If saving for a deposit and associated costs to enter the property market is out of your reach, then maybe becoming involved in a property syndicate could be your first step to get on the property ladder.
Property syndicates were popular towards the end of last century but went out of fashion as result of the collapse of a number of schemes that resulted in investors losing millions.
These days though property syndicates are regulated and as such they require a full product disclosure statement or prospectus which is lodged with ASIC. The effect of regulation has been to hopefully rid the industry of the cowboys and dodgy operators.
But even with tighter regulation, you still need to go in ‘eyes wide open’.
The advantages syndicates present is that they allow people to get involved in the property market for as little as $10,000 by pooling their money with others.
The downside is that growth prospects are often less in dollar terms as your initial investment is less. If you were to buy a property for $500,000 after having put down a deposit of $50,000 and it increases in value by 10% over two years, you have made a $50,000 gain on paper. If you were part of a property syndicate investing $10,000 in the same property and returning the same percentage over two years, then your gain is significantly less.
In addition, property syndicates charge ‘administration fees’ which eat into the returns that are made. Like any investment it is always a smart choice to get independent financial advice before joining a syndicate to make sure it is right for you and your personal circumstances.
The upside of property syndicates is that if you take a long-term view, they enable you to get into the property market earlier and with less exposure in an asset class that historically has done very well over an extended period.