Property trusts are one of the most solid and lucrative ways to invest. While most are professionally managed Listed Property Trusts (LPTs), it is also possible to start your own.
What is a property trust?
A property trust is essentially a property that is owned by many people. Shares can be purchased in one or more properties, making it easier for smaller investors to reap the benefits of a solid property investment.
Listed property trusts
Professionally managed LPTs are listed on the Australian Stock Exchange, and usually include a diverse range of commercial properties, such as office buildings, shopping complexes and four- or five-star hotels. Properties can be located all around Australia, and many managed funds now include overseas properties as well.
The main advantage of a professionally managed LPT is that the fund manager is responsible for finding the properties and managing improvements, maintenance and rental income. All the investor has to do is reap the benefits, not just of increased property value but also rental income, which can, incidentally, be counted as a deferred tax (that means that no tax has to be paid on the property until it is sold).
Private property trusts
Some managed property trusts are not listed and while these may be just as worthy an investment as a listed trust, it pays to keep in mind that listed trusts are more liquid, making it easier to redeem your investment. If you have to sell your shares in the trust fast you can do so more easily with a LPT.
A wealth of information regarding managed property is produced by the Property Investment Research group and this is a great resource for keeping up to date with current property trust investment trends.
Starting a property trust
Some investors start their own property syndicates that grow to become a property trust. It’s an ambitious way to begin if you are new investor but may be a lucrative path to pursue for the more experienced investor.
Legal obligations
If you do decide to start your own property fund, you will need good advisors as there are laws and various other considerations to take into account. One, for example, is product disclosure statement. You will need to provide this to your potential investors. The product disclosure statement should include a full explanation of the risks involved and avoid using only positively geared examples. Discussion of theoretical gains should also be avoided, and all financing arrangements should be disclosed.
Additionally, the Net Tangible Asset backing of each unit should be given, as well as the possible watering down of share value if other investors come in.
Fund managers are also responsible for the property’s upkeep, making sure the value does not decrease due to any neglect, the property’s tenancy is managed effectively, and all taxation notification to investors is completed at required intervals. For these reasons, a property trust is not to be entered into lightly, and, for most people, a managed fund is a much better, hassle-free option.
For information the Investment and Financial Services Association Limited, Women In Finance Association and Australian Securities and Investments Commission are good places to seek advice.
Property syndicates
However, there is scope for a small group of people (called a property syndicate) to buy up domestic properties in areas that have a good tenancy record. One or two properties could provide smaller investors with both rental income and capital gain as the property increases in value. Part of the attraction of doing this as a group is that your mortgage needn’t be as big. It is still prudent, of course, to only enter into this kind of arrangement after taking sound professional advice.
