How to invest in property without actually buying one
You don’t have to be a landlord, deal with tenants or put a deposit down on a home to get your foot in the property market.
While investing in property may be a dream of yours, saving for a deposit, dealing with tenants and paying off a mortgage mightn’t be.
The good news is there are opportunities where you can invest in property without actually buying one, with two options you may have heard of including real estate investment trusts (REITs) and real estate crowdfunding.
While these investment options provide different avenues to get your foot in the door (as well as pros and cons you’ll need to weigh up), both offer a piece of the pie without some of the risks that may come if you decide to buy a property yourself.
What are real estate investment trusts (REITs) and how do they work?
A REIT is a type of property fund that you can purchase units in. You can generally access REITs via managed funds, super funds, or public markets, such as the Australian Securities Exchange (ASX).
The money you invest in a REIT is pooled and usually invested in a range of properties, which can focus on a specific property type or a mix of property types. This might include commercial, retail, or industrial properties (so anything from office buildings to shopping centres).
For this reason, REITs can provide investors with exposure to the property market in a way that is more diversified, and which will generally be more cost-effective than buying a single property, as you won’t have the upfront and ongoing costs that come with buying your own home.
While you don’t have the duties you would as a landlord managing your own property, when you invest in a REIT, you also don’t have control over the assets held in the trust, as an investment manager will be making the investment decisions (and property maintenance and development decisions), with returns also dependent on property markets.
What’s real estate crowdfunding and how does it work?
Crowdfunding websites enable people to raise funds for various projects, ideas and business ventures, without necessarily the need of a lender, with real estate investment opportunities no exception.
Real estate crowdfunding, which is a newcomer to the space, is a type of direct real estate investment that allows multiple people to invest smaller amounts of capital to fund a purchase collectively.
Essentially it enables you to become a shareholder in a piece of real estate through a crowdfunding company without owning or having to maintain the actual building, with any profits that the real estate venture sees (profits that come from rental income for instance) passed on to the investor.
How crowdfunding is different to a REIT, is it provides investors with stakes in a specific property or project, while REITs give investors shares in a fund that invests across multiple properties and property sectors.
It should be noted that regulation around real estate crowdfunding is still in its infancy in Australia.
What to look out for
When deciding what’s right for you, some things to note down might include upfront costs, associated fees, minimum and maximum investment amounts, and considerations around potential returns.
Choosing the most suitable investment for you will also come down to your goals, your attitude to risk and the time you have available to invest.
Different options may suit you at different ages and will depend on what responsibilities and other financial commitments you have currently.
Other things to think about
When you’re thinking about investing, it’s important to look into any potential legal and tax implications, as these can vary depending on the type of investment you’re looking at.
You may also want to consider a mix of investments as this could reduce your risk and help smooth out short-term ups and downs when it comes to the potential returns you may be able to make.
You might want to chat to your financial adviser before making any decisions and like with any investment, always be sure to read and understand the fine print.
If you don’t have an adviser but would like some advice, you can give us a call on 03 6343 1007.
Online source: Produced by AMP Life Limited and published on 24 October 2018. Original article.