The 'Set and Forget' Investment: Are Property Managed Funds Right for Your Property Goals?
- magnate79
- 21 minutes ago
- 5 min read
For passive investors eyeing Australia's property market, the appeal of a 'set and forget' strategy is undeniable. With investment loan commitments surging nearly 30% in the twelve months ending September 2024 according to the Australian Bureau of Statistics, the question isn't whether Australians are investing in property—it's how they're doing it. Managed funds offer a hands-off approach that promises professional oversight, diversification, and the potential for steady returns. But are they truly the golden ticket for property investors?
Understanding Property Managed Funds in the Australian Market
Property managed funds pool money from multiple investors to purchase a diversified portfolio of real estate assets. These can include residential properties, commercial buildings, or Real Estate Investment Trusts (REITs). The Australian managed funds industry has shown remarkable resilience, with total funds under management reaching $4,751.5 billion in the December 2023 quarter, representing a 3.9% increase or $176.6 billion growth, according to the Australian Bureau of Statistics.
For passive investors, this structure eliminates the need to handle property management, tenant issues, or maintenance concerns. A professional fund manager makes all investment decisions, selects properties, and manages the portfolio on your behalf. You simply own units in the fund, which rise and fall based on the underlying asset values.
"Property managed funds represent a paradigm shift for investors who want property exposure without the operational burden," explains Paul Virdi, Director of Alpha Real Property Group. "We're seeing sophisticated investors recognise that wealth creation doesn't always require hands-on management—sometimes the smartest move is leveraging professional expertise whilst maintaining portfolio flexibility."
The Numbers Behind Managed Fund Performance
When evaluating property managed funds, performance data tells a compelling story. Research comparing 801 of Australia's largest managed funds reveals significant variation in returns. However, around 90% of Australian large-cap active managers underperformed equivalent exchange-traded funds (ETFs) after fees over a five-year period to July 2024.
The managed fund landscape charges varying fees, typically ranging from 0.5% to 2.5% per year in management costs, according to government agency Moneysmart. These seemingly small percentage differences compound dramatically over time—an investor committing $100,000 to global shares could find themselves $53,000 better off in a low-cost ETF compared to the average global active managed fund over five years.
Property-focused funds specifically target returns through two mechanisms: rental income and capital appreciation. Data from the Australian Property Investor Magazine indicates that investor expectations have evolved, with 35% now considering a rental yield of 4.6-5.5% as "satisfactory"—up from 3.6-4.5% just three months prior.
The Passive Investor's Reality Check
For genuine passive investors, property managed funds offer undeniable advantages. Investor loan commitments rose 18.8% in the year to September 2024, with approximately 1.9 million Australians owning one or more investment properties out of a population exceeding 26 million. Many are discovering that professional management removes the stress of landlord responsibilities.
The typical property investor faces substantial upfront costs beyond purchase prices: stamp duty, legal fees, renovation expenses, and ongoing maintenance. A managed fund requires significantly lower entry capital—many funds accept minimum investments between $10,000 and $25,000, democratising access to property portfolios that would otherwise require hundreds of thousands of dollars.
Diversification represents another powerful advantage. Direct property ownership concentrates risk in a single asset and location. Managed funds spread investment across multiple properties, geographic regions, and sometimes property types. When Queensland experienced a 33% share of property sales from investors cashing in on recent price booms, diversified fund holders weren't forced to make binary decisions about single assets.
However, liquidity concerns deserve careful consideration. Unlike REITs listed on the Australian Securities Exchange, unlisted property managed funds may restrict redemptions to specific periods—monthly, quarterly, or even longer. Some property funds suspended redemptions temporarily during the COVID-19 pandemic.
Comparing Active Management Versus Passive Alternatives
Active property managed funds employ professional managers who research markets, negotiate purchases, and time acquisitions to maximise returns. These managers charge premium fees for their expertise. The Pendal Group's Property Securities Fund achieved success through lower volatility than competitors and fee structures that returned more to investors' pockets.
Passive alternatives like property ETFs or index funds tracking the S&P/ASX 300 A-REIT offer dramatically lower fees—often 0.1-0.3% annually compared to 1.5-2.5% for active funds. For long-term investors, these fee differentials compound significantly.
Consider an investor with $100,000 over twenty years. At a 7% gross return, a fund charging 2% management fees would deliver approximately $265,000. The same gross return with 0.2% fees yields approximately $370,000—a difference of $105,000 simply from fee structure.
Tax Implications and Structural Considerations
Australian property investors benefit from several tax concessions, but managed funds distribute these differently than direct ownership. Negative gearing—where property expenses exceed rental income—allows direct owners to offset losses against personal income, reducing taxable income. Managed fund investors cannot replicate this personal tax strategy directly.
However, managed funds that qualify as Managed Investment Trusts (MITs) offer tax concessions for both resident and non-resident investors. Capital gains within funds may qualify for discounts if assets are held longer than twelve months. Managed funds provide annual tax statements detailing taxable income, dividends, and capital gains, simplifying tax compliance compared to tracking numerous receipts and depreciation schedules for direct property ownership.
Making the Decision: Is It Right for Your Property Goals?
Property managed funds suit specific investor profiles. If you're seeking property exposure without landlord responsibilities, value professional management, and prioritise diversification over single-asset control, managed funds warrant serious consideration.
They're particularly attractive for investors with capital between $25,000 and $150,000—too much to leave in low-interest savings, but insufficient for purchasing quality investment property outright in major Australian markets where median prices exceed $800,000.
However, they're not universal solutions. Investors comfortable with property management, seeking specific tax benefits from negative gearing, or wanting complete control over asset selection may prefer direct ownership.
Fee structures demand scrutiny. Before committing, compare total cost ratios across multiple funds and consider passive alternatives. Examine historical performance over five to ten years, not just recent returns. Assess liquidity terms—understand exactly when and how you can access your capital. Moneysmart advises reviewing Product Disclosure Statements thoroughly, focusing on fee structures, redemption policies, and risk disclosures.
The Verdict on 'Set and Forget'
Property managed funds offer genuine passive investment opportunities in Australia's robust property market. With the managed funds industry managing nearly $4.8 trillion and property investment activity remaining strong, these vehicles provide legitimate pathways to property exposure.
Yet "set and forget" oversimplifies the reality. Successful passive property investors still monitor performance, reassess fund managers, compare fee structures, and ensure alignment with evolving financial goals.
For investors willing to sacrifice some potential returns and tax benefits for convenience, diversification, and professional management, property managed funds represent a practical solution. They transform property investment from a hands-on commitment into a strategic portfolio allocation. Whether that trade-off suits your property goals depends entirely on your financial situation, risk tolerance, investment timeframe, and honest assessment of how much active involvement you genuinely want in your wealth-creation journey.