Young investors often struggle with gaining traction in the property market. The opportunity to do so is limited by their earning capacity early on in their career, and this directly impacts their ability to borrow.
As a result, you are often forced to purchase a new property with high yields, or you are limited to properties with a low value range, which limits potential growth opportunities over the short, medium, and even longer term.
A solution to this challenge can be the formation of a syndicate, where money is pooled with that of others under a single purchasing entity. This enables participants to be part of a more lucrative property purchase, which could be:
– a property in a more attractive area;
– a property with a land parcel; or
– a property that has immediate or future development potential.
Why Syndicate?
The benefits of syndication go far beyond the type of property purchased. These benefits include:
Cost reduction: Costs are apportioned across all stakeholders, reducing the holding costs of the property. The joint responsibility also provides for a structured and disciplined approach to the investment.
Ability to build a portfolio faster: The Syndicate will not be limited to one purchase, and being able to pool further monies will provide you the opportunity to build a portfolio as your career progresses.
Manage Risk: While the expenses are spread across all stakeholders, so, too, are the general risks associated with property investments.
Watch Out!
There are numerous managed funds that allow you to purchase property on a “brick-by-brick” solution through a managed entity with associated fees for set up and acquisition. These funds often charge a premium for the purchases and charge unnecessary ongoing management fees.
You also need to be mindful of who forms part of your syndicate. It is always recommended that the legalities of entering such a partnership are established prior to the syndicate being formed, and, most importantly, it is essential that the strategic vision of all stakeholders is aligned.
The smart young investor will seek expert advice.
Although the attractiveness of these solutions is evident, incorrect structuring of the syndicate could cost you a significant amount of money in future when your gains are realised.
Thorough, detailed and accurate research is paramount. With a larger purchasing capacity comes more substantial risk. It is crucial that you either seek advice from a qualified professional, or set a strategy and execute it by conducting all the necessary due diligence to ensure your syndicate is in the best position for growth and sustainability.
While syndication is not a strategy confined to the younger generation, it does provide a viable pathway to investment opportunities that would not be achievable without the power of numbers. It is essential, however, to have the right people, structure, advice and property to put you on the best possible path to success.
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