Are property syndicates a good investment?

by | Dec 15, 2021

We Britons have something of a love affair with property investment – from simply owning your own home, to running a buy-to-let portfolio and, at the more sophisticated end, investing via a property investment syndicate.

While the terms “home ownership” and “buy-to-let” are self-explanatory, a greater air of mystery surrounds the term “property investment syndicate”.

So, let’s examine what it is and what the pros and cons are.

Defining a property investment syndicate

In simple terms, a property investment syndicate is a group of people pooling their money together to invest in property investments that they perhaps wouldn’t be able to afford individually.

This might mean quick access to a spread of investments or to something high value.

Sounds great in principle, right? And it can be. But as with many things, the devil’s in the detail.

Pros of property investment syndicates

As property investment syndicates are a well-established investment vehicle, there must obviously be some strong benefits.

As an asset class, property has tended to deliver good income and capital gains, but these can never be guaranteed.

Obviously, all investments can go down as well as up, but the allure of investment returns is at the forefront of the benefits.

Other benefits of property investment syndicates include:

Diversification

Diversification is a well-known principle in investing that you are probably familiar with. Basically, not putting all your eggs in one basket.

Depending on the aims of the syndicate you choose, it may operate like a stock market fund where the investors’ money is exposed to a range of investments in one go.

This reduces the single-point-of-failure risk which could torpedo the investment.

Access to more property

The greater resources of a group of investors, compared to just yourself, should allow you to access a broader range of the property market. More sophisticated properties in theory.

This might mean more market opportunity to optimise your investment.

Professional approach

At their best, property syndicates will utilise the expertise of professionals to ensure their smooth running and the best chance of good returns.

Legal, tax planning, and property specialists, to name a few, should all be involved to ensure the investment is in safe hands.

Cons of property investment syndicates

There is always a relationship between risk and reward with investments, and property investment syndicates are no different.

The first point to make is that whether you invest directly in property or through a syndicate, there is the chance that the underlying investments could go down in value. But what other downside is there to consider?

Loss of control

Because you are investing as part of a group rather than on your own, you will not have full control over how the syndicate is run.

It should be subject to rules which you can understand, and you might have some direct input, but at times you may feel like your hands are tied.

Property is never the most liquid of assets and a property investment syndicate may or may not exacerbate this.

Legal structure

The syndicate has to be bonded in some way and you need to understand the legal structure in which this is achieved.

There are numerous ways it could be done which might have a bearing on taxation, regulation, governance and legal ownership.

It is important to invest in a legal structure which suits you.

Complexity

With more investors involved, a legal entity to manage and more property to administer, inevitably there will be more complexity than with solo investing.

The syndicate will need to source specialist advisers for transactions, administration and maybe facilities management.

These will come at a cost and the fortunes of the syndicate may depend on their expertise.

Interested in property investment syndicates?

Property syndicates can be a great way to invest in the property market, facilitating access to opportunities that may not otherwise be open to you.

But, as with all investments, it is important to fully understand them before committing money. To discuss property investment syndicates in more detail with our experts, please get in touch.

 

Sources

https://www.abggroup.co.uk/news/blog/5-things-to-consider-when-forming-a-property-syndicate/

https://propertyinvestment.co.uk/syndication/

https://citywire.co.uk/funds-insider/news/beware-pitfalls-of-residential-property-syndicates-warns-merchant-investors/a274411

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