For Australian property investors looking to make their capital go further, property syndicates and fractional property investment both provide viable options. However, these terms are not interchangeable, and there are significant differences between each.
On a basic level a property syndicate involves getting together with other investors to pool funds to invest in residential or commercial properties of high value. On the other hand, fractional property investment sees individuals investing in a share of a property alongside other investors who buy up the rest of the property's value.
The key differences
Both of these investment options result in the ownership of what is essentially a fraction of the total property value. This is where the similarities end, as each form of property ownership has its nuances and individual attributes.
In the Australian market, a property syndicate is generally a trust established in order to invest in commercial, residential, or a mix of property over a specified timeframe. Direct investment into property syndicates is typically only available to sophisticated investors, unless the investment is entered via a public entity such as a listed Real Estate Investment Trust (REIT) or Exchange Traded Fund (ETF).
The syndicate is a co-operative endeavour, and the syndicate behaves as a single body, with the same investment objectives and goals.
Fractional property investment retains more of an individual focus. With this model, you are simply purchasing shares in the property, in much the same way that you might purchase shares in a publicly traded company. You do not need to work with any of your fellow investors, and you do not need to share their objectives. You are free to sell your shares and leave the investment at any time.
The pros and cons of property syndicates
- Property syndicates give you the opportunity to work directly with other investors, benefiting from their expertise and gaining experience as you go.
- By pooling resources, you will be able to make your capital go further and land yourself a stake in a property and a venture that you would not have been able to access alone.
- Syndicate managers can take care of the intricacies of running a syndicate investment and stay compliant with taxation regulations.
- A syndicate will typically invest in only a single property, making it difficult to diversify your investment portfolio without investing in multiple syndicates.
- You will be locked into a long-term investment and so cannot leverage liquidity on your share of the property value, unless you are investing via an ETF or with shares in a publicly traded REIT.
- The value you receive from your investment will depend on the quality and stability of your tenants.
The pros and cons of fractional property investment
- You will gain access to a share in an investment property even if you do not currently have enough capital to invest on your own.
- You will be free to gain liquidity from the shares you own any time you decide to sell them, although this depends on the terms and conditions of the provider.
- Because the entrance capital requirements are so low, you will find it easy to diversify your investment across many different property types.
- The returns on a fractional property investment are relatively lower compared to other types of property investment, simply because the stake you hold in the property is smaller.
- You will not be able to upgrade your status to an owner-occupier and move into the property, something you would be able to do if you were a traditional investor.
- You will not have the opportunity to benefit from another investor's strategy, as you will be making your own choices.
With their singular focus and organisation-led investment strategy, syndicates offer property investors a way to leverage the skills and experience of the syndicate to invest in a particular property or investment target. Fractional property, in contrast, requires property investors to exercise their own investment strategy for each purchase while allowing them greater liquidity and a range of property options.