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Fractional property investment: how to become an investor with just $100

Fractional property investment helps you get on the property ladder through platforms like BrickX and Domacom, starting with just $100.

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Sarah Megginson
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Fractional property investment is a relatively new investment option in Australia. While property as an asset class has performed well historically, the costs of getting started can be high. As house prices continue to rise, the ability to invest in property moves further out of the reach of average Australians. Fractional property investment platforms like BrickX and Domacom could offer a solution for those looking to get a foot on the property ladder without the massive initial investment.

What is fractional property investment?

With fractional property investment, the cost of a property is divided into shares. These shares are then sold 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 they sell their shares. The cost of the shares will rise or fall proportionate to the change in the value of the property.

Fractional property investment may sound similar to some other forms of pooled property investments, such as a real estate investment trust (REIT) or a property syndicate, but fractional investment differs in a few key ways.

First, unlike an REIT, fractional investment allows an investor to hand-pick the property they’d like to invest in. This allows an investor to build a portfolio of individual properties, rather than buying into a group of pre-selected properties.

Second, unlike a property syndicate, fractional property investment offers liquidity. This means investors can cash out their investment at any time by selling their shares. Whereas property syndicates only see capital gains on the sale of their property, fractional property investors can sell their shares any time they want to access their capital gains.

What are the benefits of fractional property investment?

Fractional investment has a number of advantages over traditional property investment. One major advantage is that the barriers to entry are much lower. By splitting the cost of a property into shares, investors can gain exposure to residential property for a small initial outlay.

Also, fractional property investment is a liquid investment. This means the investor’s funds aren’t tied up for a specific amount of time. Fractional property investors can sell their shares whenever they want and receive a return proportionate to the increase in value of the property.

Finally, fractional property investment allows investors to diversify their funds across a wide portfolio of properties. While it might be challenging, or even downright impossible, for the average person to buy a large portfolio of residential properties, fractional investment allows investors to buy shares across a wide range of properties for a relatively small initial investment.

What are the drawbacks of fractional property investment?

The primary drawback of fractional property investment is that the eventual returns are not as significant as the returns in traditional property investment since the initial investment in fractional property investments is so much smaller.

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. This option isn’t available for fractional investors.

How can I get started?

Fractional property investment is a relatively new concept in Australia, and as such there are only a few platforms available. The two main fractional investment platforms in Australia are BRICKX and DomaCom.

BrickX:

BrickX 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. The company's property market experts find properties with positive rental returns and the potential for strong capital growth. It then 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.

They have 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, and investors can start investing in property on a smaller scale than the traditional method. 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:

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. Through the use of a bookbuild process, the DomaCom Fund 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 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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2 Responses

    Default Gravatar
    DiApril 22, 2018

    How do I get started

    Reply
      Avatarfinder Customer Care
      MayApril 22, 2018Staff

      Hi Di,

      Thanks for getting in touch with Finder.

      If you want to go for fractional property investment, you may like to start with an investment platform. At this time of writing, you can compare BRICKX and DomaCom investment platforms.

      You can press the link above to be redirected to our review page to know how they work, benefits, and fees. You can also visit the main websites of the two platforms to get more details, then decide which of the two may be suitable for you to start the investment with.

      Cheers,
      May

      Reply
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