Property syndicates offering portfolio diversification, lower investment entry point
Property syndicates, or managed property funds, provide real estate investors with a chance to buy into property types they might not otherwise be able to afford, with the opportunity to possibly outpace regular property investment returns.
Mention property investing and most people think about direct ownership.
But for investors seeking exposure to larger-scale assets or a more passive approach to property investment, managed property funds are becoming an increasingly attractive option.
What are managed property funds?
Also known as property syndicates, managed property funds work by pooling the capital of multiple investors to purchase large scale assets such as residential developments and commercial properties – assets which, for the most part, are often priced beyond the means of individual investors.
Rather than being held by an individual, these assets are held in a professionally managed unit trust and are overseen by an expert funds management team.
Investors purchase units in the trust and in return receive their proportion of the project’s returns once the developed product or asset is sold – and/or, in the case of commercial property, regular distributions from the rental income of the underlying tenants.
What are the benefits of a syndicated property fund?
Beyond enabling investors to gain exposure to these larger-scale assets, there are several other potential advantages of property funds worth mentioning:
- Lower entry cost – Due to their syndicated structure, the minimum requirements to invest in funds are much lower than owning larger-scale assets directly. This can vary between different types of funds but can typically stipulate a minimum investment of around $50,000.
- Diversification – These lower entry requirements mean investors can spread their capital across multiple funds and investments, rather than concentrating all their capital (and hence risk) into a single investment. In some cases, a property fund may hold multiple assets spread across different sectors and locations, providing further diversification within a single investment.
- Non-recourse lending – When investing in property funds, all borrowings are entered into by the fund and not by the individual investor. This means that unit holders won’t be subject to personal guarantees (i.e. they won’t be required to provide any bank security, such as their home or other assets) and are not liable beyond the cost of their own units.
- Passive approach – When you invest in a fund, the funds management team takes care of all the leg work. This ranges from identifying suitable properties for acquisition and collecting and distributing rents, through to exploring opportunities to improve the capital value of the property. This approach can hold key appeal for investors wanting exposure to the benefits of real estate investments, without the hassles and complexities of day-to-day management.
For whom are property funds best suited?
Whether a property fund is right for you depends on your goals, the stage in your property journey, and the type/strategy of the fund in question.
As a rule, most Australians start out investing in residential property directly. This makes sense, as it allows investors to enjoy the tax benefits of negative gearing, while leveraging equity to fund additional assets.
However, as an investor’s residential portfolio expands, a property fund can bring valuable diversity to the mix. It can also be a way for investors to add higher risk options to their portfolio through funds that focus on residential developments or value-add strategies.
As we begin heading towards retirement, passive income tends to become a top priority for investors. This is an area where commercial property funds really hold their own due to the high yields and regular distributions they can offer.
One thing to note, however, is that eligibilities can differ across different types of property funds.
Some funds – including those focused on higher risk assets such as property developments – will often only be open to wholesale investors, which means you need to meet certain income/asset thresholds to be eligible to invest.
Others are open to retail investors – essentially anyone who wants to invest in them.
A final note
Managed property funds can be a great way to add diversity and balance to your portfolio without the hassles and complexities of managing larger-scale assets yourself.
Like any investments, however, they aren’t risk-free. So, if it is an option you’d like to explore, make sure you do your due diligence to ensure the fund and fund manager are the right fit for you.