Comparing property investing options

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It’s no secret that at The Property Crowd, we’re introducing a new way of property investing to New Zealand. But what are the ways you can currently invest in property in New Zealand and how does The Property Crowd compare?

Traditional Property Investing

Traditional property investing is likely the method that you are most familiar with. It’s where an investor purchases a property then rents it out in order to make an income. The rental income ideally covers the upkeep and expenses and pays for any mortgage on the property.

Generally, a mortgage is required from the bank to pay for the property. Often property investors will need to use the equity in their own home or other investment properties to secure the loan if they don’t have a suitable deposit. This is common with property investors who may be ‘asset rich’ but ‘cashflow poor’.

Traditional property investment can be risky with high debt levels.  Property investors often need to dip into their own pocket if the rental income does not sufficiently cover the expenses.

For many would-be investors however, this method is simply not a viable option. Either they don’t have the capital to provide a deposit or they don’t have equity in another property in order to secure a mortgage. For people in this situation, another approach may need to be considered.

Syndication

Now we’re starting to get a bit closer to The Property Crowd model. But we’re not quite there yet.

Syndication is where an investment company purchase a commercial property (or several properties) into a company and sells shares to the public. The syndicate normally makes a margin in buying the property and ongoing management fees.

It’s a great way of sharing the investment load among multiple people and investors can choose how much they want to contribute. Syndicates focus on commercial properties and are popular with investors who want an income stream from their investment.

Rather than investing directly in a property, investors generally buy shares in a company that owns the property.

There are high overheads with being part of a syndicate. Investors not only cover the cost of the property but also the costs associated with setting up the syndicate such as lawyers’ fees, accounting fees, valuations, marketing expenses, brokerage and profit for the syndicate.

Syndicates often have a minimum investment (of circa $50K) and the property is only purchased once enough funds have been raised to buy the property and cover the associated costs.

There is no visible secondary market and normally the syndicate matches buyers & sellers. The shares trade at a discount to the underlying value because of this.

 Examples of these syndicates in New Zealand are Augusta and Oyster.

NZX Listed Property Companies

When you invest in an NZX listed company or Trust that holds properties you’re not investing in the properties themselves. Rather, you’re investing in the company or trust that owns many different commercial properties and so your risk is spread out.

These listed companies often come with a lot of fees and large overheads from the the management companies that run them.

Examples in New Zealand would be Kiwi Income Property Trust, Precinct Properties, Goodman Property Trust, Stride Property and Vital Healthcare Property Trust.

Crowdfunding

The newest player in the property investing market and the space in which The Property Crowd sits.

Crowdfunding allows investors to pool their funds in order to buy a property. The initial investment can be small, and investors are able to split their investments over several different properties.

It’s a concept that’s already proving popular overseas. Savers who are aspiring to own their first home see it as a unique way to get on the property ladder and make good returns to continue saving for their first home.

Seasoned investors can diversify their portfolio by putting funds into a number of different investment properties. Crowdfunding also allows people who can’t get bank loans to buy rental investment properties.

But crowdfunding is sounding awfully similar to Syndication, right? You’re right but there is a key difference.

Syndication is a more expensive process requiring a prospectus.  The manager takes more margin.  The shares are sold through brokers and real estate agents who take fees.  There is an informal secondary market to enable selling (at a discount).

Crowdfunding is often dealing with smaller investments than syndication and generally, there is a focus on residential property as opposed to commercial property.

Claire Warin

Creator of social media and blog content with a particular interest in property investment for the seasoned investor

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