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Passive Income Fund (USA Commercial Property) - Steve McKnight

Discussion in 'General Property Chat' started by Gurtofen, 14th Jan, 2016.

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  1. Gurtofen

    Gurtofen Well-Known Member

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    Has anyone had any experience or is currently invested with Steve McKnight's - Passive Income Fund (USA Commercial Property) at all? I have a friend who is invested in the fund so I had a look into it to see what it was all about.

    Now I know Steve McKnight has written books on property investment etc. (no I haven't read any of them and don't really intend to) but what I found interesting about him is that he has gone from being a Positive Cashflow Investor to Author to Million Dollar Apprenticeship Mentor to Wrapping and now to US Commercial Property Fund Manager.....whilst being a Seminar Spruiker throughout it all.

    So I have had a good look at his Passive Income Fund including reading through the 2015 Financial Report listed on the website and all it did was raise some serious red flags for me? I walked away with way more questions than answers. There appears to be a lot of loose appraisals in relation to the performance and capital growth estimates of the properties in the fund and the prevailing unit price.

    If anyone is interested or has already watched it, there is a 50 minute webinar on the funds website detailing the FY14/15 results and it was bizarre to say the least. Is that how a supposed fund manager would normally act when presenting to its clients? I also noticed some very basic accounting errors which surprised me considering McKnight is a former accountant.

    I am happy to be corrected and hopefully my red flag sensor was triggered unnecessarily but I am genuinely interested to hear about people's experience or views on the fund.
     
    Last edited: 14th Jan, 2016
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    There's quite a big write up on it on his forums where commenters pointed out all the flaws. He left it unmoderated which is a plus for his transparency.
     
  3. Gurtofen

    Gurtofen Well-Known Member

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    Ok. I am not a forum member on his website so can't view it unfortunately. May have to subscribe!
     
  4. albanga

    albanga Well-Known Member

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    I have commented on another thread discussing my dealings with Steve through the property apprenticeship and cannot speak of him highly enough.
    Throughout the course he would often discuss the fund and he would show us deals he was actively working on, one thing I can assure you is if you invest with his fund you have the best negotiater I have eve seen batting for you. He use to share with us his email trails with the commercial vendors and they were brutal!

    From memory last year the fund Had returned a very impressive 16% over its 2 years but a lot of that had come from the USD strengthening over the AUD. So whilst the fund is making good commercial purchasers I would be hesitant to invest now given the dollar "probably" doesn't have much more to drop.
     
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  5. tobe

    tobe Well-Known Member

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    Read his books. Found them really useful. Looking at property is about the only time I wear tracksuit pants now.
     
  6. MTR

    MTR Well-Known Member Premium Member

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    the currency play has made investors money
     
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  7. Gurtofen

    Gurtofen Well-Known Member

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    I have no doubt that McKnight knows his stuff and can negotiate a deal or three but the figures from this fund don't seem to stack up correctly from what I can see. Mind you I am not exactly an expert in breaking down financial reports so happy to be corrected if I am off the mark.....

    The FY14/15 Financial Report has a $3.78 Million profit before distributions and a $2.3 Million loss before distributions from the parent entity. That's a $1.5 Million profit realised for the fund. Total Fees and Reimbursements were $3.64 Million for the year.
    There was $4.7 Million paid out in distributions for the year at 8c per unit. Capital Growth was reported as 27.61c per unit reported as an overall increase of 34.12% after fees for FY14/15. Who is making a 34.12% return on their money after fees in this current economic climate? Those returns are amazing if the figures stack up.

    The fund has reported Total Net Assets of $82.3 Million as at 30 June 15 with just over 66 Million units on offer......that seems to indicate a Unit Price of approx. $1.24. The performance data has the Unit Price at 1.3277 as at 30 June 15. Mind you a Unit Price of $1.24 is still an outstanding ROI if correct.

    The properties acquired appear to be internal appraisals rather than independent valuations as the PDS states that properties will be independently valued every 3 years or earlier if required. When you watch the webinar, some of the properties are 'appraised' with a Fair Market Value of over 40% CG for the last 6 - 12 months! Those returns if realised, seem to be too good to be true.

    For those that state that FOREX has made the fund heaps of cash, the reported FOREX gains for FY14/15 were only $327,984 with an unrealised FOREX gain of just over $6 Million. Surely these unrealised FOREX gains will only hold up if the properties are sold at the prevailing exchange rate and would be a very tricky gain to rely on throughout the life of the fund.

    I also not that the first ever redemption window from the fund was activated in Oct 2015 and the Unit Redemption price was $1.2889 (the Responsible Entity can also control how much redemption is allowed) and yet the buy in Unit Price was $1.4216? Surely the Oct 15 Unit Price had been calculated based on Total Net Assets and the Redemption Unit Price was not a 13c per unit discount?

    Anyway, hopefully my figures are wrong and the fund is achieving these results because if correct, it must be one of the best performing asset classes out there but I am not convinced the numbers stack up. Happy to be proven wrong though......
     
  8. Azazel

    Azazel Well-Known Member

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    There were plenty of his fans that wanted someone to do all the work for them and just throw money in.
    He's filled a hole in his market for lazy people who just want him to do it for them.
     
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  9. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Let's be fair though, investing in the US is a pretty steep learning curve. If wanted exposure to the US I'd likely prefer a fund over DIY too. I'm not lazy, it's just priorities. (btw, I'm not invested in the fund.)
     
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  10. Azazel

    Azazel Well-Known Member

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    It's not just people who wanted to invest in commercial real estate in the US specifically.
    They're mum and dad investors who read Steve's books but can't quite pull the trigger and want him to hold their hand through the process.
     
  11. Redwood

    Redwood Well-Known Member

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    Gurtofen - if you are looking to invest, be free to email steve direct, I am sure he will be more than happy to answer your questions. Note - I am not an investor of the fund however have many clients who invested and naturally see the statements etc....Without reading the PDS, your point around valuation is the same for any property fund, you just want to ensure you can redeem without the fund manager shutting the gates.

    Cheers Ivan
     
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  12. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Yeah, I guess it would attract that demographic as well.
     
  13. Azazel

    Azazel Well-Known Member

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    If you've ever been to one of his market updates or seminars you'll see them.
    Easy to spot, the ones sitting down the front cheering when he gives an update on the fund.
     
  14. MTR

    MTR Well-Known Member Premium Member

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    Jess
    Different strokes for different folks.
    I know some investors who lost money in US buying wrong product etc.

    I am glad I went solo tripled my investment, due to currency play, I am making approximately 40% return on just the money that comes back to Oz. I just keep buying properties in US now because its really a no brainer, I cant achieve same result in Australia even with developing property, which requires much more work.

    Also what is actually happening now with resi property in US is very strong rental market and rental returns are now going up and if any vacancies, houses rent out immediately, yield is just improving. County taxes are also going up because property prices are almost back to 2007 when it crashed with 70% losses in some States, ie Atlanta, Arizona, Florida

    Back to Steve McKnight's deals, I think its a tough one without looking at the product/what he is buying. It would not be hard to work out I guess, different strokes for different folks. When you buy in funds of course you have no control.

    Still believe there is plenty of upside in US to come IMO.

    MTR:)
     
    Last edited: 15th Jan, 2016
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  15. Azazel

    Azazel Well-Known Member

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    I think good on you for having the foresight and intestinal fortitude to go for it.

    There's a reason Steve's 'system' in his books begins with residential IP's and finishes with transitioning to commercial IP's... a bit of a coincidence some might say.
     
  16. MTR

    MTR Well-Known Member Premium Member

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    Thanks, a little bit of dumb luck can go along way.LOL

    I started my research on USA by going to one of Steve McKnight's seminars and dragged my reluctant husband along. SMc was buying low feeder stuff in Florida, duplex properties and houses that looked ugly. Was not comfortable with this product at the time. Today I would be buying these in a heartbeat.

    At this time he was paying I think around $16,000 -45,000 at that time 3-4 years ago. By the end of the evening he provided the numbers and not sure how many he purchased but his returns were brilliant, was making $200,000 pa rental income.

    I never buy anything other than books, but at the end of the evening I purchased his USA education pack, it was brilliant. Basically it was a step by step guide on what you need to do to buy in USA ie accountant details, structures, tax rules in USA and much much more.

    This lead to further research and Florida is a brilliant market and if he still has these resi properties they will most certainly have doubled if not tripled in value and income would be pretty amazing.

    I think the commercial route is just another way to make money, which is better I don't know? It really comes down to what works for you.

    I don't believe SMc is dodgy, compared to some other spruikers mentioned on this forum. He is basically an educator, and there have been many people who have followed what he does who have made money.

    I have not heard horror stories, and I have no vested interest. Like everything we have to work hard to work out what is fact and what is fiction. Keep the busturds honest

    MTR:)
     
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  17. Gurtofen

    Gurtofen Well-Known Member

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    As I am a very new member of PC and due to the the fact that I still have a lot to learn with respect to RE, I will watch this fund with interest. My primary concern is capitalising on my own circumstances and hopefully PC will be a great resource to assist with this.

    However, I will go out on a limb and call BS on this fund and its reported returns from my research.

    I hope that I am wrong for those that are invested in this fund as I have only recently delved into property investment myself and have a lot to learn in this specific area of investment but due to a friends investment in the fund I have looked into this in detail and I am concerned about the reported returns of the fund.

    I do not view myself as a pessimist as such and am of the view that risk equals reward so good luck to those invested, however this fund raises a lot of red flags for me. I have no interest in the fund myself so have nothing to lose or gain. Hopefully my concerns are not realised in the long run especially as some members seem to have given it their tick of approval.
     
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  18. Azazel

    Azazel Well-Known Member

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    The $A dollar going down will create gains regardless of portfolio performance, he will get the credit for that.
    Not that he didn't call it.
     
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  19. MTR

    MTR Well-Known Member Premium Member

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    Also the Au$ was much higher when he was raising the initial funds for this, perhaps even parity with US$. That alone today will give you around 40% on your money.

    Steve McK has a knack of getting it right, he did this with regional property in Victoria and pretty much doubled his money in short time frame, he wrote best selling book about this. Sold off the lot.

    Then he jumped into NZ same strategy, low end feeder product purchased on a low and sold the lot on a high.

    Same here with USA, started with resi low end feeder stuff, which has more than doubled, not sure whether he still holds these properties??

    Just keep an eye on him, as I said here is the evidence above. Not sure whether the other gurus have the same track record???

    MTR:)
     
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  20. Azazel

    Azazel Well-Known Member

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    Yep, he did say 'when' the $A goes down.
    He's one of the only ones I would trust with some of my money.
    But I am still skeptical of everyone.
     
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