5 essential due diligence questions to ask before investing in a syndicate
Investing in property syndicates is an alluring opportunity for savvy investors looking to gain exposure to the generally higher returns available with this strategy. However, comprehensive research and due diligence is essential to identifying risk and ensuring the opportunity is able to deliver on returns and performance.
Here are five preliminary questions to ask before investing in a syndicate that investors should consider during their research process.
- What is the track record of the company involved?
Have they managed similar syndicates in the past with successful project outcomes? Ask to speak with past investors or to see reports that can support any figures presented.
- How will you be paid?
What are the factors that your returns will be dependent on, and when can you expect to receive your returns?
- How is the investment structured?
It’s a good idea to have this reviewed by your accountant, financial advisor or lawyer. Ask if they can also contact the company directly with any queries.
- Is the property a good price?
In the case of a property purchase (as opposed to a development), has research been completed to establish the value comparable to other properties, and is there potential for future growth? Has the company done their due diligence regarding supply in the market and also the future forecast for this type of property?
- What is the debt gearing on the investment?
How much debt is proposed to be secured against the property? It is common for gearing to range from 50-65%. The debt gearing can assist in boosting returns, however the higher the debt the more the investment is at risk to interest rate rises. In a high interest rate environment, higher debt gearing can have a negative impact on returns.
Investing in a syndicate is a different process to buying property directly and has its own set of considerations and liabilities that need to be considered before making a commitment.
It’s important that investors have a clear and comprehensive understanding of the timeline and projected results of their investment, and that they have engaged qualified professionals to corroborate any claims and check compliance.