- Residential property
- Commercial rental property
- Property syndicates
- Real estate investment trusts
- Fractional property investment
Residential properties remain one of the most popular types of real estate investment assets in Australia.
Residential property refers to a real estate property that the investor intends to reside in. You may purchase a residential property to live in to be rented out to tenants for short, medium or long-term residency.
One of the advantages of residential real estate is that, if you hold the property for at least 12 months, you will be eligible for a 50 per cent capital gains tax (CGT) discount once you dispose of it.
You may also apply positive or negative gearing to take advantage of gains from profits or tax deductions from losses.
Commercial rental property
Commercial properties are used for commercial or business purposes and may be rented out to long- term lessees. However, it differs from residential property in two ways:
- Goods and services tax applies to the purchase, income and expenses related to the property.
- Maintenance costs are borne by the lessee.
You may also be eligible for a 50 per cent CGT discount if you own the property as:
- An individual
- A partner in a partnership
- A trust
Property syndicates refer to a property that is collectively purchased, co-owned and managed by a small group of investors as a long-term passive investment.
Each member is entitled to income from rental fees and profits. They are also responsible for expenses and management decisions proportional to their stake in the investment.
Property syndicates may also refer to listed or unlisted property trusts Investors may simply purchase shares from the trust or fund manager and they will be eligible for distribution income from rent and profits, as well as potential tax credits.
Property trusts are required to distribute 90 to 100 per cent of its income to investors.
Real estate investment trusts
Real estate investment trusts (REITs) provide opportunities for property diversification within one fund.
REITs are funds that are listed on the Australian Securities Exchange (ASX). These are composed of investment properties selected and managed by professionals. Underlying properties may be for residential, commercial or industrial use and may be located within Australia or overseas.
REITs that are solely composed of local properties are called Australian REITs (A-REITs).
Fractional property brings the advantages of property syndicates and REITs together.
With fractional property investments, the cost of purchasing a property is divided into shares that are sold to investors. The investors become eligible to receive income that is proportional to the number of shares they own and they will also receive capital gains when they sell their shares.
There are two things that may make fractional properties attractive:
- You may handpick the properties you wish to invest in instead of investing in a pre-selected pool.
- It offers liquidity as well as access to capital gains when sold.
However, there are only a few platforms that offer fractional property investments at present.
Seek professional advice
Property investing requires investors to practice due diligence before making a financial commitment. Nest Egg recommends seeking the advice of a licensed professional who may be able to explain which types of property would work best with your investment portfolio.
Find out how investment trusts, managed funds and fractional investing across key asset classes can drive better returns for your portfolio in 2019 and beyond! Register for Nest Egg’s Investor Series on 06 June (Sydney) or 13 June (Melbourne) to learn about new opportunities, effective strategies and growing trends from experts in property investing.
This information has been sourced from Smart Property Investment and Nest Egg.