrong.

 

[Jim2007]

The company have stressed to me the importance of each asset being able to wash its face, so all being well with the gearing at 65% LTV, then a 3% uplift in inflation property values should reflect in reality with gearing a 8.57% uplift on the initial investment.

Once you hear the words: borrowings, gearing, leverage or derivative, you are not longer talking about investing as we know it. The reason you are being offered such potentially high returns is because you are being asked to take on risks well beyond the norm, plain and simple.

Your model is far to simple to properly assess the risks involved. Do you really think if it was that simple that the boys would be selling this opportunity to you rather than putting in their own cash....

 

[MichaelDes]

Once you hear the words: borrowings, gearing, leverage or derivative, you are not longer talking about investing as we know it. The reason you are being offered such potentially high returns is because you are being asked to take on risks well beyond the norm, plain and simple.

Your model is far to simple to properly assess the risks involved. Do you really think if it was that simple that the boys would be selling this opportunity to you rather than putting in their own cash....

Thanks for the reply Jim. In no way am I expecting to make increases of 10% plus per year. If the fund makes a smooth return yearly within the 5% to 8% range then this would be fine with me. Obviously there is risk involved but that's the same with all investments. Who didn't lose money in Eircom etc 9the majority)?

There is risk in commodities like wheat, oil etc, bank stocks etc, but there is the consideration that Germany has been boring for years, ticks along, and some mixed use building in a prime B location tier 1 or 2 city with the usual type pharmacy/bank/supermarket (Aldi/Netto) on the ground floor, a language school on the first floor, a doctors surgery on the second and an accountant on the top floor yielding 8%, and all tied into long enough leases, has a certain assurity about it as investment, does it not?

Anyway I have asked the company for more specific details about all the costs versus likely rents at various levels of yield, and would not go in blindsided without fully appreciating the consequences, and base things on the realities of life rather than through some rose tinted glasses.

Btw - my calculations were not mine in the original post but belonged to this person. I was just updating the information left out. -

http://www.askaboutmoney.com/showpost.php?p=456075&postcount=18

Finally I have not fully decided to invest with the company and am still in the due diligence stage of investigating the propostion. Again this is a OIEC fund and can be left in 12 months, 12 months and a day, or an investor can reduce the amount at any time thereafter or kept in indefinately. Quite novel by comparison to most private syndicates with a certain shelf life. Imagine buying a blue chip share and told you have to sell it in 5 years, this traditionally was the modus operandi behind private snydicate schemes where you could not choose the exit point. Because of the uniqueness of the product thought it worth exploration and discussion further within this forum.




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[mercman]

the boys would be selling this opportunity to you rather than putting in their own cash....

Well put Jim. The OP is either part of the Promoters or hell bent in spending his / her money.

I'm invested in two German property funds with decent sums involved. The largest investment in German property was set up in 2006, and run by well heeled individuals. After calls by Investors they are considering disposing of their properties in early 2014, and there is a chance of a small profit. The other is an Irish fund of German property where the investment was made in 2006. A report was sent to me last week and as per the prospectus, is due to be wound down in 2014. Problem with this one is that it looks like a return of c. 50% of original Investment.

So to all reading this and have an interest either go with the OP or alternatively keep your money in your pocket or try investing in a more liquid investment where you control the direction directly rather than watching the Management fees gobble up your funds.

 

[MichaelDes]

Well put Jim. The OP is either part of the Promoters or hell bent in spending his / her money.

Mercman - that’s the typical forum response. I have been part of this forum for over 6 years and never before talked about Augusta but have talked quite a lot about Germany and overseas investment generally in the heyday.

No money will be invested by me until I am more certain of the risks versus the likely yields and possible conservative uplifts in capital values. Also the reason for looking at Germany and property is as a potential currency hedge if you must enquire further to my motives of somewhat cheerleading this investment.

Also I cannot buy property personally through a SSAP (Small Self Administered Scheme) and must go through an OEIC formulated investment structure.

You input is however helpful and I am not stupid enough to blindside myself to only listen to cheerleaders (which in the present climate there will only be few of, if any). But in reality I could put funds into a tracker then what happens if corporate and muni bonds collaspe, or will the Fed QE monthly party of $85 billion support continue to increase stock values even more unrealisitcally.

I have sat in cash for over 18 months and feel as a contrarian that money should be placed somewhere and will boring Germany offer an alternative with good yields etc with a company offering low enough costs 0.0075% management on capital value and 0.003% rental charge on capital value.

 

[mercman]

Excuse me, you asked for an opinion and I offered it. I offered two examples of German property funds which I'm invested in, both over 7 years ago. One will show a small profit (hopefully) and the other is likely to be a basket case.

I am not qualified to comment on a SSAP or OEIC investment, but I do know the perils of Co-Ownerships and Syndicates and the promises made by Promoters plus the hidden agenda when questions are asked.

It's your money so off you go, but all I might do is offer a considered opinion.

 

[MichaelDes]

but all I might do is offer a considered opinion.

Which I have rightly acknowledged as helpful but fail to understand the dismissive tone but I'll park that, as do not want to get personal or have the thread closed.

Again you comments and experience in German property are appreciated. Again there were other german investments that are doing okay in these really difficult conditions, notably, one of the last Augusta matured at 65% growth return.

Have no idea on the performance of other Augusta private syndicate funds, but maybe people on here would have more insight, and the company is only cheereleading this, but it's on google news etc.

 

[Jim2007]

If the fund makes a smooth return yearly within the 5% to 8% range then this would be fine with me. Obviously there is risk involved but that's the same with all investments.

The German bund is yielding about 1.6%, which means you are talking about returns some 300% to 500% beyond that...

The long term return on German equities is expected to be around 2.5% or possibly 3%. Again your expected returns are about 200% to 300% higher...

All this means that you are taking on significantly more risk than other investors in Germany. The question is do you really need to take on such a risk to achieve your investing objectives?

There is risk in commodities like wheat, oil etc, bank stocks etc, but there is the consideration that Germany has been boring for years, ticks along....

Unlike the rest of us, the German economy has been growing of the last few years, exports grew and unemployment is low - I would not call that boring! But sooner or later the party will stop, most likely as the rest of Europe emerges from the recession..... I would not at all expect German property prices to rise significantly in the coming years.

 

[MrEarl]

Hello,

May I ask, have Augusta confirmed that they have successfully returned peoples monies (to include the 65% growth referenced by Michael above, for series 3) ?

My reason for asking, is it seems from their website that a number of their funds are overdue to "exit" - if you look at the likes of Fund No 1, 3, 4, 5 & 6 ... in many cases, it would appear these funds are long over due to have exited, unless their website is not maintained.

Perhaps some of the previous Augusta investors could add opinion on their experience, or also someone from Augusta could comment ?

At first glance, the product originally being discussed above (The Deutsch Invest Fund) does appear interesting, not least given the very low savings rates these days. If you register for information, do they tell you the details of the properties, locations, tenants etc ?

Thank you.

Mr. Earl.

 

[mercman]

I hate to be the person who acts as a prophet of doom all the time in relation to this type of Investments, but it most be noted that these are a highly illiquid investment. I was only speaking with somebody earlier this evening who has a large amount of money invested in similar products and are at the behest of those running the funds. A good clear example of this type of investment refers to Custom House Capital and as far as I know Friends First run a number of funds to invest in property in the Far East but not all the money is invested but they refuse to return the Capital that is unused.

In the case of any doubt have a read of recent threads in this same Investments section on AAM, where many persons invested into property funds run by Bank of Ireland in what they thought were sure bets but they have lost the lot.

Have a look at these : or . Interesting reading to say the least

 

[MichaelDes]

The German bund is yielding about 1.6%, which means you are talking about returns some 300% to 500% beyond that...

That is because of the leveraged nature of the product similar to an equity/forex contract for difference system. It would be like buying a share with 65% borrowed monies at 3%, that yielded dividends annually of 4% yoy therefore the 1% spread magnifies to 2.857%. Similarly within property it is the difference in rent versus costs (being able to wash its face) that is being exploited and the capital uplift is a secondary consideration.

Unlike the rest of us, the German economy has been growing of the last few years, exports grew and unemployment is low - I would not call that boring!

You get me wrong here. In the early noughties Germany was considered boring, it stuck to manufacturing, productivity, export led economy, quality manufacturing model rather than other countries like the UK that offshored all its manufacturing, kept the intellectual high end service centres in the UK, expanded the financial services industry and like Ireland engaged in a Ponzi scheme of selling houses to each other at over inflated prices through debt instruments that had the effect of bouncing the GDP through the roof. Countries like Germany were seen to be out of touch with the new globalisation models of quick rich schemes developed by government economic think tanks in conjunction with banks. But we all know what happened since.

Germany versus Ireland/UK (and many other EU countries) turned out to be comparable to the tortoise versus the rabbit race. Boring is good, Germany ticks along nicely, it is highly conservative, tends not to exaggerate or be full of bluster (unlike Italy), its trustworthy, financially astute and like Scandinavia the economy ticks along, never punches through the roof, nor crashes like the UK or Ireland whose economies expanded with bubbles and burst spectacularly.

But sooner or later the party will stop, most likely as the rest of Europe emerges from the recession..... I would not at all expect German property prices to rise significantly in the coming years.

What do you mean by this? Are you of the opinion that the German economy will seriously hit the buffers? Or are you talking about the low interest environment and possibly inevitable increase in interest rates effecting property values following the ending of QE and/or recessions in Europe? What do you mean as the rest of Europe emerges from recession the party will stop? What party? Germany has no parties?

I hate to be the person who acts as a prophet of doom all the time in relation to this type of Investments, but it most be noted that these are a highly illiquid investment.

You raise good points but this is not an illiquid fund, it is not closed ended nor private, but similar to any other managed funds an investor can sell or buy at any time after the initial 12 month period. Audit pricing is done AFAIK quarterly to reflect its value with an independent external auditor.

In the case of any doubt have a read of recent threads in this same Investments section on AAM, where many persons invested into property funds run by Bank of Ireland in what they thought were sure bets but they have lost the lot.

Have a look at these : http://www.askaboutmoney.com/showthread.php?t=178003 or http://www.askaboutmoney.com/showthread.php?t=106556. Interesting reading to say the least

These are absolute horror stories. But is it correct to assume in the case of the Manchester office block that BOI had 60% borrowing and investors through BOI capital had 40% equity, and the solicitors firm went bust (even though it made £10m profit on its last full accounts issued in 2011 and 2012 Q2 was on target).

Then BOI decided it wanted its pound of flesh and advised selling the building without a tenant at a reduced price that covered its interests of 60%? And ditto with the second scenario in France.

But did investors (I know it's easy in hindsight) not consider it risky to invest in one building with one main tenant in a tier2 city like Manchester?

That’s like investing all your monies in one company stock without any further diversification. Albeit that investor in the Manchester BOI scheme may have only 20% of their portfolio in such investment.

But the importance of investment within property again is to buy a mixed use building so if one tenant decides to leave that the house of cards can still be maintained. As explained in an earlier post with a mixed building of four floors having a bank or supermarket or Mc Donald’s etc on the ground floor, then doctors, dentists, accountants, language school, insurance offices etc split on the other floors above with a car park attached tends to be a good money earner and spreads risk more evenly.

CMC2 German fund overall has experienced quite a lot of difficulty and has two dogs in the portfolio (both now sold on), one okay and one star and overall has not been setting the world on fire on investment return to forecasted returns.

But my opinion is that Augusta proposition remains worth exploring since it has no acquisition costs from taking over some investments from maturing private investment syndicates (but is this a Ponzi scheme), and the last seven years have been cataclysmic to all asset backed investments since 2006 forward.

I will wait to see further returns from other private syndicates maturing soon in Augusta and again require more details from the company about the costs versus the income etc. Terms of bank loans etc (which should typically be under 4%) etc. There is a lot of due diligence yet to do and peoples comments are certainly food for thought.

 

[mercman]

Michael, well if you don't work for Augusta, they'd be best employing you. I have never seen such a slanted view from a perspective investor !!

In case you weren't aware, the German economy in the noughties was in deep recession, which in turn and because of their Banks overflowing in Capital has created a major recession around Europe.

Look it's your money, so Invest it as you please. But I really would love to know how many others that read these posts will give a balanced view on both your posts, others posts and the knowledge available in the Public Domain, on the massive losses that many have been a subject of on funds controlled by others.

 

[MrEarl]

Michael, well if you don't work for Augusta, they'd be best employing you. I have never seen such a slanted view from a perspective investor !! .....

Good Evening,

I must confess, I am sitting here wondering if Michael can please answer my questions (posted previously on this discussion thread) regarding:

- If Augusta have actually confirmed to him that they have paid out on the matured funds (such as the one Michael referenced earlier - Fund 3, I think) ?

and

- If he has asked the people at Augusta whats going on with their website, given it would appear a number of their funds are overdue to return peoples money ?

Surely, if one was seriously considering investing and researching Augusta, these are questions which would come to mind having had a quick look around the website, I would have thought.

Also, Michael, did the people in Augusta give you full details of the properties they would be investing your funds in (assuming you've registered your interest, as the Augusta website asks you to do for the fund your speaking about here) ?

Thank you

Mr. Earl.

 

[MichaelDes]

......Michael please answer my questions (posted previously on this discussion thread) regarding- if Augusta have actually confirmed to him that they have paid out on the matured funds (such as the one Michael referenced earlier - Fund 3, I think) ?

Sorry for the confusion but mistakenly the return after 5 years was not 60%+ as stated earlier but 48% return (8.16% compounded annually). Here's the article Sunday Business Post last year taken from their blog.

http://www.augusta.ie/blog/38-germany-pays-back-irish-investors-john-ihle-sunday-business-post

If he has asked the people at Augusta whats going on with their website, given it would appear a number of their funds are overdue to return peoples money ?

That’s the problem with close-ended investments. If you had an open ended managed fund and markets were in the middle of a maelstrom would you want to cash in the chips or would you want to see what happens, awaiting improving conditions and sentiment. AFAIK the provision within my own CMC syndicate contract allowed for subsequent delays in the event of external unforeseen issues, and the same probably applies to Augusta. Otherwise some of the Augusta investors, who are probably desperate for cash, would have been before the courts looking for the company to cough up.

The reason these funds have obviously extended is because of the recent massive economic shocks in the Eurozone and beyond are still reverberating, and greatly affecting sentiment that has made all international potential buyers extremely cautious and nervous. Couple this to the deleveraging of banks, in this balance sheet depression, and the on-going credit squeeze and constraints on capital finance means the market over the last number of years has been severely dampened, with demand extremely more limited to cash rich pension funds (looking for the best assets only), private banks and worst case scenario vulture funds.

The conditions at present for any property fund must be capitialise and exploit the value of their assets and that’s probably what they have been doing. On reading about one of the investments syndicates within Augusta's website, which AFAIK was to close at the end of 2012, an extension had only been finished and the acquired tenant start operating. This added-value to the rent-roll and subsequent critical mass of a building should increase the value of the investment (on the basis that construction costs are lessor) and that’s a good enough objective IMO.

The company informed me that many of the funds were maturing soon. It would be interesting to see what rate these mature at first before investing monies.

Did the people in Augusta give you full details of the properties they would be investing your funds in (assuming you've registered your interest, as the Augusta website asks you to do for the fund your speaking about here) ?

None were clearly outlined but they did mention that some of the closing private syndicate funds would be rolled over into the new OEIC (these can be seen on the website).

The reasons for moving properties over from their point of view was that they clearly understand these properties that would be good solid rental yields too and importantly entry acquisition costs would be minimal.

But this may also be a downside from my point of view. For instance I like to buy properties that are a wreck, typically terrace houses etc. Buy at a very cheap price, add value by modernising with the end result that if the house cost €50,000 and €15,000 was spend on it and the rent came in at €550pcm then the yield makes sense. Also a highly insulated 3 bedroom with all mod cons and open market price of €89,000 makes an attractive investment proposition from the outset.

Similarly you want to buy a property with prospective to add value i.e. buy an office park at 65% let and somehow modernise the facilities, rebrand it, lower the operational costs and after a number of years increase the occupancy to 90%, thereby adding serious value to an investment (this was done in the CMC syndicate). But then what’s the point of another investor taking over that investment when the scope for added value now becomes more limited. That’s the conundrum that needs to be asked, along with many other questions.

There’s no rush on my part. Cash remains king although I'd prefer it to be working harder and earning more. Will explore other options out there and all suggestions welcome.




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[MrEarl]

Hello Michael,

Thank you for your reply.

Regards,

Mr. Earl.