How to make better decisions on syndicates

Wednesday, 2nd Mar 2016

business discussionBoasting large returns in short timeframes, property development syndicates have become highly attractive. But what questions need to be asked before committing to such investments?

Residential property development syndicates can be a great opportunity for investors to secure a substantial cash return in a relatively short period of time.

Depending on the size and type of project, as well as the company managing the syndicate, investors can expect returns of 40% to 60% in just 3 years.

However, like any investment, completing adequate due diligence is vital to mitigate the risks and help ensure the company you’re engaging will deliver what they’re promising.

So what questions do you need to ask before committing to a residential property development syndicate?

  • What is the company’s track record? Have they completed similar projects in the past and were they successful? You can ask to speak to past investors.
  • Have staff of the company invested in the syndicate? While there’s no need to be turned off if this isn’t the case, it is a positive sign if directors/managers/staff have also invested in the syndicate.
  • How are you paid? What are your returns dependent on and when should you expect to receive your returns?
  • Who conducted the feasibility study? Have they utilised professionals to help optimise the site and the design of the development?
  • How did you come to the resale price? Has adequate research been completed to help ensure there will be demand for the price point and type of stock?
  • What is the supply risk to the location? Check to ensure there isn’t a glut of stock in the pipeline.
  • How many units need to be pre-sold before construction starts?
  • How are the units being marketed? Who are the target buyers and how are these being reached?
  • What is the investment structure? Can my accountant/financial advisor/lawyer review it and call you with queries?

The more information you can gain on the syndicate the better investment decisions you’ll be able to make.

Ultimately, this will help you choose a high-performing syndicate that provides large returns over an average syndicate that fails to deliver a substantial yield.