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Investing in real estate is seen by many experts as a great way of earning dollars and securing your financial future but there are many ways to go about it and it doesn’t have to mean putting all your money into a single property. Investor Buddy explains what a listed property trust is, how it differs to other property trusts and how to get your start in listed property.
What is a listed property trust?
Listed property trusts are trusts that include a diverse portfolio of properties across different sectors – such as commercial or industrial as well as residential real estate. They can offer the possibility of higher yields for the investor. Many investors see these enhanced liquidity trusts as an alternative to direct property investing, and they offer increased exposure for the investor to the value of the real estate in the trust. They also offer the prospect of income generated by the properties – often around five to nine percent per annum. Listed property trusts are the only property funds that can be publicly traded on the stock exchange.
The income generated by a listed property trust is tax deferrable – another attraction - and they tend to be less volatile than shares – meaning the price, value or return fluctuates less. This is because property in general tends to be more stable, and commercial property more so. (If property prices drop, people don’t sell till they go up again). Listed property trusts tend to include a fair bit of commercial real estate.
Types of listed property trusts
Most property trusts will fall into one of two main structural categories. Either it will be a stand-alone trust, which offers investors exposure to the real estate underlying the trust, or stapled securities which provide exposure to a real estate portfolio as well, perhaps, as a fund-management or property-development firm.
As for what exactly you are investing in, types of trusts range from industrial, office, hotel, and retail, to specifically diversified trusts (a mixture of the above), or international trusts (that invest in offshore projects and properties).
Should I? Could I?
Returns from listed property trusts will be different to those from shares, fixed income or residential real estate. For this reason they are most suitable for those investments requiring diversification, growth from property-generated income and capital appreciation, regular income from rent, stability and the bonus of deferred-tax income.
Once they are listed on the ASX, this types of trusts can only be bought and sold through a registered stockbroker. When buying and selling listed property trusts a fee will be paid to the stockbroker and stamp duty is also payable. However, compared with the costs of direct property investment these costs are comparatively low. You will also need to pay an annual fee, however, some managers may offer a lower fee, on condition that they earn a performance fee if the trust outperforms a pre-set benchmark.
