We’re all looking for the next big thing. Which boy band will fill the shoes of One Direction? Will Grand Designs join with Homes under the Hammer to make the ultimate property show?
This is going to be a year in which landlords and those wanting to get into rental investments will have to think outside the box, overcome hurdles and jump through some scary hoops to make their property dreams come true.
There is one way of getting on board the property train, one that has reduced initial investment, spreads the risk and still gives investors a way to expand a portfolio of quality properties that they couldn’t achieve on their own. You’ve guessed it, I’m talking about property syndicates.
Whether investors want to put their money into residential investment property or commercial properties such as retail units, restaurants, and offices, there are syndicate opportunities out there for almost any kind of prospective landlord.
When considering whether to buy in a syndicate structure, an investor needs to ask how much capital needs to be invested, how much profit could be generated, and over what term would a return be realised?
Assuming an investor decides that the answers to these questions are satisfactory, he or she can look for syndicate opportunities and select one or more that suit the agreed investment goals.
Bear in mind that the investment is a joint one, with a number of other similarly focused people, and the right investment framework and legal contracts will need to be drawn up. Specialist law firms are available and often come recommended by property consultants. Sometimes the lawyers have worked for other syndicate members previously and are experts in this type of transaction.
To be successful, syndicates must deliver the objectives of all their investors. There are some clear positives, although each investment still needs to be assessed on its own merits.
For example, syndicates enable smaller investors to participate in bigger and better properties and to spread the risk of such investments. With enough capital, they can also spread the risk further by investing in several property syndicates.
When a syndicate is established, it is done with no personal liability, meaning that if the worst happens, investors will lose no more than their initial investment.
There is a tremendous amount of talk about buy-to-let taxation at the moment, and one key advantage that syndicates have is that they are tax-transparent and have other tax reliefs associated with them. They can also be used as part of a longer-term pension fund and can, for example, be included in SIPPs.
I mentioned earlier that commercial syndicates have several advantages over the more common residential property investment. With a commercial property, landlords can generally expect longer leases, which mean fewer void times when the property has no tenants. Lease terms can also have longer severance penalties and are often on a full repair and insurance basis.
This type of syndicate is worth considering, particularly when you look at the rise in the value of commercial office space and the returns that can be achieved. As investors achieve only their share of any profits, they want to maximise those returns upon exit.
There may be occasions when, after a period of time, an investor wants his or her money out of the syndicate early. When this occurs, the scheme manager will alert other members, and the shares are usually bought by other investors in that syndicate. Or the investor could find a buyer for their share. This again is another advantage, as funds that would normally be tied up in privately owned property for some considerable time can be released a lot more quickly. Of course, these exits will be subject to the terms of the contract drawn up by legal advisers.
With high yields still being seen in the rental sector and demand for property outstripping supply, it is no surprise that syndicates are growing in popularity. With further taxation of the buy-to-let sector on its way, grouping together with a number of like-minded property investors seems a logical way for many to generate longer-term income, without the downsides of investing alone.
These syndicates bring together bunches of private investors – now that would make a good TV show.
Philip Arnold is managing director at Philip Arnold Auctions
