Put simply, fractional investment enables you to buy a portion of a property, so you get all the benefits of owning a property without the upfront expense and ongoing hassle.
As the affordability of property continues to be out of reach for many Australians this new way of property investment might just give the next generation the opportunity to live the Australian dream and get on that property ladder.
In traditional property investment, the investor buys an investment property and receives rent from their tenants living there. In fractional property investment, the investor buys a portion or a “fraction” of an investment property, and receives a “fraction” of the rental income and a “fraction” of the capital growth.
There are a few key players who are offering fractional investment all with a slightly different product.
BrickX
BRICKX is an online platform for investing in residential property in Australia. It has a retail licence and is available to all Australians, with investments starting from under $100.
Allows you to obtain a beneficial interest in one or more residential properties by buying ‘Bricks’ in a unit trust that holds the property you are interested in.
A ‘Brick’ gives the holder a proportional entitlement to any benefits generated from the underlying property after the payment of all costs. Hassle-free property management.
There is no minimum holding in ‘Bricks’, and an investor is able to list their ‘Bricks’ for sale whenever they want.
BRICKX describes its mission as providing easy and affordable access to the Australian residential property market.
DomaCom
The DomaCom Fund allows investors to select and invest in specific properties using a fractional or crowd-funding process within a Managed Investment Scheme (MIS) structure.
Regulated as a managed fund.
Investors can invest in properties of their choice in Australia without purchasing the whole property.
Low initial investment amounts make for easy entry.
The DomaCom Fund also offers the Bookbuild process for crowd-funding and syndication of embedded property, which enables investors to pool funds together to invest in any property for sale in Australia.
CoVESTA
CoVESTA is a syndicated property investment platform where you can invest in any available property, anywhere in Australia.
Divides properties into 100 units (or blocks) and allows investors the option of being an equity owner and the tenant of a property.
Provides industry property valuation data, property and suburb insights on all available properties.
Offers a minimum investment of 1% of the property purchase price
For example, a young couple may find a property for $500,000 and be able to pay $250,000 for half the 100 units in the property. Of the remaining 50 units at $5000 each, their parents may buy 25 and the other 25 units are offered to outside investors from the CoVesta platform.
The young couple becomes the tenant of the property and, say, at the end of 5 years gets the home revalued and pays the other investors out.
It’s quite an interesting way for young Australians to get into their first home, the parents are protected, and other investors help out with the prospect of a good return.
With all platforms the ongoing costs of each property (insurance, council, strata fees, maintenance etc) are paid for out of the rental returns from tenants.
Just like the process of choosing a managed fund, the success of a fractional investing opportunity comes down to the fees you have to pay and the investment potential and returns from the property chosen.
Research what words for you
Property, like every other investment, goes through cycles. While Sydney and Melbourne residential property prices have surged over the past eight years, Perth on the other hand has been through a bust. Currently Sydney property prices are easing and Perth values are showing signs of stabilising and moving back up.
That’s investing. So picking the right property (or properties) in the right area is still a key ingredient whether it’s buying a fraction or a whole property.
But, like every investment, the pros and cons have to be weighed up and careful consideration given as to whether it’s right for you. It’s imperative you do your research and seek the help of a professional if you are unsure.
