Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
Financial distress. A significant problem facing young investors. There are many avenues investors can choose to solve this problem. Investment properties, Stapled Vehicles and AREITs (Australian Real Estate Investment) are proven methods to possibly obtain a passive income and thus open the gateway to financial freedom.
Besides the above property investments, Unlisted funds (trusts) is another exciting avenue in the property market to generate a passive income. At this stage, you might be thinking, what is an unlisted fund? And why would you invest in an unlisted fund?
What is an unlisted fund, and how does it work?
Unlisted property funds provide investors with the opportunity to access retail, commercial, and industrial property.
An unlisted trust is not registered on the ASX. The non-registration will be mean that investors are not issued shares that can be exchanged. Instead, investors purchase a ‘unit’ in the fund (‘Trust’). Each unit represents your investment in the property. A fund manager will manage your unit within the property.
First, a fund manager will set out to find reliable tenants, relatively new buildings, and capital growth location. Once these requirements are satisfied, the manager purchases a property and creates a ‘fund structure.’ A fund structure breaks down the ownership of the property into units for the investors. Thus, allowing individual investors to join and possibly experience property success without travelling down the residential route.
Fund managers will usually lease the property and thus generate revenue through rent.
- Unlisted funds diversify your asset investments in the property market
- Unitholders of unlisted funds received recurring income payments (Income distributions) throughout the lifetime of the property
- A fund manager removes the burden of dealing with the day to day components of the property investment such as maintenance
- Unit prices are less volatile to shares on the stock market
- Capital gain = If the fund manager sells the property for a higher price
Risks and perils
- Investments are locked in the fund until the property is sold = loss the discretion when to sell
- Entering an unlisted fund does also provide the chance of not achieving a capital gain
- Unlisted funds are an illiquid investment
Please have a read of our breakdown of Charter Hall unlisted fund
Now, all the textbook “information” on what an unlisted fund is, the investment advantages and risks have been discussed. It is time to analyse the investment activity around real-life unlisted funds. Sounds Interesting. Check out the breakdown of unlisted fund Charter Hall. Because I’m sure that after you read this article, your investment brain will instantly want to explore the potential that unlisted funds can bring to your life.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Thomas He, an associate of YIG.