Fractional property investing rings true to its name: it is a means of reaping a profit by purchasing a slice or ‘fraction’ of a greater asset.
“Fractional investing is a method by which investors collectively raise capital to purchase a high-value asset, such as residential properties, residential developments, land banking, renewable energy assets and rural properties. This gives an individual investor exposure to an asset at a fraction of the total cost,” says Pitt Street Research in an April 2019 report commissioned by DomaCom.
“Rising property prices have made housing unaffordable [but] investors with limited resources can rely on fractional investing.”
While investing with as little as $100 won’t necessarily generate a massive return, it can provide an investor with a secondary income and some room to move, without the investor having to be ripe with both experience and savings.
But how does fractional property investing actually work?
“If the property is purchased by the fund for $500,000, then the manager will issue 10,000 units – sometimes called financial bricks – at $50 per unit. Each unit therefore entitles the owner to 1/10,000th of the underlying asset,” explains Matthew Lewison, director of OpenCorp and an expert in fractional property investing.
“If the asset value goes up by, say, $10,000, the value of each unit relating to that asset will increase by $1, equal to a 2% increase for the investor.”
Though a large number of investors are involved in the platform, the average investment is small.
“BrickX has over 13,000 members after operating for a couple of years and currently holds $19.7m worth of property. This is equivalent to around 35 properties at Australia’s median dwelling price, and it suggests that the average investment with BrickX is around $1,500,” Lewison says.
With such small sums, what’s the allure behind fractional property investing?
Put simply, you don’t need to have much capital to get started – and the investor also has the power to choose which properties their money is tied to.
Where to start
Catching a first break as an investor can be challenging, especially for those on a lower income. In an economic climate in which property prices have risen faster than incomes, it can be years before they are able to take their first confident stride into the market.
It’s also nerve-wracking for first-timers to be testing the waters when the economy is sitting on a cusp, with everyone’s eyes focused intently on which way housing prices will tilt next.
This is where fractional property investing can in some ways present a shortcut.
“Theoretically, investors looking to get started in fractional investment can kick off with just $50,” Lewison says.
“The fractional investment platforms offer a range of properties, from houses in regional areas to apartments in inner or beachside suburbs.”
And with a lower barrier to entry – a slither of a single pay cheque – the platform opens up the participation pool to a wider range of demographics and income types.
For those new to investing, this can take some of the pressure of making highrisk investment decisions, although it’s recommended that everyone should employ the advice of a qualifi ed fi nancial professional before moving forward with any investment decision.
“Investors can save time, as a lot of the work is done for them in securing and managing the properties,” Lewison says.
The above in an excerpt from an indepth interview.
Read the full story on fractional investing in our article "How to profit from fractional property investing".