Real estate investing is one of the most predictable ways to build wealth – especially in times of high inflation and volatile markets.
Not all investors are capable of financing or purchasing certain property investments outright, nor would they want to take on the accompanying responsibilities.
For the right investor, participating in a syndicated property trust may be a good option.
Syndicated Property Trusts – otherwise known as real estate syndicates – are an option for investors and real estate professionals to pool their resources. These syndicates empower individuals and businesses to own and participate in lucrative real estate investment opportunities they otherwise could not achieve on their own.
What is a Syndicated Trust?
Real estate syndication is a way for you to own part of a higher value property that has higher profit potential than a smaller value one. It also lets you avoid the frustrating management responsibilities of being a lessor while also gaining significant tax advantages.
A property syndicate is organised by a sponsor (sometimes called a manager). The sponsor is often a real estate licensee or group who transacts large properties, and who encounters high-value investment properties that would be unobtainable for most individuals.
The sponsor manages the financing, purchase, and leasing of the property and earns an equity interest in the property by doing so. Their services are their primary contribution. The investors play a simpler role by funding the project and collecting their percentage of the proceeds.
Investors share in regular dividends generated by rental fees from the property and, upon sale of the property, share in the capital gains. Most syndicates are structured for liquidation after a five or ten year period..
What Factors Should You Consider Before Investing in a Property Syndicate?
1. Experience in Syndicate Management Team
Does your sponsoring party have a good track record of selecting high-yielding properties, organising financing and acquisition, and managing the tenants well? Do they understand the rental market for the proposed property type?
Often, syndicate sponsors will specialise in one type of property such as multi-family, industrial properties, or shopping centres. If your potential sponsor has similar assets in their portfolio, that’s a positive sign.
The investor should consider their cash flow, debt servicing, tax servicing and time horizon needs before considering the suitability of an investment and be able to convey this to the promoter.
Make sure your syndicate manager does their due diligence. They should assess competing properties, market trends, oncoming supply of similar properties, as well as the tenant mix and lease profile.
2. Risks of Proposed Investment
Real estate is generally considered a lower-risk investment, but the property and type of syndicate you choose will affect your outcomes. Property development syndicates, which build or renovate properties, carry a higher risk/return profile than property syndicates purchasing an existing commercial property, which focuses on management.
All real estate investments are subject to variable rental rates, vacancy periods, tenant non-payment, repairs, and the possibility that liquidating the property and exiting the investment may prove difficult in the future.
3. Distribution of Returns
Property syndicates distribute returns monthly, quarterly, or annually. Some Syndicates incorporate internal financing which is repaid over the syndicate term as a form of forced saving. This type has lower cash yields to the investor, but possibly greater financial leverage.
4. Your Tax Situation
Syndicated property investments may help you lower your taxes in several ways. Like other real estate investments, a syndicate claims deductions for operating expenses and depreciation, effectively limiting the taxable income which is passed on to you.
How Do You Find a Good Real Estate Syndicate?
The best way to find a syndicated property trust is to talk to people in the local real estate community. Attend investor meet-ups and promotional events, and ask people if they know of syndicate sponsors.
Networking is the best way to perform due diligence on a sponsor’s reputation and access local syndication opportunities.
If you need help knowing where to start your syndicate investment venture, your accountant can help. They may know of suitable opportunities. Moreover, an investment-savvy accountant can help you determine which types of syndicates would best meet your financial goals and limit your tax liability.
Looking for an accountant in Adelaide to help you assess property syndicate opportunities? We can help.