Buying Property Direct Vs Listed Property Securities & A-REITs
There are numerous ways investors can access the property market. Two broad options are direct or indirect. In this guide we explain each and discuss some of their advantages and disadvantages. Please note the information provided is factual in nature, and not intended as investment advice.
Direct Real Estate Investment
Direct real estate investment is where you are the owner of the property. The selection process for an investment property can be very involved and for this reason many buyers utilise buyer's agents for assistance. The purchase of direct property generally requires a significant outlay, involving a deposit that is generally around 20 percent of the purchase price. The remaining funds are aquired from the bank as loan.
An advantage of owning a property directly is that the tax benefits are accessible. This includes the ability to negatively gear the investment. Another benefit is that the owner has greater control over the investment.
Indirect Real Estate Investment (A-REITs)
Indirect real estate investment is where you own a security that entitles you to share in the income and profits of a real estate investment. Essentially a middle-man manages and controls the properties for investors. Included in this category are Australian Real Estate Investment Trusts (A-REITs), which are listed on the Australian Stock Exchange.
Indirect investment means there is less control over the properties, and many of the tax advantages of direct investment are not accessible. However, an advantage here is that the investor is able to benefit from experienced management. Further, it avoids the length process and significant capital outlay that is required for direct investment.