An Australian property start-up is taking a cue from the rise of crowdsourcing by building an online platform that allows members to buy small shares, or ‘Bricks’, in properties.
BrickX is an online fractional investment platform that buys residential properties using a unit trust structure. Once purchased by BrickX, the property is pided into 10,000 units (or ‘Bricks’), and each Brick is sold inpidually to investors. A maximum of 5% (or 500 Bricks) is allocated to each investor per property. The property is then rented out to tenants, with the property management also managed by BrickX. As well as rental distribution, investors can earn capital returns by selling their Bricks to other members of the platform. The platform takes its cut through a flat brokerage fee for each transaction.
BrickX, which was founded by Darren Patterson and Markus Kahlbetzer, recently won Platform Innovator of the Year at the Fintech Business Awards 2017. The hassle-free nature of the platform should make it an attractive channel for SMSFs to gain exposure to the Australian real estate market, says the company.
To date, the company has purchased 11 properties to date, nine in Sydney and two in Melbourne. Properties are being offered on the platform at the rate of approximately one property per fortnight. The company now claims more than 5700 investors with more than $13 million of property on the platform.
It targets properties having regard to both capital growth rates and the potential for positive rental return. For example, Surry Hills, where a recent property was purchased, has a historical capital growth rate of 10.42% per annum over the past five years and a strong rental market, making it a good investment prospect.
Arguably, the biggest advantage of BrickX is that it makes property investment more accessible to a wider section of the community. On the flip side, owning a property with many other members means that each Brick holder does not have a direct say on how the property is dealt with, and Bricks cannot be used as security to expand a property portfolio.
There is also a school of thought, such as that recently expressed by Scott Pape, the Barefoot Investor, that among so many unit-holders, rental returns may not be profitable and the scheme largely relies on the speculative nature of capital growth.
To this point, BrickX is attempting to balance a majority of safer options with a small amount of more speculative purchases. It will buy new or renovated, one and two bedroom apartments – “but not leftovers from developers that can’t source bank finance,” Kahlbetzer said.
The company is confident in Sydney and Melbourne but is avoiding more risky locations for now. “We are not looking at Queensland, but we will look at Perth as a more speculative investment,” Kahlbetzer said. “I still think the Melbourne market hasn’t had a rent revision, so there should be a kick.”
BrickX plans to expand the team to double its current 13 staff by the end of the year and has a vision to have hundreds of properties on the platform. Only time will tell if it is a golden investment opportunity, many investors will be willing to see if it is profitable in the meantime.