In essence, a Private Syndicate consists of no more than 20 members. And the appointment of the trustee, the choice of the Commercial property investment and the decision to sell are ALL made by the members.
The following guidelines will help you to set up a successful private syndicate.
Syndicates are best structured as unit trusts for legal and taxation purposes; and to provide a shield from potential liability issues. Under current ASIC requirements, each syndicate is limited to 20 investors; with $2 million maximum combined equity to be contributed by them.
The total borrowings for your investment should not exceed 65% of the total purchase cost plus other expenses; that means the income on the investment should comfortably cover the interest on your loan.
Unless otherwise agreed, there should be no requirements for investors to provide any further capital, apart from their initial up-front contribution.
Sale of Units
There ought to be periodic formal review of the syndicate by the members, which should determine whether (and when) to sell a particular property. If majority wish to hold the property, but one or more members wish to sell out … the trustee will have the power to buy back the units of those wishing to exit.
The chosen property should, among other things …
- be suitable for office, retail or industry use;
- satisfy all legal and town-planning requirements;
- have minimal ongoing maintenance; and
- be reasonably new, offering good depreciation benefits.
Properties should ideally be located within metropolitan areas; with preference given to those in proven locations for that specific market sector.
Properties of a speculative (or specialised) nature should generally be ruled out. So too, should any investments in yet-to-be-built properties, as they introduce unnecessary risks for the passive investor.
And Finally: Always seek professional advice to ensure you fully understand the workings of a syndicate.