Anne Gibson: Rewards and risks of syndication

Syndication has the twin advantages of being a form of direct property investment. Photo / NZME.

Where to put your money when interest rates are sinking and property is increasingly out of reach?

One way into real estate wheeling and dealing is via a rising number of property syndication schemes, offering enticing returns, around double trading bank cash rates.

Syndication has the twin advantages of being a form of direct property investment but one which also allows small-time investors the opportunity to buy into commercial, industrial or retail property which would be out of most people's reach.

This enables them to get into properties like box retail stores, big-name tenancies and often in prominent locations.

A manager takes care of the hum-drum day-to-day management and maintenance of the property.

People usually buy units and the number of these on issue depends on the property purchase amount.

Syndication offers a relatively low entry level, sometimes about $50,000. The number of investors is generally determined by the equity required to buy the property divided by the price of each unit offered.

Investors can buy more than one unit in the property. Each unit of the property holds its own title.

Returns are often more than 8 per cent, sometimes above 9 per cent.

Higher risks accompany higher rewards.

Syndication or proportional ownership is like many alternative investment schemes - great when it's all going well but when it goes wrong, investors can be badly burned.

Syndicates have turned out to be extremely illiquid because they usually only own a single building, often with a single tenant. The extremely high returns should act as some sort of gauge to the amount of risk being taken by the investor.