Fractional property investment
Instead of buying a whole property, fractional property investing means you invest in shares of one or several properties through a platform like BrickX or DomaCom.
Investing in property is extremely expensive. You need to save a deposit, pay stamp duty and then make mortgage repayments. But with fractional property investment you can invest much smaller amounts via platforms that let you purchase shares in their rental properties.
You can benefit from capital growth as prices rise, and get a share of rental income too. It can be a simple, flexible way to add property to your portfolio. But you will have to pay a fee to the investing platform, and you won't truly own your share of the property.
What is fractional property investment?
With fractional property investment, a company purchases a property it believes will grow in value. Then it divides the cost of the property into shares. It sells these shares to investors. Investors receive income from rent charged on the property and can also get capital returns on the property when it is sold or when they sell their shares.
The cost of the shares will rise (or possibly fall) as the property's value grows. You don't have to manage the tenants because the platform handles it for you.
Unlike traditional property investment, fractional property investment offers liquidity. This means investors can cash out their investment at any time by selling their shares. Investors who buy an entire property don't have this flexibility.
Investing through a fractional investment platform
Here's a simple example of how fractional investment works.
- You sign up to a fractional investment platform like DomaCom or BrickX.
- You view the properties available on the platform.
- You select a property (or properties) and choose an amount to invest.
- Once selected you can monitor the performance of your property shares.
- You receive a portion of rental income based on how much of the property you own.
- You can keep your shares or sell them as the value grows.
Some of these platforms have an option to choose the property mix for you, blending your investment into multiple properties without you having to do anything.
What are the benefits of fractional property investment?
- Lower entry costs. By splitting the cost of a property into shares, investors can gain exposure to residential property for a small initial outlay. You won't need to save a large deposit and take out an investment loan.
- Cash out faster. Fractional property investment is a liquid investment. Fractional property investors can sell their shares whenever they want and receive a return proportionate to the increase in value of the property.
- Property selection. It's not easy to pick winners in property investment. Fractional platforms have analytical tools and experts helping them choose investments these companies believe will outperform the average. You can get exposure to multiple properties.
- Diversification. Fractional property investment lets investors get some exposure to property as an asset class when they otherwise wouldn't be able to afford it.
What are the drawbacks of fractional property investment?
- Smaller returns. Because you're investing a smaller amount of money and don't own an entire property, your returns will obviously be smaller.
- No actual ownership. Another potential drawback is that investors own shares of property rather than a tangible asset. A traditional property investor has the option to become an owner-occupier in their property should the need arise. They can also add value by renovating the property. This option isn’t available for fractional investors.
- Costs. You have to pay fees to the platform, typically a percentage fee charged when you invest initially and again when you sell.
How do I start fractional property investing?
The two main fractional investment platforms in Australia are BRICKX and DomaCom.
BrickX finds properties with positive rental returns and the potential for strong capital growth. The platform purchases these properties and divides the cost into 10,000 shares, or "Bricks". Investors can buy and sell Bricks on the platform and receive monthly rent payments proportional to the size of their investment.
The only fees are charged when you buy and sell your bricks. BrickX charges a purchase fee that is 0.5% of the cost of the bricks you purchase. The company charges another 0.5% fee when you sell (based on the price at the time of sale).
DomaCom pools investor funds to purchase properties, and allows users to commit funds along with other like-minded investors toward a property for sale. 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.
DomaCom currently 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 Model Portfolios, which have been pre-selected based on different investment strategies. Some Model Portfolios may have a minimum investment amount, and DomaCom also offers a platform to sell your units or purchase other investors' units.
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