Article:

A-REIT versus direct property investment: What's the difference?

19 November 2014

Sean Pascoe , Partner, Advisory |

If you're thinking of investing in the real estate sector, purchasing a property directly is just one option. You can also purchase shares in a property portfolio through an arrangement known as Real Estate Investment Trusts (REITs). In Australia, these are known as A-REITs, and their current strength makes them an option worth considering. 

In addition to the fact that you're buying shares rather than entire properties for A-REITs, each approach has its own benefits and drawbacks. Here are a few things to keep in mind. 

Advantages of an A-REIT: 

  • Low barrier to entry. Rather than paying a large lump-sum down payment to purchase a property, investors can partake in an A-REIT for a few hundred or thousand dollars.   
  • Easy to liquify or change. A-REITs offer transferable shares that are relatively easy to buy and sell on the stock market - especially compared to working with an agency to sell properties.
  • Access to diversity. Many investors want to diversify their assets to better manage their risk. Without having experience in sectors such as residential apartments or commercial space, A-REITs allow investors to spread their portfolios across a broader spectrum. 
  • No maintenance or soft costs. A-REIT participants don't need to deal directly with tenants, perform upkeep tasks or manage tenant changeovers - saving hassle and money.

Advantages of direct property investment: 

  • Greater control. Because they own the property themselves, investors have control over how it's managed, enabling them to make strategic business decisions to maximise profitability.  
  • Financing options. Property owners can take advantage of mortgages to fuel their cash flow and investment strategies. 
  • Potential for bigger returns. Purchasing a property requires a large financial investment, but owners often have a greater return in terms of yield percentages.
  • Tax benefits. Whereas the income from an A-REIT is fully taxable, property owners may be able to write off depreciation or leverage other breaks to enhance their returns.

To choose the option that's best for you, it's important to consider risk profile and how hands-on you want to be with your investment. Talking about your possibilities with BDO’s Real Estate & Construction experts can help you start off on the right foot.