Unlisted property funds or REITs offer astute individuals an alternative property investment opportunity with high yield, regular income distributions that may otherwise be unavailable to them. By owning units in a large property fund/REIT, individual investors can gain access to large commercial properties, such as retail, commercial or industrial properties. This provides access to more substantial investments rather than direct ownership of property (small scale) which could deliver solid, long-term rental returns/yields and diversify their investment portfolio.
What is an Unlisted Property Fund?
An unlisted property fund, also referred to as a Trust, Scheme or Syndicate, enables investors to buy units in a fund which holds investment property or properties. Unlike listed property trusts, an unlisted property fund is not listed on the stock exchange and you gain direct property ownership rather than shares in a trust. The fund is managed by a professional investment or property manager who takes care of the day-to-day property management such as rent collection, maintenance, administration, and tenancy agreements.
Your investment capital in the fund stays invested until all the property assets within the fund have been sold or a pro-rata withdrawal offer is made. Once sold, the fund will usually terminate and the profits generated are distributed amongst investors based on their investment contributions.
Why use Unlisted Property Funds as a wealth creation tool?
Unlisted property funds deliver regular cash flow potential. As an investor, you may be able to receive a monthly income from the property during its lifespan. Monthly income is generated from the collection of rent, which usually increases annually. Depreciation on the property can lead to a portion of the rental income being tax-deferred.
Secondly, the sale of properties within the fund can deliver capital gains on your original investment. However, capital growth will be subject to whether the property has increased in value and any associated fees and costs which may be deducted.
What are the drawbacks of Unlisted Property Funds?
While unlisted property funds deliver many benefits; they also come with a few drawbacks.
Unlike listed property trusts, exiting an unlisted property fund is not always straightforward. Your capital investment will remain within the fund until the property is sold and there is no guarantee that it will increase in value. The property will ideally be sold at the end of an investment term. However, some unlisted property funds are open-ended which means they don’t come with a fixed investment period. In this situation, the responsible entity may choose to make pro-rata withdrawal offers at regular intervals allowing investors to exit based on the offer terms.
Could Unlisted Property Funds be right for you?
Buying into an unlisted property fund can provide long-term cash flow benefits. However, it is essential that you make an informed investment decision. PrimaryMarkets is a global independent unlisted securities and investments platform and marketplace for sellers, buyers and intermediaries. Contact us if you would like to explore the potential of unlisted property funds or review your investment opportunities.