For those unfamiliar with the term, a property syndicate is a group of people who come together and pool their resources in order to invest in properties that they might not otherwise have the funds available to invest in or that might require more management time or require different skills than they possess.
Property syndicates are garnering a lot of attention. This makes perfect sense when you consider the advantages this type of investment vehicle can bring to the table.
Below are five reasons why investors may consider a property syndicate as a part their overall investment strategy and some things to look out for when choosing a property syndicate.
Obviously, the information in this article is of a general nature and investors need to take personalised advice from their accountant, lawyer or financial advisor before making any investment decision.
Investing in real estate as an individual, and not a full-time investor, can be difficult and time-consuming. Getting appraisals, filling out loan forms, having the required inspections performed and meeting the necessary minimum requirements to obtain financing are all hurdles that must be overcome. By becoming part of a property syndicate these items largely become the responsibility of the syndicate’s management team.
Because investing in real estate with a syndicate typically requires a smaller amount of capital compared to direct property ownership, it can allow investors to avoid the risk of putting all their eggs in one basket. As a single investor, you may be limited in the number and types of property that you can buy. Taking the same funds that a single investment would require and spreading it across multiple syndicates or other investments can have the affect of minimising your risk by allocating your capital across various investments.
3) Syndicates allow for non-experienced investors
Over longer investment timeframes, real estate has proven itself to be one of the more stable forms of investment. Still, like any type of investing, it does require a degree of knowledge, sophistication and time in order to extract the best performance from your investment. Being a part of a property syndicate offers the opportunity to invest in a passive vehicle that is managed by full time property professionals with additional advice provided by a range of industry experts.
Property syndicates can provide less experienced investors with first-hand exposure to property development projects (to increase their knowledge and understanding of the development process), whilst also providing a return on their investment.
4) Invest with a company with a proven track record
Property development is a long term strategy and given the unique nature of each property, every project is different. The skills required cannot be learnt overnight and successful completion of one project does not guarantee successful completion of all future projects. Only after undertaking a range of projects, in different locations across different market conditions can a body of experience be acquired that can help reduce the risk of undertaking development projects. Being able to review a company’s past history allows you to select the property syndicate that most closely matches your own investment philosophy and goals.
Although past success is never a guarantee of future success and every property development project is different; choosing to invest with a company that has been around a long time and has a track record of delivering returns to investors is a prudent strategy to give you the best possible chance of achieving the anticipated return on your investment.
5) Ensure that the interests of the Investors and the Management Company are closely aligned
As with any type of investment, not all property syndicates are created equal. Various syndicates focus on different sectors of the real estate market, employ different investment strategies and may have differing goals both long and short term. When considering investing in a property syndicate, investors need to understand how the manager of the project is making their money. For example, will the manager still be paid regardless of the outcome of the project? Investors may choose to be wary of investing in a property syndicate where the manager receives a range of fees throughout the project even if investors end up making a loss at the end of the project. A preferable arrangement for investors may be one where the manager doesn’t receive any remuneration from a project until investors do; thus ensuing that the manager is just as invested in the outcome of the project as the investors.
Investors should also understand structure of the syndicate and ensure that the entity which they are buying into is the direct owner of the property being developed.
In investing there are no cookie cutter answers. But, considering the current financial climate, property offers some very enticing opportunities. For those hoping to take the greatest advantage of these opportunities, property syndicates offer the potential to achieve very good returns, while minimising the associated risks as much as possible.
Investing with Black Bear
Black Bear has been undertaking property developments throughout Brisbane for 10 years and has developed vast experience across a range of project types. Investors in Black Bear syndicates receive the benefit of:
- Direct property ownership (i.e. the entity that investors buy into is the same entity that owns the property).
- Black Bear directors personally guarantee all loans associated with the syndicate projects.
- Black Bear only receives a share of the profit after a project is successfully completed (i.e. at the same time as investors and not before).
- Black Bear has a strong history of delivering real returns for its investors.
- Black Bear provides all syndicate investors with immense detail regarding the project as well as regular updates through a dedicated log-in portal on its website.