Property Syndicates Are Quite A Headache – And Quite A Risk

Risks To Consider With A Property Syndicate

The return received on the investment may be different to the rate advertised by the property syndicate.

Reasons may be:

• Interest rates change and this affects the syndicate’s mortgage payments
• Tenants move out of the property and there is a delay finding new ones
• Tenants can’t afford to pay their rent and outgoings
• The property manager or others involved in the syndicate increase their fees
• The property needs repairs or maintenance work.

Property syndicates don’t usually have a fixed term, and the FMA says this can make it difficult to get one’s money back if needed, as there is no active market available for on-selling the investment.

In the words of the FMA, “Syndicate managers don’t have to return your money if you need it, but they might help you sell your unit(s) to another investor. If you do this, you may have to pay fees. You may also have to sell them for less than you paid, especially if returns have dropped since you first invested. Otherwise you’ll need to wait until the property is sold, any loans repaid and the syndicate is wound up.”

The FMA – wary of property syndicates – offers the following guide: https://fma.govt.nz/assets/Brochure/151207-Property-Syndicate-Checklist.pdf