BrickX offers an innovative way to invest in property without massive start-up costs. Here's how it works.
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What do you do if you're interested in property investment but don't have a huge amount of money to cover the purchase of a property? BrickX, an Australian fractional investment platform, has a solution. The company allows you to purchase shares of its investment properties so you can become an investor without the enormous up-front costs of buying a property.
Here's what you need to know.
How does it work?
BrickX has a team of specialists who analyse the property market and purchase investment properties they believe will outperform the market average.
These properties are then divided into shares or "bricks" which individual investors can purchase. This allows interested investors to start investing in property on a smaller scale than the traditional method, which involves purchasing and maintaining an entire property and renting it out.
The only fees are charged when you buy and sell your bricks.
The properties BrickX purchases are rented out. Investors in the property (who have purchased bricks) receive a share of the rent in proportion to the amount of the property they own each month, minus any property maintenance costs, council rates and so on.
As the property grows in value, the value of the individual bricks also grows. When you decide the time is right you can list the bricks for sale through the BrickX platform.
BrickX offers investors two ways to invest their funds.
- Smart Invest. This is the simplest investment method. You choose how much to invest and BrickX does the rest, putting your money into a property (or properties) it has selected.
- Build My Own. For investors who want to get more involved, this method lets you choose which BrickX properties to invest in so you can build your own portfolio of bricks within the platform.
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).
If you made an initial $10,000 investment and sold it later at $11,000, you'd pay the following:
- Purchase fee: $50
- Sales fee: $55
What is fractional property investment?
BrickX is an example of fractional investment for property. Fractional investment pools funds from a large group of investors to purchase investment assets. All the investors share in the rental income and any capital returns from the investment, proportional to the amount they have invested.
A simple way to think of fractional investment is buying shares. For example, if a group of investors wanted to buy a property at a cost of $1 million, they could divide the price of the property into 10,000 shares at a cost of $100 each. Investors would then receive a return proportional to the number of shares they owned in the property.
What are the benefits of BrickX over traditional property investing?
- Flexibility. Traditional property investment is a long-term investment that doesn't offer much flexibility beyond making renovations to the property. A property is an asset but it's hard to sell quickly or move the asset into another investment. BrickX doesn't have such limitations.
- Smaller commitment. BrickX is a good option for investors who aren't willing to spend tens or hundreds of thousands of dollars in stamp duty and a deposit just to get started in property investment. It allows people with much smaller amounts of cash to invest in the property market.
- Speed. Buying an investment property is a time-consuming process, even for experienced investors. It can take months to choose a property, purchase it, apply for a loan and wait for settlement. Things move much faster with BrickX because you're investing in a share of a property that the company purchases.
- Management. Being a landlord requires work, but BrickX manages investment properties on behalf of investors, dealing with tenants and property maintenance on your behalf.
Is BrickX right for me?
Investing through BrickX is very different to traditional property investment. If you are looking to choose your own property carefully and manage it for a long time, or want to pursue a more complex strategy involving tax deductions, interest-only loans and negative gearing, then fractional property investment is probably not the way to go.
If you are looking to diversify your investment portfolio by dipping into property without the time and commitment of traditional investment, BrickX is worth considering.
Here's some quick information about BrickX and its history.
- Company history. Founded in 2014 by Markus Kahlbetzer, BrickX officially launched in 2016. The company today manages $20 million in assets.
- Partners. BrickX partners with several companies, including CoreLogic, which provides property data and research, and Performance Property Advisory, a property research firm.
- Advisors. The company's advisors include CoreLogic Head of Research Tim Lawless and realestate.com.au Chief Economist Nerida Conisbee.
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