Among the Australian start-ups making it easier to buy a home as an income-producing property, there’s us (of course!), as well as platforms like CoVESTA, BrickX and DomaCom. Let’s take a look at these.
Interested in property investing but don’t have enough for a 20 percent deposit? You now have some great options to get started in the property game.
Invex is definitely up there as an innovative, unique, co-purchasing platform that’s disrupting the property market.
We offer potential home buyers and property investors a smarter way onto the property ladder. Simply speaking, we will pay your complete deposit for a modest share of your property.
This is called co-purchasing. You buy the property with us as your co-purchaser. Together, our goals are aligned to maximise potential capital gain.
However, let’s look at another approach: fractional property investment. CoVESTA, BrickX and DomaCom offer this type of 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 when they sell their shares.
The cost of the shares will rise or fall in proportion to the change in the value of the property.
Breaking into property a smarter way
With rising house prices, stagnant wage growth and high living costs, platforms like our co-purchasing platform, and those offering fractional property investment, offer first-home buyers a way to break into a tough, but potentially lucrative, property market.
CoVESTA, BrickX and DomaCom all allow investors to buy a fractional share of a home with as little as $100.
In the case of CoVESTA, the purchased property is held in trust by the company for five years. During that time, shareholders in the property are able to trade shares to other investors. On the fifth anniversary, 75 percent of investors vote to either retain or sell the property.
BrickX and DomaCom allow additional flexibility: investors have the option to sell a property at any time if they all agree.
BrickX uses a buyer’s agent and property market experts to 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.
DomaCom pools investor funds to purchase properties. The platform allows users to commit funds along with other like-minded investors toward a property for sale. Once enough investors have committed, the property is purchased and operates as a Managed Investment Scheme (MIS). DomaCom also offers a platform that allows investors to sell their shares to other investors.
The advantages and disadvantages of fractional property investing
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.
It also 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.
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.
Whether it’s co-purchasing or fractional property investment, start-ups are disrupting the property market and providing home buyers more options to get onto the property ladder.