This week we’re talking about ways to buying property without actually owning it. If you want to buy an investment buy only have a couple of thousand dollars to so, you can actually get a property now.
How do you buy a property without owning it?
For as little as $100 in some cases, you can purchase property. How? Using REIT’s.
REIT – Real estate investment trust.
All that a REIT is, is a trust that owns a property. A trust is a structure similar to a company. One trust might own 20 different commercial properties, but rather than buying the whole trust you can just buy some units from it. It’s similar to a share, but you buy units in these structures instead of shares.
In Australia, we call it AREIT’s (A for Australian).
There are a few types – commercial properties, industrial parks, retirement villages, aged care facilities. There are a lot of different property investments you can make. They’re usually bigger and it’s a different skill set. They give you access to those so instead of having to pay $30M for a shopping centre you can invest in it. It allows you to scale through your funds with someone else.
What do these look like?
Listed REIT’s: Westfield has it. On the Australian Stock Exchange, you’ve got Stocklands, Mercure Group etc. What you’re actually buying is the underlying interest that Westfield has. You’d be then entitled to the rent and any capital growth those companies get.
Unlisted REIT’s: Private REIT’s aren’t on the stock exchange, there’s a bit of a risk involved and they’re illiquid which means they’re not as easy to get your money out of. Unlisted, sometimes you can’t get your money out for months, it can be up to six months. When things are going down, everyone wants to get their money out, but you can’t. What these funds did was froze the assets and over time drip fed the funds.
A risk with REIT’s:
- If they’re listed, they’re fairly volatile, they can go up and down a lot.
- We saw it in the GFC, even the listed REIT’s dropped by about 70% and crashed very hard in a short period of time.
Positives of REIT’s:
- You get access to property even if you don’t have enough funds.
- If you give them $1,000, they will then allocate that money to the different properties, then you’re entitled to the rent those properties get. So you get a better yield, usually indexed with CPI, so it will go up over the years. You can actually target the market you want; for example, health care facilities or retirement villages etc.
- You can invest globally, you’re not restricted to just Australia.
You can invest in infrastructure funds as well as REITs. This is another type of investment that allows you to get into bigger projects – like tunnels. If the government doesn’t have enough money for a project – like a new bridge or tunnel, they give it to the private sector. Infrastructure globally is usually a good investment because the volatility in infrastructure is far less. This is because it’s seen as a more defensive asset compared to commercial or other property assets.
Example: Another GFC happens, everyone is shutting their businesses, moving overseas to reduce costs. Commercial property tenancy’s go down and people aren’t buying. Yet with infrastructure people still use train lines and toll bridges as a part of life, so it’s not as heavily affected.
If you’re more defensive, nature infrastructure could be a better choice.
Takeaway point from this episode:
- If you don’t have enough capital to purchase a property on your own, REIT’s could be the answer.
- There are two ways to invest – REIT’s and Infrastructure funds.
- Google REIT’s ASX / Infrastructure funds for more information.
The Rentvesting Podcast, available on iTunes, was created by Red & Co’s Jayden Vecchio and expert financial planner Louis Strange. Together, Jayden and Louis unpack the facts behind the property market, explain what’s really going on & where the market is heading. They believe in challenging the status quo and want to get out there to educate absolutely anyone looking to enter the property market.