Clearly, the more funds you have available as a commercial property investor, the wider your choice, and the greater your chances are for growth.
When starting out, most investors feel the only way to leverage your modest equity is through borrowing finance. And sometimes you may extend yourself too much in the process.
But there is another avenue, which carries far less risk will. And that involves joining with like-minded investors, in a private syndicate. Discovery Finance specialists in this type of finance!
So, what are the pros and cons?
Almost immediately, a number of potential reasons as to “why not” probably come to mind. And at first glance, they may appear quite valid. But we will explore those a little more in a moment.
The real benefit in joining an investment syndicate is that you are able to multiply your equity and (at the same time) spread your risk.
By law, private syndicates are limited to 20 participants and may raise no more than $2 million in equity. Unless of course, you wish to incur the cost of preparing a product disclosure statement (often up to $300,000 each).
And when they are properly organised, these private syndicates become more like ‘Investment clubs’ — where you get to know (and benefit from) the combined experience of everyone involved.
Now, some of those objections the concern most investors seem to have is: “How do you recoup your investment if you want to get out?”
You know, I’m not really sure what the magic is about 3.5 years after the start, but in the syndicates I’ve been involved with, this is around the time some investors seem to have a change in their personal circumstances.
As you are already having to deal with your personal circumstances, the last thing you need is the added pressure such a process involves.
And therefore, the syndicate structure I recommend to clients contains an automatic mechanism — whereby you can redeem your equity at fair market value every four years.
The next concern generally relates to your potential joint and several liability.
In other words, in the case of any loan of being called up, not only could you be responsible for your portion, but potentially, also for a share of others unable to meet their own liability.
Again, the syndicate structure I recommend ensures your exposure is limited solely to the initial enquiry you contribute — and nothing more!
There are also a couple of other items that are easily addressed by adopting the appropriate syndicate structure from the outset.
Article written by Chris Land, source Property Observer.com.au. Questions to Discovery Finance.