What is a unit trust? And how do they work with commercial property investment?
A Unit Trust in Australia is a common business or investment structure, where its beneficiaries are entitled to a fixed percentage of ownership of the assets held in that trust. Each beneficiary of the commercial property unit trust receives a percentage of income and capital growth directly in line to the percentage of ownership they have in the unit trust’s assets.
Let’s say a property investment firm is offering 1,000 units in a property unit trust. The unit trust holds $10,000,000 in commercial property assets. You purchase 10 units in this unit trust (1% of the available units), meaning you own 1% of the assets and you’re entitled 1% of the overall property income and capital growth.
A professionally managed property unit trust (also known as a commercial property syndicate) sees multiple investors contribute investment capital into one or multiple investments held in the unit trust.
What benefits do unit trusts have in commercial property investment?
There are a number of benefits that a property fund will see by being structured in this way, the most obvious being the income tax advantages it provides. These benefits are the reason many investors turn to property syndication.
A unit trust structure helps commercial property investors by:
- Pooling funds together to acquire commercial real estate that would be far too expensive to purchase on their own;
- Distributing pre-tax income to beneficiaries (meaning the income is taxed at the beneficiary’s personal income tax rate);
- Avoiding major tax implications from owning;
- Splitting the large expenses involved in commercial property ownership;
- Being subject to a lower level of financial regulation (some investors use a Self-Managed Super Fund to invest in commercial real estate trusts);
- Having a professional property team manage their investment from due diligence to acquisition to divestment.
Is a commercial property unit trust a good investment?
Commercial real estate is known for providing robust yields between 7% and 9% (and even higher). The reason for the strong income potential is the terms of a commercial lease agreement are generally much longer than residential tenancy agreements, and businesses are typically much more willing to pay a premium for a premises which will earn them business income.
Right now, there are exciting opportunities for office and industrial property investment in Australia. Office markets in Perth and Brisbane are returning to strength from years in the doldrums, and industrial assets in Melbourne and Sydney are in high demand by logistics companies (which are meeting the demand of growing populations amidst an eCommerce boom).
Check out our assets under management to see what sort of yields you can expect for investing in high-quality commercial assets in these precincts.
Want more information on unit trust investments?
Get in touch with Properties & Pathways today for more information on how we work and what investments we have available. We handpick our properties throughout Australia to reduce risk and protect investor return.