The term property syndicate refers to direct property investments where many investors pool their capital to invest in real estate. The pooling of investors’ capital allows them to invest in commercial, retail, or industrial properties that would otherwise be too expensive for them to buy directly.
The term Property syndicate has been around for some time, and investors have been looking for diversification in their portfolios since the 1980s and 1990s.
When the syndicate is wound up, investors receive a capital return and distribution income from the scheme (also called a managed investment scheme, a trust, or a fund).
However, non-development syndicates typically have a set life range of five to ten years following the syndicate’s establishment, depending on the objectives of the investors.
What does a property syndicate invest in?
A property syndicate can invest in a single property or a group of properties. In general, single property syndicates are riskier, but they can also provide a regular flow of cash, can offer tax benefits, and may provide capital gains.
A property syndicate usually involves a restricted number of investors and a specified amount of capital. These properties could be commercial, retail, industrial, rural, or residential.
What are the Benefits of a Property Syndicate
Investors can benefit from property syndicates, particularly when the syndicate is managed by property experts and is structured as a unit trust.
1. Invest once and forget about it
There are many factors to consider when investing in high-quality commercial real estate, such as researching property markets, understanding the commercial leasing, conducting thorough due diligence on the chosen property, negotiating the purchase and lease of the property, managing and maintaining the property.
However, Investors investing in property syndicates don’t have to worry about these tasks. Investors can simply sit back and wait for their monthly distributions to hit their bank accounts and receive regular details about how their property investment is progressing.
2. Invest in real estate assets with a high value
Through pooling together capital for property investment, a single investor can buy properties that are much more valuable than they otherwise would be able to afford on their own.
It is common for larger properties to earn larger returns because they contain larger tenants who pay higher rents. The increased demand for such “big league” property assets by more prominent businesses (normally national or international brands) boosts the value of these properties. Consequently, the investor benefits from high returns.
3. Expertise and network are assets
A professional property syndicate manager has access to a large network of real estate, finance, and advertising professionals. As a result, investors can leverage this network without spending years accumulating such contacts on their own. Remember, the better the property syndicate, the better the network of professionals.
In addition, investors can tap into the collective wisdom of the property professionals managing the property syndicate. This provides a level of comfort that the property the syndicate acquires has been well researched and thoroughly investigated and the vigor and confidence of real estate veterans who will conclude purchase and lease negotiations.
4. Invest in a Unit Trust
Australia’s most tax-efficient structure is a Unit Trust. Investors can purchase units in a unit trust, and their percentage of ownership (relative to the number of units on offer) is equal to their percentage of ownership in the property. As an example, if a property syndicate offers 100 units and an investor owns ten units, they share 10% ownership.
Investors will benefit greatly from this during tax season. The reason is that property syndicate investors do not declare the full rental income from the property – only the income relevant to their percentage ownership.
What to do before you invest
Investing in a property syndicate involves receiving documents explaining how the syndicate operates, its fees, and its risks. Key documents include:
- Syndicate fees and risks should be described in the product disclosure statement.
- If you join the syndicate, the governing document should include the terms and conditions you must follow.
- This report provides information about the property the syndicate owns or plans to purchase as well as a valuation of the property.
Consult with a financial advisor if you need assistance
Your financial adviser can help you determine whether you should invest in a property syndicate and provide advice about how much to invest.