How an Australian property-based fund could boost your investment income

The growth in value of the Australian residential property market over the past year has been beyond many forecasters’ expectations.

With the aid of the government and Reserve Bank of Australia stimulatory measures, interstate migration, strong price increases and a shortage of rental accommodation, growth has been record-breaking and currently shows few signs of slowing down.

As reported recently by CoreLogic, over the 2020-2021 Financial Year, Australian property values experienced the highest annual growth rate in 17 years (since April 2004), reaching 13.5%.

In addition, CoreLogic noted that only five months after reaching $8 trillion in value, the total value of residential real estate in Australia had reached an all-time high of $9.1 trillion.

 

Demand is not likely to slow soon

The construction and development of new properties has continued in the face of market-related growing pains and COVID-related impacts, such as shortages of available land and stock, delays in approvals and some shortages of materials and labour.

The historically low-interest rates have increased money supply in the market, and buyers’ fear of missing out is likely to see demand from homeowners and investors continue.

As borders re-open we will expect to see interstate and international migration add to demand.

How an Australian property-based mortgage trust could boost your investment income

Where does that leave investors keen to tap into the property sector as a source of income?

With property prices increasing at a rapid pace, it’s becoming increasingly difficult and expensive to enter the property market directly.

And for investment income seekers, direct property investment may not always be possible. In addition to the high initial capital outlay, investing directly in a property can reduce diversification in your portfolio, and the rental income in relation to the cost of acquisition, management and maintenance can sometimes make it a poor yielding investment.

As many readers would know, direct property investment is both intricate and involved. Choosing a property and organising its ongoing management, navigating tax implications, covering out-of-pocket expenses, and the illiquidity and longer-term investment horizon of most direct property investments mean it may not suit your financial goals or investment strategy.

Mortgage trusts provide the opportunity to invest indirectly in the property asset class and receive regular income without committing the substantial capital or time required to acquire and manage investment properties.

Currently, Australians have more than $15 billion invested in mortgage trusts.

When you invest in a mortgage trust, your money is pooled with the money contributed by other investors. Mortgage trusts lend investor funds to commercial borrowers to finance property development and/or construction projects. Importantly, the loans are usually secured by registered mortgages over the property or properties.

Mortgage trusts may also invest a percentage of investors’ money in cash and other more liquid investments, to manage the trust’s current and future cash flow requirements.

Returns to investors, typically by way of distributions, are derived from loan repayments, interest and fees paid by the borrowers, as well as income from cash and other underlying investments held by the trust.

Options to add diversity and income to your investment portfolio | Trilogy Fundss

Why are mortgage trusts a compelling option?

Mortgage trusts are designed to deliver income. They provide an opportunity to invest indirectly in the property sector without a significant capital investment.

Another key benefit of investing in a professionally managed mortgage trust is that an experienced fund manager will source and acquire the loan(s), as well as take care of administration and ongoing management of the loan(s) on investors’ behalf – so investors don’t have to.

They also offer a capital-effective investment. By pooling capital, mortgage trusts can typically lend to a range of projects, offering diversification across a range of locations, borrowers, project types, and project stages. As they require less upfront capital to invest in than a direct property, they may also free up more of your capital so you can achieve a higher level of diversification within your own investment portfolio.

The level of yield delivered by a mortgage trust may vary depending on the performance of the individual trust’s overall portfolio or specific mortgage/s within the trust.

It’s important for investors to be aware that all investments carry risk, including the risk of losing part or all of their capital or diminished returns. While mortgage trusts may be operated as liquid trusts, it should be noted that the underlying assets may not necessarily be liquid in nature and will have specific withdrawal terms. You should always read the terms of the investment outlined in the relevant Product Disclosure Statement and Target Market Determination, if applicable.

 

The Trilogy Monthly Income Trust

The Trilogy Monthly Income Trust finances a diverse range of property development and construction projects in the residential, commercial, industrial, and retail property sectors in Australia. The Trust only finances loans secured by registered first mortgages – a key risk minimisation strategy.

As at 30 September 2021, residential loans, both under construction and completed buildings, made up 64% of the Trust’s portfolio.

For the month of September 2021, the Trust returned 5.35% p.a.* annualised to investors.

 

Why invest in the Trilogy Monthly Income Trust?

  • Competitive income returns
  • Monthly distributions**
  • Income derived from Australian property development & construction loans secured by registered first mortgages
  • 100+ loans diversified by location, development type and project stage
  • Medium investment timeframe
  • Proactive risk management
  • Adds diversification to your broader investment portfolio

**Subject to the terms and risks outlined in the PDS.


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*Net distributions are variable each month and are annualised, quoted net of management fees, costs and assume no reinvestment. Past performance is not a reliable indicator of future performance.

This article is issued by Trilogy Funds Management Limited ABN 59 080 383 679 AFSL 261425 (Trilogy Funds) as responsible entity for the Trilogy Monthly Income Trust ARSN 121 846 722. Application for investment can only be made on the application form accompanying the Product Disclosure Statement (PDS) dated 17 December 2018 and by considering the Target Market Determination (TMD) dated 1 October 2021 for the Trilogy Monthly Income Trust ARSN 121 846 722 available at www.trilogyfunds.com.au. The PDS and the TMD contain full details of the terms and conditions of investment and should be read in full, particularly the risk section, prior to lodging any application or making a further investment. All investments, including those with Trilogy Funds, involve risk which can lead to loss of part or all of your capital or diminished returns. Trilogy Funds is licensed to provide only general financial product advice about its products and therefore recommends you seek personal advice on the suitability of this investment to your objectives, financial situation and needs from a licensed financial adviser. Investments with Trilogy Funds are not bank deposits and are not government guaranteed.