What is syndicated property investment?
If you’re an avid television watcher you may have come across a series called Five Bedrooms. The premise of the show revolves around a group of strangers who find themselves together on the ‘singles’ table at a wedding. They decide the only way they will ever be able to afford a property is if they buy one together.
Sound a little starry-eyed? Well perhaps five strangers meeting at a wedding and deciding to buy a house together is a little far-fetched, but the idea of multiple buyers investing in a single property is actually a real solution for many investors. It’s called a syndicated property investment and in this blog we’re going to take a look at what it is, how it works and discuss the possible advantages and disadvantages.
What is syndicated property investment?
At a basic level, a syndicated property investment occurs when multiple investors pool their money to purchase a property as a single buyer. The reasons for entering into a syndicated property investment are many and varied, but participants are often driven by the opportunity to get into the property market and the potential for greater returns.
How does it work?
Syndicated property investments take on many different forms and structures. They may be professionally managed, but they can also be formed by a group of like-minded investors without professional management.
Syndicated property investment may be structured as a:
- Joint venture
- Unit trust
- Small property syndicate
- Part of a professional fund-managed scheme.
The structure of a syndicated property investment would depend upon the members and investment goals.
In all cases, the syndicated property investment involves the collective purchase of a property as a long-term investment. Members of the syndicate are entitled to profits from the investment such as rental income and are also liable for expenses such as maintenance or management fees.
A property can be purchased before a syndicate is formed or within 6 months of a syndicate being established. Members do not have to invest equally, but they must own at least 5% of the total value of the syndicate. Responsibility for management decisions and returns will be proportional to a member’s stake in the investment.
Members of the syndicate must sign a syndicated property agreement which is a legally binding contract outlining information about the investment and the roles and responsibilities of the investors.
What are the advantages?
Get into the property market sooner
Saving for a deposit can take time, but pooling your money in syndicated property investment can help you to enter into the property market sooner at an opportune time, with a much smaller amount saved.
Getting into the property market sooner means you can start benefiting from growth at an earlier stage. In the time it might otherwise take you to save for a deposit, your syndicated property investment could already be generating an income.
Build a portfolio faster
Syndicated property investments are not limited to the purchase of one property. With the power of multiple buyers and access to early growth, the syndicate has the potential to quickly expand their investments and build a portfolio.
Investments always come with risk, but just as expenses are spread across members of the property investment syndicate, so too is the risk. If something goes wrong, you stand to lose less. Rather than investing in one property purchase yourself, you may like to spread your funds across multiple syndicated property investments to spread your own risk.
Access to previously unattainable investment opportunities
Pooling funds in syndicated property investment isn’t just for those looking to enter into the market, it can also be used as a tool to access more costly investment options with the potential to offer greater returns. For example, commercial investment options or properties in a more desirable area.
What are the disadvantages?
Potential fees and financial problems
Syndicated property investments that are managed by a company or professional fund manager may charge fees for setting up the syndicate, acquiring properties and ongoing management fees. Investing in a syndicate with a company also means if that company runs into financial problems your investment could be at risk.
Given the investment is managed by multiple members, you have less control over aspects of the investment such as who the property manager will be, the tenants, and how the portfolio grows.
You should ensure that your investment goals and interests align with the other members of the syndicate. If your interests are different then decisions made by the syndicate may not serve your best interests. Even if your goals are aligned, it may be that some decisions made by the syndicate aren’t to your advantage, but as is the case with groups, the majority wins and this is a downside to syndicated property investments.
Is syndicated property investment right for you?
The decision to invest in syndicated property investment will revolve around your capital and your financial goals. It is also important to consider the type of syndicated property investment that is appropriate for you. Choosing the right type of syndicated property investment and structure, along with like-minded members will be imperative to the success of such a venture.
It is always important to seek expert advice to determine if a syndicated property investment is right for you.