Property funds are a popular way to invest in real estate. They allow investors to spread their money across a range of properties, giving them more diversification and reducing the risk of investing in just one property. So when you buy into an SMSF investment property, you’re buying shares in its underlying real estate investments—which means you have to pay stamp duty when you buy them (unless they’re offered through ISAs).
Who can invest in an investment trust?
You cannot invest in an investment trust if you are under 18. You also can’t invest in an investment trust if:
- You are bankrupt
- You are a non-EEA investor (that is, someone who does not live or work in the European Union)
- You have been convicted of a criminal offence and have not served your sentence yet.
Buying and selling units in an investment trust
You can buy and sell units in an investment trust over the phone, in person, or online. You’ll need to contact your broker if you would like to buy and sell units through them.
If you are buying or selling units, it is essential that you understand the risks of investing in property funds.
How are investments taxed?
There are several different types of investments, and each one is taxed differently. There are rules around when you pay tax on your investment income and how much you have to pay.
The income from your property funds will be taxed similarly to other forms of payment, such as wages or salary. The first thing to know is that if you’re a trustee investing in an SMSF investment property, your fund must withhold 20% tax from any interest earned, dividends paid out, and rent received during the financial year (unless it’s exempt). If no taxes were withheld at the time of receiving these amounts, then this can be claimed back on your tax return at Tax Time by lodging Form B1-IND – Individual non-business withholding tax election application.
Understanding the risks of investing in property funds
While investing in property funds may sound like a good idea, the risks of investing in property funds are not to be underestimated. It would help if you considered your circumstances before deciding whether or not to invest in such a scheme.
There are certain risks associated with investments of this kind:
- The value of the investment will fall as well as rise.
- Property prices can also increase and decrease dramatically over time, which means that you may lose some or all of your investments if it takes too long for them to rise again after they fall below the original purchase price.
If you decide that investing in property funds is right for you, then make sure that you understand these risks and how they affect your ability to pay back loans if necessary.
Invest in a property fund.
There are two central collective investment schemes: open-ended funds and unit trusts.
Open-ended funds are collective investment schemes that can issue new units to investors at any time but do not permit units to be redeemed by investors (except for a negligible amount for administrative reasons).
On the other hand, unit trusts may only issue new units in response to an investor’s request. Investors must sell their entire holding back into the market if they want to cash out their unit trust investments.
Property funds are an excellent investment for diversifying their portfolio and boosting their returns. They can be bought and sold quickly, so you can get in and out when you want. However, it’s essential to understand their risks before deciding to buy units in this type of fund.