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Why invest in commercial property via a syndicated unit trust?

August 22, 2023
Categories: Commercial

Commercial real estate investment is known for being a complex investment, reserved for those with seemingly bottomless pockets. Thanks to unit trusts and property funds, that’s no longer the case. Here’s why you might consider investing in commercial property via a unit trust.

Author’s note: Any information provided in this post has not considered the objectives, financial situation or needs of any investor; investors should consider whether it is appropriate for them to partake in a commercial property investment prior to investing, in light of their objectives, financial situation or needs. 

In the vast and varied landscape of investment opportunities, commercial property in Australia stands out as a prominent and attractive asset. But for many individual investors, the high entry costs and management intricacies can be barriers. In comes the unit trust. 

Unit trusts offer a collective investment scheme that opens a door to commercial property that is otherwise closed to many private investors. But that’s not where the benefits end. 

Let’s delve into why investing in commercial property through a unit trust in Australia can be a wise move to build your wealth. 

1. Diversification of portfolio

One of the cardinal rules of investing is diversification. It’s the safe, sound alternative to the all-eggs-in-one-basket approach.  

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Investing in commercial property through a unit trust allows individuals to diversify their portfolio beyond traditional stocks, bonds or residential real estate. Commercial properties, be it office spaces, retail outlets or warehouses, often behave differently from both one another and from other assets, providing a hedge against market volatilities.

2. High entry barriers made accessible

Commercial properties typically demand a significant capital outlay, often placing them out of reach for the average investor. Unit trusts democratise this by pooling resources from multiple investors, enabling participation with a fraction of the cost it would take to buy a property outright.

3. Stable income stream

Commercial leases tend to be much longer than residential leases. With terms often spanning multiple years and ironclad clauses for regular rent reviews and rate increases, they can deliver a more predictable and stable income stream. 

When you factor in the historically rising rental yields in many Australian cities, the potential for steady returns becomes even more evident. 

4. Benefit from professional management

A major advantage of investing through syndicated unit trusts is that they are typically managed by seasoned professionals. 

These experts handle property acquisition, maintenance, lease negotiations and other operational aspects. Their knowledge not only reduces the time and effort required by individual investors but also leverages industry knowledge to maximise returns.

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5. Tax advantages

top investor fears in commercial property investment

In Australia, investing in commercial property through a unit trust comes with certain tax advantages. 

These may include deductions for property-related expenses and the potential for capital gains tax concessions. 

As for reducing capital gains tax when you sell your property for much more than you purchased it, you can find our popular post on capital gains tax on commercial property here

Always consult with a tax professional to understand the specifics as they apply to your situation.

6. Tangible asset with potential capital growth

While the regular rental yield provides cash flow, the underlying property offers potential capital appreciation. 

In burgeoning economic hubs across Australia, commercial property values have seen consistent growth. Investing via a unit trust allows you to benefit from this appreciation, even if you only own a fraction of the asset.

And the best part for many, is the confidence of owning a tangible asset. Not a somewhat “fictional” piece of a company, or bonds or stocks that you’ll never see or physically hold. Bricks and mortar, and the soil it stands on. Real estate is as real as an investment gets. 

7. Economies of scale

Pooling resources in a syndicated unit trust can result in economies of scale. Larger investments might yield better returns or have better negotiation power in lease terms. Maintenance and operational costs are also spread out, potentially resulting in cost efficiencies.

And that’s just the beginning. Pooling investment capital with other like minded investors gives you the massive benefit of going after commercial real estate with far larger price tags than you otherwise would alone. 

super fund performance 2022

Investing in commercial property in Australia through a unit trust is a compelling proposition. It presents a golden middle ground, merging the tangible, steady returns of commercial real estate with the accessibility and hands-off management that unit trusts offer.

But like all investments, it’s crucial to do your due diligence. Assess the fund manager’s credentials, their track record, the investment property’s location and its potential for growth, the terms of the trust and above all your own financial objectives before diving in. 

With the right approach and informed decisions, using a unit trust to invest in commercial property can indeed be a strategy that changes the course of your financial future. We know it has for us.

We’ve been in the property game for decades. And by far our best investment is in quality information. Want the experts’ take on the Australian commercial real estate market? Subscribe to our monthly newsletter and the next edition will be sent straight to your inbox:

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Properties & Pathways is a dynamic Australian property investment company. Our completed syndicates have provided investors an average annualised return of 21.97%. For more information on how you can invest alongside us, get in touch today.