If you're looking to invest in property and would like to be exposed to a broader range, both a property trust and property syndicates can be a wise idea for those properties previously out of reach for lone investors. What are property trusts and syndicates? Read on to find out.
The reason both property trusts and syndicates are growing in popularity is that risk is spread across a range of properties, meaning you are less affected by market fluctuations. In addition, as well as not having to be involved in maintenance and rental agreements, there are still tax advantages like depreciation to be had.
Property trusts (listed or unlisted)
Involvement in a property trust means investing in specific sectors of commercial real estate, such as retail or hotels. The trust can also be diversified, meaning in a range of sectors. But the principal aim of all of them is the same; to earn rental income from a well-selected range of properties on long leases, as well as benefiting from the capital growth of those properties.
Your share in a property trust listed on the stock exchange (a Listed Property Trust or LPT) can be sold quickly, unlike actual houses. Many investors also enjoy the fact that the level of fluctuation is far lower than that of shares as real estate is relatively stable.
Property Syndicates
While property trusts, both listed and unlisted, have grown in popularity, so too have property syndicates. They are built around a collection of properties or a single property, and often have a restricted number of investors involved. They are unlisted and are 'closed end' - with a set amount of capital that needs to be raised.
For the time that they are in operation, they provide income for the investors, but they are generally only in operation for approximately five to seven years, with occasional redemptions allowed. When they finish, there is often some capital gain to be had. In comparison to LPTs, they are considerably less 'liquid', and you may need at least $5000 to invest, depending on the syndicate. In addition, if you are only investing in one property in a syndicate, there is more risk than investing in a property trust, especially a highly diverse one. However, single property syndicates are waning in popularity.
Some popular syndicate managers in Australia include Abacus Property, Centro, Westpoint Management, Investa Property or Australia Unity. Investors should be warned that exit fees can be as high as four percent.