Trust or Direct Property Investment | Trilogy Funds Australia

Investment in property: Trust or direct investment?

Investing in property can allow for essential diversification within your investment portfolio. But, as with any type of investment, property investment is not something you just jump in to. While many people consider direct investment – buying an investment property – to be the best way to get into property investment, but there are other options out there.

When we talk about direct property investment, usually this involves getting finance, then finding and buying the right property. Typically held over the long term, the property will need to be maintained and rented out, so that it can provide income, while – all going well – it gains value over the years.

However, there are various ways to invest in property indirectly. Investors may choose to invest in property via a managed fund or trust.

Trust vs. direct property investment

So, what is the difference between direct property investment or investing via a trust? Let’s look at direct property investment first.

Direct property investment

When you invest in property, there is usually a fair amount of background research that goes into the purchase. You need to find the right property in the right neighbourhood, one that is likely to offer steady rental income, while gaining value over time. Of course, there are various tax implications to consider as well, so it can be helpful to talk these over with an accountant and seek advice from a licensed financial adviser before making an investment decision.

But, an investment property is not a set-and-forget investment. There are usually ongoing issues that need to be addressed. While you may engage the services of a property agent to deal with the day-to-day, you will still need to think about ongoing costs, such as rates, property management fees and everyday maintenance costs, not to mention larger costs associated with the repair and replacement of items in or around the property.

Nevertheless, investing in a property can provide a sense of solidity to an investment portfolio. Some investors like the tangible aspect of owning property, as something they can see and feel – and drive past, should they really want to. Other investments, such as shares or bonds, don’t offer this.

Investment via a Trust

When you invest in a managed fund or trust, you are investing in property, but you are doing so indirectly. A trust provides a unitised investment opportunity, allowing investors to invest in units of that trust – and whatever that trust invests in. Some trusts invest directly in property, for example like the Trilogy Industrial Property Trust while others provide mortgages over property, like the Trilogy Monthly Income Trust.

Mortgage trusts typically provide lending to the residential, commercial, industrial, and retail property sectors in Australia. It is generally the interest collected on these loans that provides income to investors in the form of regular distributions. Depending on the trust, investors may have to hold their investment for a certain amount of time, to then stand by a specified withdrawal notice period should they decide to dispose of their investment.

As for property trusts, these trusts acquire property by raising funds from investors. This is generally a longer-term option, designed to provide investors with regular income from distributions, plus the opportunity for capital growth over the long term. There may be a minimum investment amount required, and a fixed investment term specified.

Unlike direct property investment, investing in a trust can provide a more hands-off option, as you will be relying on the skills and experience of professionals to manage the Trust. However, successful investors still take time to choose the right Trust and fund manager, just as they would take time to choose the right property when buying directly. This means doing their due diligence to find out how well the Trust has performed in the past, to assess what it may offer in the future.

Choosing between a Trust and direct property investment

Creating a portfolio that holds investments that are right for you often involves the advice of a professional. Before deciding on whether trust or direct property investment is the best option for you, we recommend seeking the advice of a licensed financial adviser so you can create a financial plan and investment strategy that suits your investment goals.

This article has been prepared by Trilogy Funds Management Limited (Trilogy) ABN 59 080 383 679 AFSL 261425 as responsible entity for the managed investment schemes mentioned in this article. This advice is general advice only and does not consider your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances and we recommend that you seek personal financial product advice on your objectives, financial situation or needs and obtain and read the relevant product disclosure statement before making any investment decision.