Promoted by BrickX
With the median house price in Australian capital cities now over $550,000 (and over $700,000 in Sydney), it is not just potential homebuyers who feel locked out of the market. Many investors who normally may have considered buying a rental property also feel unprepared, or unwilling, to make such a big commitment.
Even with low interest rates, the figures can be daunting. If you were to borrow $450,000 on an interest-only loan at 4.5 per cent to buy a $500,000 rental house or unit, you’d have to find $50,000 upfront plus money for legals, stamp duty and any other costs. Your mortgage repayments would total a further $1700 a month and closer to $2500 if you opted for a 25-year principal and interest loan.
Even after allowing for negative gearing tax deductions and rental income, it is a big commitment – especially for those just starting to invest.
But what if you could buy a small share in an investment property, in the same way that you can buy just a few thousand dollars worth of Commonwealth Bank or BHP Billiton shares? Property investing would become an achievable goal for a whole range of potential investors who feel they either do not have enough capital to purchase an entire property, or are “too small” to get into the market.
Fractional property investment is a method of investing that will allow you to buy a small part of a particular property, rather than the whole thing. This can be done, for example, on the BrickX Platform where you can purchase units, or “Bricks”. As with shares, your Bricks, entitle you to a fixed share of the property. So you get a share of the rental income and eventually any capital gain upon the sale of your Bricks, where its value trades freely just like BHP Billiton or CBA shares. At present, ‘Bricks’ (units) are only available to wholesale investors.
Apart from making it easier to get into property, fractional investing has other advantages over committing to just one big property purchase.
You can diversify by buying units in several properties, spreading your risk (and rewards) over different types of property, areas and even cities. If one property doesn’t do as well as you had hoped, you won’t have all your eggs in one basket. Hopefully another property will make up for any shortfall.
Pooling with other investors also means that costs are shared and the property has professional management, without the hassle normally associated with liaising with strata managers, tenants and agents.
Unlike real estate investment trusts, which allow you to invest in a portfolio of properties (usually commercial), Bricks are offered in individual residential properties. So buyers can do their own research and make their own judgments on the potential of the property they are buying.
As with any investment, fractional property investors need to do their homework. BrickX provides full disclosure with due diligence reports on each individual property, so you can make a clear investment decision based on your personal needs and requirements.
BrickX provides an alternative method to easily access a highly competitive and frictional property market. It makes property investing simple, understandable and affordable.
BrickX is Australia’s first regulated, online property investment platform providing wholesale investors and SMSF trustees the ability to buy and sell units in Australian residential real estate. BrickX gives investors access to fractionally invest in the residential property market, with trading abilities similar to the ASX. They are looking to make the BrickX platform available to everyone in the near future.