Property syndicates have been around for many years with investors using them to diversify their investment portfolios. These syndicates allow property investors who would otherwise lack the capital the opportunity to pool their funds and invest in high value retail, industrial and commercial real estate, as well as more traditional residential real estate, such as apartment buildings.
As Australian property prices continue to rise, and the world slowly moves towards a post-pandemic economy, sophisticated investors are looking at smart ways to diversify their portfolio.
Is syndicated property investment the answer?
A property syndicate is a type of direct property investment where smaller investors pool their funds to invest in real estate. The idea of syndicated property investing is that smaller investors lacking the initial capital to make big purchases can band together to buy existing properties, or invest in the development of a new property or properties.
Some of these syndicated property investment opportunities include office buildings, apartment buildings, retail centres and industrial facilities.
Investors can either sell a completed development and bank the profits or set up a passive income stream.
Property syndicates are overseen by the Australian Securities and Investments Commission (ASIC) regulatory guide 77, known as RG 77, Property trusts and property syndicates.
A property syndicate can invest in just one or a number of properties. Diversifying investments across more than one property is a strategic risk management strategy. However, a single investment can provide tax benefits, regular cash flow and even the possibility of capital gains.
A property syndicate does tend to be a finite investment opportunity, meaning there’s likely to be a set number of investors for a set number of years.
Just like any other type of investment, a property syndicate comes with risks. Other than speaking with your financial advisor, here’s some things you need to think about before taking the syndicated property investment plunge.
Property type – existing property or new development? With an existing property, you just buy and take over. For a new retail development, where the syndicate buys the land, builds the shopping centre and then leases it out, you can typically expect no return for this initial development period.
Management – what are the qualifications and management experience of the syndicate? You should be looking for a demonstrated track record of successful property syndicate management.
Capital – is this a liquid investment? If so, your capital could be tied up for five, seven or even ten years. Is there any way for you to get your money out, if needed, before the end of the investment term?
Interest rates – will interest rate changes impact the syndicate’s investments?
Yield – what’s the projected yield?
Tenants – the quality and stability of tenants will greatly influence overall returns.
Government policy – would a change in government, or government policy, affect the syndicate?
Costs – don’t forget to check the prospectus for associated costs such as insurance, management fees, marketing and exit fees.
Due diligence – it should go without saying that your solicitor or financial teams should be checking any prospectus before you sign.
High Value Assets
When a group of investors pool their funds, suddenly they can invest in properties previously far out of their price range. This can open up a plethora of investment opportunities for small investors. The larger the property, the greater the returns. Large commercial properties, like suburban shopping centres, attract and can lock in long term, big name tenants. These big names attract customers which in turn, attracts other tenants who are prepared to pay premium rents.
Diversify your investment portfolio
As any good financial advisor will tell you, building a diverse investment portfolio is a great risk management strategy. Investors can reduce their risk by investing in different investments, from residential real estate to huge commercial investments.
Grow faster
When wanting to invest in a second property, you generally need to increase your equity in the first property or save a full deposit. Both these options take time. When investing in a property syndicate, you need much smaller amounts of money meaning you can start investing sooner. Once you start seeing returns on your investment, you can reinvest in another syndicate. All this compound investing will see your investment portfolio grow faster.
Set and forget investing
For those wanting to take a longer term approach to investing, this could be ideal for you. When you’ve done your due diligence and researched the property syndicate, management, prospectus etc, all you’ll have to do is make the initial capital investment and then sit back and wait for your investment to start paying dividends.
This offer for Private Wealth Services is not available to clients of BMF as at 31 December 2016.
Kelly Partners Private Wealth (Wholesale) Pty Ltd is a corporate authorised representative of Kelly Partners Private Wealth Pty ltd (AFSL: 516704, ABN 14 629 559 860). Any general advice provided has been prepared without taking into account your objectives, financial situation or needs. Before acting on the advice, you should consider the appropriateness of the advice with regard to your objectives, financial situation and needs.
Kelly Partners Private Wealth Sydney Pty Ltd is a corporate authorised representative of Madison Financial Group Pty Ltd (AFSL: 246679, ABN: 36 002 459 001)