What is a property syndicate?
A property syndicate is a type of direct property investment where multiple investors pool their money together to invest in real estate. Many investors will look to diversify their investment portfolio by owning real estate asset classes, such as residential and commercial real estate, alongside their investments in shares, bonds, deposits, etc.
Property syndicates are very popular for people who need to diversify, investors who are poor on time, and those who want to maximise their return and capital growth potential by investing in real estate assets they otherwise would not be able to afford.
Commercial property syndicates, known as unlisted property trusts, are popular for investors who want to invest in high-price tag office real estate, retail property, and industrial property – but don’t have the time, money, or property nous to do so alone.
The benefits of a property syndicate
A property syndicate has multiple benefits for investors, particularly when the syndicate is operated by property experts and under a unit trust structure.
1. Set and forget investment
Many investors don’t have the time to invest in high-quality commercial real estate on their own. There are many factors to consider, including researching property markets, understanding the leasing market, completing a thorough due diligence on the chosen property, conducting both purchase and lease negotiations, and general management and maintenance items that are ongoing when owning a property.
When investing in a property syndicate, these tasks are taken care of for the investor. Investors can merely sit back while monthly distributions hit their bank account and regular communications are provided about the progress and performance of their property investment.
2. Invest in high-value real estate assets
Investors pooling together capital to invest in property, means a single investor is able to own property which is much higher in value than they otherwise would be able to afford alone.
Typically, the larger the property value, the bigger the returns. This because larger commercial properties contain bigger tenants, with a bigger propensity to pay premium rents. The demand for such “big league” property assets by more prominent businesses (typically national or international brands) pushes up the value for these properties, thus providing the investor with a high-quality return. For many investors, this is impossible to achieve unless they pool their funds with others.
3. Leverage expertise and network
Managers of professional property syndicates have access to a large web of real estate, finance, and advertising professionals. Investors are able to leverage this network without spending the many years to accrue such contacts on their own. Keep in mind, the better the property syndicate, the better the professionals in their network.
On top of this, investors can tap into the collective wisdom of the property professionals managing the property syndicate, providing comfort that the property the syndicate acquires has been well researched and thoroughly investigated, and the purchase and lease negotiations have been done so with the vigour and confidence of real estate veterans.
4. Invest in a Unit Trust
A Unit Trust is the most tax efficient structure in Australia. Investors are able to purchase units in a unit trust, and the portion of units they own (relevant to the number of units on offer) is equivalent to the percentage of ownership they take over the property. For example, if there are 100 units on offer in a property syndicate, and an investor owns 10 units, they share a 10% ownership over the property.
This is a huge help for investors at tax time. Because property syndicate investors don’t declare the full annual rental income received from the property – only the income relevant to their percentage ownership.
Retail property syndicates vs Wholesale property syndicates
A retail property syndicate is open to almost any investor to partake. There are little to no restrictions in place for someone to get involved. A property company which offers retail property syndicates will need to provide a Product Disclosure Statement and a single responsible entity is appointed to run the syndicate and comply with investment rules set by ASIC (under an Australian Financial Services Licence). Investors can usually invest for as little as $10,000.
Meanwhile, a wholesale property syndicate is much more critical as to who invests in the syndicate. Wholesale investors (also known as institutional investors) must tick one of four boxes to be legally identified as a wholesale or sophisticated investor. Read our FAQs page to understand more. An Information Memorandum (IM) is issued to each potential investor in the wholesale property syndicate, and the minimum investment amount is typically much higher (sometimes $200,000 or more).
How can you invest?
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