Investing in Australian real estate investment trusts (A-REIT) is an option for investors with a lower capital pool because you can start with just a few hundred dollars in your bank account.
Paul Wilson of Income2Wealth says that this opens up the possibility for an investor to buy into an asset class that would otherwise be inaccessible because they are able to invest small amounts of capital.
"There really is no minimum – maybe, say, $ 500," he says.
"If you look at Stocklands or commercial properties in general, then the acquisition costs are much higher and the average person cannot step in the door with this type of asset. thus allows them to bind to an asset class – a particularly commercial asset – to which they would likely not have access as an individual. "
Contributing to a diversified portfolio, ideally on several A-REITs, does not require the investor to save for a massive property deposit and the other costly expenses that accompany the direct purchase of a property.
But Wilson said that investors should always do their own due diligence and "don't assume that A-REIT is a good investment simply because it exists and is available to investors."
"Investors must be able to research and understand what supports the actual investment in which they are investing. But they are also able to roll on the shoulders of experts who have made their high-level expertise to assess and identify opportunities, "said Wilson.
"Investors must be able to do research … but they can also rest on the shoulders of experts who have made their high-level expertise to assess and identify opportunities"
How to Find a Solid A-REIT
Commercial property can generate a considerable rental return, allowing investors to pocket a stable income that exceeds what they earn from their residential investments.
"The cash flow you would get is fairly predictable, and most buildings have Category A tenants and long-term leases," said Ken Raiss, director of Metropole Wealth Advisory.
However, as REITs-A don't tend to fumble around in different types of properties, each one carries different risks for the investor.
"The listed [A-REIT] would normally have less risk than an unlisted, and it has cash," says Raiss. "So, for the one who is listed, you can go buy and sell because there is a market, while with the one who is not listed, you are really bound by what the manager said he would, and you may not be able to get your money back for five or ten years. »
The founder and managing director of Empower Wealth, Ben Kingsley, adds that "It is very rare to see IVET-A structures in the residential space, because in reality the gains capital is a little lower, so you have to be careful about the types of A-REITs that are offered. ”
Paying attention to the larger economic climate is "excellent observation," he says.
"When we talk about retail, we need to make sure that pedestrian traffic is really very strong in a particular place, so that retail is struggling and that there will potentially be changes in the way we buy and receive our goods, "says Kingsley.
Recent evolving threats such as COVID-19, which have the potential to have a massive impact on the economy and the retail sector in particular, are risks investors should take in the short term.
It is also important to make sure that your investment strategy is in line with your objectives. A-REITs are the most attractive for those who want extra cash flow, says Peter Koulizos, president of Property Investment Professionals of Australia (PIPA) and program director of the Master of Property at University University. Adelaide.
“REITs don't necessarily have great capital growth. The growth of the capital of a commercial building depends on the rent they receive. If you can't increase the rent, you can't increase the value, and generally you increase the rent because the landlord or A-REIT spends money to fix it [the asset]"says Koulizos.
While the costs of a facelift or larger scale improvement will come from the pool of cash invested, Wilson adds that it can work to stimulate demand and therefore increase property performance .
“The investor will benefit from the fact that [the A-REIT is] the upgrade of the asset or that it manufactures the asset because it subdivides it, or that It increases the return or the value of the asset, so this type of investment should have a growth component, and they can also manufacture that growth, "says Wilson.
How to monitor an A-REIT
In order to minimize the risk not only of a volatile environment, but also the chances of diving into a location or sector, a REIT A will often disperse its asset base.
"Even though they are in the same industry, which is retail, but they have diversified into a number of different geographic locations and different types of shopping malls – so one may be tall, the other may be medium in size – so it does give you some diversity, "says Koulizos.
However, Kingsley advises investors to look into the REIT-A prospectus so that they can be fully aware of what their invested cash will be tied to and what the future plans of the fund will be. for the underlying asset.
"What is the strategy [the A-REIT’s] what they are looking to do with this particular opportunity, what is their purpose, what is their angle – all of these things are very well documented in this product information and everything other type of statements they offer in terms of investment strategy, "says Kingsley.
In most cases, investors can expect dividends to be paid to them annually or every six months, and in some cases quarterly, he said, but these details will also be described in the product disclosure statement.
Find out more:
Inexpensive Ways to Take Advantage of the Property
Purchase of a "fraction" of a property
The joint venture approach
