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The benefits of investing into property & mortgage funds

Property is one of the largest asset classes in Australia and most investors have some exposure to it. We all love property, but sometimes borrowing restrictions, servicing or investment timeframes don’t suit or allow buying another property directly. Most people are aware of the Share Market as an alternative, however, not everyone is aware of the indirect property ownership options available, which include listed and unlisted property, and mortgage funds. These types of property funds offer some advantages over investing directly in property which we discuss below.

Property Funds are generally structured as real estate investment trusts. They allow multiple investors to pool their capital together to buy a single property asset or multiple property assets - these are structured as equity funds. Property funds invest across all classes of property including commercial offices, industrial, retail, and residential property. These funds offer investors a number of benefits including:

  • Access to solid capital growth and income generation potential across assets which wouldn’t normally be accessible to most individuals.
  • Ability to leverage equity growth within the fund which allows for portfolio expansion.
  • Passive management of the property assets.

In contrast, Mortgage Funds invest in a portfolio of first or second property mortgages - these are structured as debt funds. Mortgage funds generally invest in mortgages of residential property developments. These funds offer investors a number of benefits including:

  • Access to attractive Income Yields, often above 7%.
  • Access to mortgage instruments which would generally be inaccessible to individual investors.
  • Passive management of the debt portfolio.

Landen’s Director Rashed Panabig believes there’s a place in most long-term portfolios for property and/or mortgage funds: ‘We see Property funds as a great match for investors who want the upside of property ownership without having to manage the assets themselves - they offer the combination of attractive income and capital growth. When it comes to Income generation, mortgage funds are a solid match for income-focused, risk averse investors as they typically generate attractive yields across a relatively low risk diversified debt portfolio. Both types of funds are worthy of investigation by property investors.’