Building a Portfolio,
Due to the ever increasing price of properties, restrictions on loans, increasing and new duties and taxes, it is becoming harder for investors to increase their property portfolios.
The question … what’s the next step for investors who want to keep growing and increasing their property portfolios and have cash but perhaps:
-Don’t want to (or can't) put down the huge down payments now required for most residential property
-Don’t want to pay the new foreign investors duties and taxes
-Don’t want to pay Stamp Duty
-Can’t get a bank loan for the mortgage because of being self-employed, age, unable to provide sufficient income (or other reasons)
Syndication offers many benefits
That is why many buyers are turning towards in-direct property investments. In an investment like a property syndicate, multiple investors pool their cash to buy or invest in prime, blue chip property. This collective contribution helps to purchase real estate which would be difficult, if not impossible to buy for a single investor.
And if you’d rather not spend your time researching individual properties, researching the market, attending exhibitions and so on, syndication is a great option for putting your cash to work while letting experts do all the work.
Property syndication can be ideal for sophisticated investors that are interested in an alternative to classic property investment that offers potentially higher yields, risk mitigation, increased security and strong capital growth on medium term investments.
Advantages of Syndicated Property Investment:
The obvious advantage of such an investment is the amount of cash you save, especially in fees, taxes and stamp duties and the potential for an above average return.
(It’s no secret that to buy a decent property in Australia or Hong Kong, you need a lot of money just for the down payment.In addition, for foreign buyers, Australia has additional taxes* on top of the purchase price of up to 12%, while Hong Kong has taxes* up to 30% on residential real estate.)
(*The Government refers to these taxes as Stamp Duties or Additional Buyer Duties)
With the help of syndicates, you can invest in a blue chip, high quality property that would otherwise be out of reach.
Best of all, many professional property companies buy properties that they can “value-add” to, speeding up and increasing the capital growth rate.
Less Cash Needed for Growth
In case you purchase a property or properties on your own, it can be difficult for you to keep making these investments. You either might need to save up for that huge amount for each deposit or grow the equity of your current property.
Diversification can be a valuable investment tool. Property investment syndicates can increase your options for purchasing different types of properties.
For instance, you have AUD$100,000 cash to invest. This would buy you (even with a mortgage) absolutely nothing in Hong Kong, not even a car park. Even in Australia, assuming a 70% mortgage, and the usual buyers costs, you would be limited to a purchase price of Aud$250,000, which would not get you anything brand new at all, not even a one bedroom, in any city.
You can either use it to buy shares, which can be high risk, or leave it in the bank and get a tiny % of interest, invest in a Real Estate fund, OR invest in syndicates to purchase shares in different properties.
Although some risks can be predicted it is not possible to forecast all the risks, natural, and economic. If that happens, you might lose your only property. However, you can reduce the risk by buying shares in multiple properties instead of investing in a single one.
When you invest in a syndicate it is highly likely that you will save a lot of time as you won’t have to go through all the research work prior to purchasing a property. Moreover, you won’t have to deal with agents, developers, banks, lawyers, tenants, or the Government. The syndicate managers do all that for you.
Syndicated property investment can be one of the best forms of investing. You don’t have to spend all of your cash in a single property, but you can get good return from your different properties. If you don’t have enough cash or want to reduce the risk of losing money, you can invest in syndicates and save your time.
Most people only hear of the Real Estate Investment Trust (REITs) that are publicly traded. But there are many more companies that quietly operate in the real estate investment industry. These private placements are being invested in by sophisticated and professional investors, family companies, insurance companies, retirement funds, systems and foreign companies, to name but a few.
These companies are investing in all forms of income producing real estate, apartments, office buildings, malls, strip centers, medical buildings, industrial space, warehouses and factories.
Returns can be substantially higher than investors can usually manage to achieve on their own, although of course, like all investments, investors should carefully check the syndicates track record.
Some of the benefits of investing in a real estate syndicate include:**
- The syndicator is a specialist in real estate investing with years of experience.
- Pooling resources allowing investing in larger properties.
- Expert management.
- Tax advantages can pass through to the investors.
- A syndicate can make profits from rental income.
- Freedom from management for the investors.
- No Stamp Duty for individual investors.
- No Foreign Buyer Fees.
- No Legal Fees.
- No bank loans needed.
- No tenants to deal with.
- No Body Corporate fees to pay by individual investors.
- No Council and Water rates paid by individual investors.
- No Sales Commission (unlike the normal disposal of properties)
- Diversification of Investment Properties (across projects, states & locations)
- No repairs.
- No Government rates to pay.
- No Capital Gains Tax.
** Not all these benefits apply to every syndicate and /or every jurisdiction
- NOTE: The Syndicate Manager charges capital raising and syndication fees, however, are a tiny fraction of the above. In addition, many syndicate managers take a percentage of the profit after a minimum hurdle is reached (usually around 8% pa) which incentifies the syndicate manager to generate higher returns.
The syndicator is a specialist in real estate investing.
By investing in a real estate syndicate, you take advantage of the experience of the syndicator. The syndicator is a specialist with experience investing in real estate for the benefits of the investors. His knowledge and skills of finding, acquiring, managing, adding value and selling real estate to produce a profit are made available to his investors. The syndicator brings experience and professional management to the investment.
A syndicate pools resources and thus allows acquisition of larger properties.
The syndicator by gathering several equity investors together makes it possible for the investors to buy a larger property than they could on their own. Larger commercial and multi-unit properties are less risky as the more tenants the property has, the less a single vacancy affects the income stream.
Larger properties allow for economies of scale, making professional management affordable that might not be available with smaller properties.
Some Disadvantages of Syndicated Property Investment:
- No actual ownership of the property by the investor themselves
- No ability to create a long term income stream from owning properties
- The investment is not liquid
- No equity build up or redraw of equity available
- No bank lending in it's own right to make the investment
- Syndication investment does not have a "never sell" philosophy- meaning once the project is completed, and/or has reached it's targeted return, the syndicate will sell, and return the investors funds plus any profits.
- Syndicates can fill up very quickly, are not open to the public, often have high minimum investment amounts and only qualified investors can apply