Some REITs offer hybrid structures called ‘stapled securities’.
These give you exposure to the funds management and/or property development business, as well as the real estate itself.
A share in a stapled securities fund usually consists of one trust unit and one share in the management company, and cannot be traded separately. The trust holds the portfolio of assets, and the company manages the trust and any development opportunities.
BEWARE OF THE SOLE PURPOSE TEST
Your fund must be maintained for the sole purpose of providing retirement benefits to members, (or to their dependants if a member dies before retirement).
If you contravene the sole purpose test, the fund may lose its concessional tax treatment, and the trustees could face civil and criminal penalties.
So you will need to make sure your property investment satisfies this purpose.
TAKE THE TIME TO CHOOSE A GOOD PROPERTY MANAGER
Some questions to ask yourself about a potential manager…
How focused is the agency on property management (as opposed to sales)? Are the managers licensed real estate agents who are dedicated to the rental business?
How good is their knowledge of local rental conditions (rates and vacancy levels)?
Do they seem to have thorough systems in place for screening new tenants, dealing with repairs and maintenance, and regular inspections?
Do they appear knowledgeable about the Residential Tenancies Act, and capable of dealing with bond authorities, corporate/strata bodies and difficult tenants?
PERSONAL KNOWLEDGE AND INVOLVEMENT
One of the advantages of direct property investment over shares (or property funds – which we will cover in a separate article soon) is that small investors can apply their own knowledge and involvement to make their investment more successful.
Knowledge of the local area (or of a regional or tourism area), experience dealing with strata bodies and councils and of renovating properties, can all make a big difference.
Rental yield is the annual rent from a property expressed as a percentage of its value.
So if a property costing $400,000 to buy earns $385 per week rent, that’s $20,000 per year or 5% of the investment: a 5% gross yield.
That gross bit is important because these figures don’t take into account ongoing costs.
Yields vary greatly from place to place and property to property, but generally speaking, metropolitan residential property typically yields around 4% to 6% (gross).