Three alternative property investments to consider: A look at mortgage funds Australia

Investing in property can not only deliver you strong returns, it can also help you diversify away from the equities-dominated portfolio you probably hold through your superannuation.

But there are a couple of potential problems. First, the barrier to entry is significant, as it costs a lot of money to buy a property. Second, you’re unlikely to enjoy quick returns, as the benefits of property investment tend to come over the long-term.

So if you’re interested in investing in the property sector, but don’t want to follow the traditional model of buying a pricey asset and holding it for a decade or longer, you might want to consider these three alternative options.

1. Investing through a REIT

The Australian Stock Exchange has about 50 real estate investment trusts (REITs) that invest in residential, commercial and industrial assets, both domestically and internationally.

2. Buying a fraction of a property

Another option is fractional property investment, whereby a portfolio manager buys a property, divides the property into shares and then sells these units to individual investors.

3. Financing someone else’s purchase

A third option is to provide peer-to-peer loans, through Credit Connect group, to a buyer who wants to purchase a property but can’t secure finance through mainstream channels.

No knowledge of how to invest in mortgages? Let CCG show you how mortgage investing works:

If this is the first time you’ve heard of the idea of financing somebody else’s mortgage, you’ve probably got a few questions, and maybe some concerns as well.

Let’s tackle them one by one.

If I’d be financing borrowers who can’t get a bank loan, does that mean they’d be risky borrowers?

No, they wouldn’t be risky borrowers. Rather, they would be ‘non-vanilla’ borrowers who mainstream banks don’t like to work with – such as returning expats, recent immigrants and self-employed workers – because their scenarios fall outside the norm.

To further reduce risk, Credit Connect Group (CCG) makes borrowers provide large deposits (generally at least 35%) and limits them to buying quality properties in capital cities with good resale value.

That said, all investing involves risk, so this would not be a risk-free exercise.

What would happen if the borrower defaulted on the loan?

In the highly unlikely event the borrower defaulted, it would be highly likely you and the other investors would get all your money back.

That’s because CCG insists borrowers provide large deposits and buy properties with good resale value – so if the borrower defaulted, and CCG had to seize and sell their property, the sale proceeds would almost certainly cover the borrower’s outstanding debts.

Again, though, all investing involves risk, so nothing could be guaranteed.

What sort of return would I get?

Investors earn 5-9% per annum, depending on the deal.

How would I get my money?

CCG would manage the loan on your behalf, and make monthly fixed interest payments to your bank account.

What sort of property would be involved?

These would be quality properties in capital city locations, secured by a registered first mortgage.

Would I get to choose my investment opportunities?

Yes. So you would only invest in opportunities that passed your due diligence test.

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