Property syndication has been around for years, but as interest rates tank, the returns from syndicates become more and more attractive. It is a huge subject and I will do a full article on the subject when time permits. In the meantime just remember these six points when thinking about investing in a syndicate.
(1) You cannot borrow a mortgage using your investment as security
(2) The returns may be attractive, but what happens if the property becomes vacant or the tenant goes broke? Is there some form of “sunset” provision in the syndicate offer?
(3) Buying into a syndicate is easy. Selling of your share is much harder and you may not get what you paid for it. Remember there is no stock exchange type mechanism which buys and sells “shares” in syndicates. You need to rely on the “grey” market which is often no more than trying to sell to other members in the same syndicate.
(4) You have virtually no control on how the syndicate is run. Most syndicates have promoters and managers with long ( and valuable) management rights. You will be a small voice in a big crowd.
(5) Many of the properties on offer have been selected by the promoters on the basis of size . The bigger the rent roll the bigger the fees for them. Stand back and view the investment offered, weigh the advantages and disadvantages on that basis just as if you were buying the lot on your own. In other words don’t rush in.
(6) Always get independent advice before writing out the cheque.
Investors advised to be cautious
Investors’ appetite for lightly regulated property syndicates is on the rise again in the wake of the high-profile collapse of finance companies and the promise of returns higher than bank term deposits.
It’s a trend that is concerning market regulator the Financial Markets Authority which has been warning for the past couple of years about the risks for mum and dad investors in proportional ownership schemes.
The last time property syndication was popular was in the 1990s but it fell away after the property crash later that decade.
A number of factors are driving its rise in popularity, including low interest rates on offer from bank term deposits; less faith in finance companies following the spate of failures a few years ago and reduced offerings from those remaining; and investment capital being sought for redevelopment projects, particularly in Christchurch.
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