14 Nov 018 – How to Own Property Without Owning It!
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, rather than buying the whole trust you can just buy some units from it. It’s similar to a share, rather than buying shares though, you buy units in these structures.
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, it’s a different skill set. They give you access to those instead of having to pay $30Mil 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 have it. On the Australian Stock Exchange you’ve got Stocklands, Mercure Group. 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 pretty liquid – 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 small period.
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 property 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, so health care facilities, you can buy retirement villages.
- You can invest globally, you’re not restricted to just Australia.
Not only can you invest in REIT’s you can invest in infrastructure funds. 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, so they give it to the private sector. Infrastructure globally is a good investment, the volatility in infrastructure is far less.
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 in 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.