Are Property Syndicates The Best investments NZ?

Posted by Rajiv Partap Singh on June 2nd, 2017

Investment advisors and experts the world all over agree that real estate investment is one of the best and most stable investments. However, investing in that segment needs significant amount of capital that most willing investors cannot raise. The need of pooling together capital in order to have a stake in one of the best investments NZ, the real estate, is what led to the development of property syndicates.

What are property syndicates?

Put in simple words, a property syndicate is a concept in which individuals pool together monies in order to buy property. The investors will the share rental income from the property they have acquired. The syndicates are normally set up through formal legal structure and are recognized by the law. Among the rigorous requirements of the law is that the syndicate managers are licensed, meaning they must meet some minimum requirements. Also among the requirements is that the syndicate managers should by ‘shares’ or ‘units’, meaning they own some portion of that property.

The available number of units is dependent on the price which one pays for the property, and so investors can buy several units. The returns on investment are based on the rental income of the property, less the costs which the syndicate is required to pay. Among these costs is remuneration and allowances for the property manager and other managers and staff who deal with the maintenance and maintenance of the syndicate property.

How does syndicate differ from listed property trust?

A syndicate property is similar to the listed property trust (LPT), but the two are different. While syndicate property involves the pooling of resources from individual investors in order to raise capital sufficient to buy or build property the LPTs invest in various buildings and are mostly listed companies whose shares are traded on the New Zealand stock exchange. In the syndicate property, the property is leased to tenants so that the rental income (less operating expenses) can be distributed to the members.

The questions to ask before investing: 

Before investing in property, there are some important questions you need to ask yourself. The first question you need to ask yourself is whether you are comfortable that your money will be locked in both in the medium and long term. The second importation question to ask is whether you have sufficient additional money for covering the additional cost which may come up later on, such as repairs and maintenance. Important to note and keep in mind also is that property syndicates tend to be riskier as compared to the other options of property investment. For this reason, it is recommended that you get professional financial advice before you invest in it.

The drawbacks you need to know:

Unlike in bank deposit where you can easily withdraw your deposits, there is no such possibility in property syndicates as they do not have fixed time within which the investors can get back their investments. It is not like investing in company shares in which the shares are freely transferable.

In the property syndicates, there is no ready market for selling the investment whenever an investor wants to sell. The managers of syndicate are not under obligation to return the money when you demand it but may help selling your units to another interested investor. Being a part owner of the syndicate property, you will bear its costs and debts just the way you share the profits.