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Property Funds Or Syndicates?

If you can’t afford to buy a commercial property outright, maybe you’re weighing up between investing in a syndicate or a property fund. Rory Diver, PMG’s Investor Relationships Manager, suggests you first look at the pros and cons.

8 October 2021

Many people think property syndicates and property funds are the same thing, but they’re fundamentally quite different, with different advantages and risks. Here’s how they work.

A property syndicate is a direct property investment – typically just one property, which is leased to one or more tenants, and many investors become part-owners of that property. Returns come from the rent and capital growth, after costs.

With an unlisted and diversified direct property fund like those managed by PMG, you also invest alongside a pool of other investors, but across many properties, property types, locations, and tenants from different sectors.

That means your interests are spread across more properties and tenants. PMG investors tell me that gives them greater confidence in having a long-term, reliable, and sustainable income.

What are the benefits?

Investing in a property syndicate can offer attractive gross cash returns, especially when compared to bank term deposit rates.

And you can also get good returns from a property fund – with two extra benefits.

1. Cash returns may be more reliable and consistent than a syndicate, as there are typically more properties and tenants in a fund. That's what 'diversified' means – lots of eggs across multiple baskets.

2. It may be easier to sell your investment in a fund than in a syndicate as funds generally have a smaller minimum investment requirement, which gives you access to a larger pool of potential buyers when you sell.

What are the risks?

Well, there are risks for any investment, but a fund aims to spread the risk over a wider range of properties.

Property syndications have been popular over the last few decades. They can look attractive because of the good returns of property over recent years, but markets and global economies have become more volatile, as we saw with COVID-19 last year.

One of the weaknesses of the syndication model is its lack of diversification.

Syndicate investors typically rely on a small number of tenants, or even just one tenant, to keep paying rent on just one property. If those tenants can’t pay the rent, investors may quickly notice an impact on returns.

Other potential risks of syndicate returns are empty tenancies; when a tenant fails to pay rent or their outgoings; plus there could be increasing fees, higher interest rates, and general operational costs, maintenance and repairs.

Those risks are similar for other property investment models, like funds, but funds aren’t as reliant on individual tenants. Their risks are spread across many tenants, properties, locations, and sectors.

On top of that, syndicates typically have no fixed term, which might make it harder for you to exit your investment. If one tenant or property doesn’t perform as expected in a fund, the others may prop up the returns, lessening the impact to your portfolio.

Funds are well regulated

Both a statutory supervisor and the Financial Markets Authority (FMA) oversee investment schemes like the ones we offer at PMG and oversee licensed scheme managers.

This means, by law, managers of these schemes have to give a high level of transparency on their investment offers. We’re closely monitored, which offers investors regulatory protection.

Not all property funds managers are created equal either. If you’re placing your hard-earned cash in the hands of a fund, it’s important to choose a manager with a proven history, strong governance, and who is ideally licensed under the Financial Markets Conduct Act 2013.

Information is correct as of 1/05/2021 and contains the opinion of Rory Diver and general commentary and views from PMG. Any information provided in this article is provided for information purposes only, is not intended to be relied upon, and should not be construed as financial advice. Prospective investors are recommended to seek professional advice from a Financial Advice Provider who takes into account their personal circumstances. Past performance is not a guarantee of future performance. PMG holds a ‘Managed Investment Scheme’ licence under the Financial Markets Conduct Act 2013.

Informed Investor’s content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk

Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.

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