Fractional property investment is gaining traction across Australia and for good reason – it enables you to buy a portion of a property, so you get all of the benefits of owning a property (or part of it at least) without the upfront expense and the ongoing hassle of covering expenses. Think of it as property crowd-funding.
Renters and the under-35s are among those finding their feet in the fractional investing market, but owner-occupiers running self-managed super funds are also climbing the property ladder this way too.
According to the 14th Annual Demographia International Housing Affordability Survey, Australia is ranked as the third least affordable country for housing, with people paying up to 13 times their annual income to purchase a home. In this environment, fractional investment offers an alternative to forking out big dollars to get into the housing market.
One of the biggest advantages of fractional investment is the low barrier to entry when compared to traditional property investment. Investors don’t need to save 10-20% of a property’s value as a deposit - they can own a share of a property for a very small initial outlay.
There are a number of options available for buying an investment property through factional ownership but it’s a good idea to do your research before jumping in. Some do offer relatively low risk options though because the amount you invest is low. Typically they generate a low level of ongoing income – they are primarily positioned for long-term capital growth.
BrickX is one option that allows you to buy “bricks” and instantly invest in the property market for under $100. Investors can go online, set up an account and buy and sell bricks of property – all without having to leave the house or visit a real estate agent.
Each property is split into 10,000 bricks and no investor can buy more than 5% of the bricks, so the minimum number of investors is 20. BrickX sticks to tier-one properties priced between $500,000 and $1.5 million and investors can sell their bricks via the online trading platform at any time – or hold on to them and watch the investment grow. Investors earn rental income on their bricks and after 5 years the investors decide whether to continue with the investment or sell. BrickX makes a commission of 1.75% for every brick transaction.
DomaCom is the first fractional investment platform in Australia to be listed on the ASX. The DomaCom Fund is a managed investment fund that allows investors to select from a range of properties that they would like to invest in. Investors can purchase anywhere from 1% to 100% of units in a property sub-fund, and DomaCom has an annual management fee of 0.88% of the total funds invested.
Through a “bookbuild” process, DomaCom collects the funds from multiple investors interested in purchasing a property. Once the bookbuild is complete, the property is purchased and placed in a sub-fund.
All due diligence on the property is completed by the DomaCom Fund when the bookbuild hits 30%-50% of funding. Any due diligence costs are passed onto the respective investors in the bookbuild.
DomaCom offers investors the option to invest in residential, commercial, rural, retail, industrial and resort property lists. You can create your own portfolio by selecting the properties yourself or you can choose one of the pre-built Model Portfolios.
Recently, a third fractional property investment platform – CoVESTA – entered the Australian market. CoVESTA works in a similar fashion to BrickX and DomaCom but it has the added benefit of also allowing investors to identify their own property and live in it if they prefer to.
All they need to do is find an investment property they want to live in, start an “Invest & Rent” syndicate and once the syndicate is closed, become the tenant.
As the tenant, the invest-and-renter will pay market rent to live in the property and receive back their share of the net rental income. From a cash-flow perspective, they end up paying less rent while getting into the property market, and have extra funds they can put towards savings, investment or lifestyle. This system also allows them to access potential capital gains along with long-term rental security for five years.
Once the syndicate is full, CoVESTA will purchase the property at market price and manage the administration for an annual fee of $75 per syndicate block owned.
The property is held in trust and will be sold on the fifth anniversary of purchase, unless 75% of the investors choose to retain it for another 5 years. Once sold any capital gain is distributed to all investors.
We think fractional property investment is hot! If you like the sound of fractional property investment and you’d like some extra funds so you can start your property journey, don’t forget to check out our flexible mini-loans to find out how quick and easy it is to get your hands on some extra cash. Once a loan is approved, we can usually get a payment into your bank account within a few hours - so you can start researching that property investment today!