Property Funds
One avenue, which investors have pursued to provide them with an exposure to the property market, has been to place monies in a property fund. These funds do not invest in the residential market, as they provide exposure to properties in the commercial sector.
Different types of funds have operated for many years now, investing in properties both at home and in the UK. In recent years, there has been a major advancement, in this sector, with the introduction of Geared Property Funds.
This type of fund differs considerably from the traditional one. The older property funds were limited in the size of their purchases, according to the level of funds that they had received from their investors. The Geared Property Funds however, will borrow up to 80% of the property cost, to give the investor a greater exposure than the traditional fund. An investor making a deposit of €50,000 (20%) in a geared fund, will then have exposure to €250,000 worth of property. This is because the fund will borrow a further €200,000 (80%), to increase the investor's exposure.
The interest on the borrowings of the fund is serviced from the rental income on the properties that it purchases. The investor has no personal liability towards the borrowings that the fund undertakes and is legally protected in this regard.
So why do some investors look at Geared Property Funds as an attractive option? The answer is simple, to get a higher degree of exposure to the commercial property market than traditional funds. Naturally this gives the possibility of a higher potential return. On the negative side, there is the worry that a downturn in commercial values, could result in part or all of their investment disappearing. These funds generally operate for a period of 7 - 10 years,
Comment: Geared Property Funds are without a doubt only suitable for the more sophisticated investor.
