Commercial
What is a Property Syndicate? And why invest with one?
Published
11 August, 2020
Australians love their property. 67 per cent of Australians own their own home, and according to the ATO over two million Aussies have one or more investment properties. So it’s no surprise many are using a property syndicate to invest.
Commercial real estate investment is a growing investment sector in Australia, and with returns as high as five to seven per cent (and even higher) it’s easy to see why.
What is a Property Syndicate?
A property syndicate pools funds of individual and sophisticated investors to purchase direct property. Sometimes known as a property fund or an unlisted property trust, they’ve become very popular in recent years as more investors realise the volatility of the share market and the hassles of investing in property alone.
A property syndicate can be structured in a range of ways, but the most tax effective is when it uses a Unit Trust.
Investors can purchase units in the Trust. They then own a percentage of the property proportionate to how many shares they buy and how many are on offer.
So, if you hold 10 of 100 units offered, you have a 10 per cent share in the property. You’ll then take home 10 per cent of any capital gain.
> Read what capital gains tax means for commercial property investment.
A property syndicate might have one property in the Trust. This means only one or few tenants will need to be managed. Or the syndicate may have multiple properties in the one investment, meaning diversification and bigger spread of risk.
Why invest in a property syndicate?
If you’re short on time or property knowledge, then a property syndicate might be a good investment vehicle for you.
A syndicate provides a range of goodies for the time-poor, unknowledgeable or budget investor:
- Ease of investing
- Access to bigger investments
- Clear and achievable goals
- Access to legal, financial, leasing and property experts
- An investment partner
Before making a decision to invest with a property syndicate, have a deeper look at the benefits they offer.
1. Ease of investing
A property syndicate provides you with a set-and-forget investment. That means no more stressing about tenants or wondering whether you got the best deal.
The job of the property syndicator goes beyond just getting you a solid return.
On your behalf, they’ll:
- Research the market and understand market rents and values
- Negotiate lease agreements with tenants
- Manage the tenants and their gripes
- Fill vacancies and conduct leasing campaigns
- Find the best banking and finance terms
- Conduct due diligence on acquisitions
- Negotiate purchase price and terms
This list doesn’t event cover the full services of a property syndicator. For more information on all the things a syndicator will do for you, check out our services page.
2. A property syndicate allows access to bigger investments
You won’t need much capital to buy a Mom-and-Pop store or a modest 50-sqm premises. But you won’t see much return either.
And if you buy a small commercial property, you run the risk of your small fry tenant capsizing if a poor performing economy or even a wave of infectious disease sweeps through.
But with the same or similar investment amount, you can pool your capital with other investors in a syndicate and partake in a much bigger investment.
The bigger investments – we’re talking multi-million-dollar property and commercial real estate investments – have much stronger tenants occupying the premises. It’s the difference between a local hardware store and a Bunnings using your four walls.
With a stronger tenant you’ll find more certainty. If you’re retiring or nearing retirement, that’s the sort of thing you’ll probably want in an investment.
And because the tenant is willing to pay a bigger premium for higher quality space, your return will improve too.
3. Outline clear and achievable objectives
There’s no guesswork with a property syndicate. Professionals in charge of your investment have a clear strategy to follow.
An investment strategy might aim to reduce vacancies, increase stability of your investment or hit a particular investor return.
But whatever the strategy, investors should be prepared to realign their goals during the course of an investment to match the investment environment and its likely future.
4. Access to legal, financial, leasing and property experts
A professional property syndicate will have access to leasing experts who can fill a vacancy in a heartbeat. If the syndicate has an in-house leasing expert, you can bet they’ll only be a phone call away from a CEO or property manager of a major company.
The dreaded ‘v’ word is what turns some investors off real estate. But vacancies are a minor issue when left to professionals. And so are legal and financial matters.
The evolving landscape of property law and finance terms means access to those with legal and banking know-how is more important than ever.
Professional property syndicates will have built these relationships after years in the game, so you don’t have to.
5. An investment partner
If you can find a property syndicator who invests alongside you, you’ve already made a great investment decision.
While not all property syndicate managers do it, those who invest with you ensure even greater transparency and communication on your investment. The decisions on the property are made in both your best interest and in theirs.
You’re a partner, you’re kept in the loop, and you’re in safe hands with a syndicator who invests alongside you.
No two property syndicates are the same, so make sure you do the research on who you invest with. Also, make sure they have a strong track record to match and a diversified property portfolio.
For more information on how to invest in a commercial property syndicate, get in touch with Properties & Pathways or subscribe to our newsletter below.
