What is direct property investment? And should I invest?

In Australia, we sometimes use another term to describe real estate investments. That term is direct property investment. Direct property investment is hugely popular in Australia, comes in many shapes and forms, and can be a great substitute to shares investing. 

What is direct property investment? 

Direct property investment is investment in real estate, either through transferring ownership directly into your name or the name of your business, or through purchasing units in what’s known as a direct property fund. Direct property includes assets such as commercial real estate (office, retail, bulky goods, large format retail, and industrial property investment) or residential real estate, including apartments, apartment buildings, or the average house on the street. Direct property investment has the ability to generate great returns for investors. Direct property investment in residential real estate can see annual yields of 1 per cent to 3 per cent. While commercial real estate typically provides annual yields of between 5 per cent and 7 per cent – and sometimes even higher. 

What are direct property funds? 

For investors who want a slice of a huge investment pie, direct property funds might be the perfect fit for them. Also known as property syndicates, unlisted property trusts or unlisted property funds, direct property investment funds, like us at Properties & Pathways, will pull money together from eligible investors and strategically acquire high-yielding real estate assets. 

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Advantages of investing in a direct property fund

These are the top reasons we hear our investors say why they invest in a managed direct property fund:

1. Better investment opportunities

Funds are among the first investors to find out when premium properties are coming to market. In fact, the best properties are rarely advertised at all, so you have to be ‘in the know’ to see them, let alone have a chance to acquire them.

2. Invaluable experience

Managers of direct property funds understand the acquisition, capital raising and valuation process. This means they know how to extract the best possible outcome from every potential property purchase. You basically get the best deals, without lifting a finger. 

3. Improved financing options

Direct property funds have long and established relationships with lenders, which affords them better finance terms. On top of this, the turnaround time is second to none. This is a huge benefit, considering swift decisions are essential when competing for premium properties.

4. Lower overheads

The working relationship with these service professionals translate directly into tangible cost savings for the investor as they charge far lower fees to their bigger clients than to one-off investors. 

5. A “set and forget” investment

The property fund takes care of the day-to-day running of the property, from niggling maintenance issues all the way through to massive value-add projects and lease negotiations.

6. Diversifies your portfolio 

Investing in direct property through an established syndicate or property fund typically means you can spread the distribution of your capital to diversify your investment property portfolio. This can increase your financial security. 

Direct property vs Listed property

Direct property investment can usually be in either unlisted or listed property. Direct property investors typically go after unlisted property, also known as off-market property. Investors usually find unlisted property through their network, built from years of seeking and developing relationships in the property industry. The benefits of unlisted property are huge:

• Less chance of negotiation battles with other investors

• Better chance to find value-add opportunities 

• Bigger opportunity to snap up quality real estate for quality prices 

If you’re a property investor, the other avenue you can go down is investing in listed property. Listed property is advertised publicly, whether in newspapers or real estate listing websites. You can bet you’ll be fighting it out with many other property investors, some weekend warriors and ‘mum and dad investors’. This competition often pushes up – and sometimes inflates – the price of the property. It’s not always guaranteed you’ll get a better deal buying an unlisted property, but it’s certainly much more desirable to buy an unlisted direct property compared to a property that is listed for an entire field of investors to see. 

Things to consider before investing in direct property funds

There are a few differentiating factors between investing in a direct property fund and merely finding a property that looks ‘good enough’:

• Direct property investments are usually long-term, up to five or seven years (or more, if the investment strategy warrants it);
• These investments are highly illiquid, meaning your ownership is not easy to transfer into cash. There are benefits of this though, with direct property investment providing a stable, secure alternative to the high volatility of shares. 

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How to invest in a direct property fund in Australia?

It doesn’t take long to convince a solo investor to join a direct property fund. The benefits are immense, especially when the right property fund is chosen. There are many great fund managers here in Australia. Be sure to look for one who has skin in the game, a competitive fee structure, a proven track record, and swift communication flow with investors. Whether you’re an experienced property investor or just getting started, get in touch with Properties & Pathways today to learn more about how you can build your wealth investing in high-quality direct property.