Property syndicates are often created over a single property or a very small number of properties. This means your risk is concentrated in a single or small number of assets, and a single asset class. If something goes wrong with the property, or the property market, you may not receive the return you were expecting.
It can be hard to get your money back if you need it
Property syndicates typically don’t have a fixed term, as you are investing by buying a unit in a managed investment scheme or a share in a company. This can make it difficult to get your money out, as there is usually no active market for on-selling your unit or share.
Syndicate managers don’t have to return your money if you need it, but they might help you sell your unit(s) to another investor. If you do this, you may have to pay fees. You may also have to sell them for less than you paid, especially if returns have dropped since you first invested. Otherwise, you’ll need to wait until the property is sold, any loans repaid and the syndicate (managed investment scheme or company) is wound up.
Syndicate managers may borrow money
Like most forms of property investment, property syndicates usually borrow money to help fund the properties they acquire. Any such borrowing will rank ahead of your investment, which increases the risk of your investment. Borrowing money also means the property syndicate will have loan conditions it needs to adhere to. See our property syndicate checklist to consider the impact of bank loans.
You may have to invest more money
As a part-owner of the property, you may share responsibility for its costs and debts. This means you may need to invest more money, for example, if the building needs essential maintenance.
The syndicate’s governing documents will set out whether, and how, this applies and the mechanisms for making a decision about additional contributions. In some cases, if you can’t make the extra contributions, you may lose your initial investment and still be legally required to contribute.