Here’s a question. You’re at a stage in your life where you own your own home and an investment property worth $500,000. Things are good but you suddenly find yourself needing $50,000 to meet an unexpected expense. You don’t have enough money in your bank account and you don’t want to add to your borrowings.

Aside from robbing a bank, your choices are limited. You can either bite the bullet and borrow some more (if you can get the finance) or sell one of your assets.

It seems a waste to pull apart an investment strategy by selling property to fund an unexpected expense. But in reality, this is what many people are forced to do.

If only you could simply sell off part of the property investment – perhaps the bathroom – to find that extra $50,000.

For all its merits, one of the downsides of property is that it has always been a “lumpy” investment. By that, we mean that it is a big chunk of money both to buy and sell. You’re either in or you’re out – to the tune of hundreds of thousands of dollars.

Compare that with shares, which can be bought in parcels of just a few thousand dollars (even less if you’re not fussed by the brokerage costs). If you had $500,000 of bank shares and needed $50,000 for that unexpected expense, it would be a no-brainer. You’d simply sell $50,000 worth of the shares (maybe a bit more to cover any likely capital gains tax) and keep the rest of your investment intact.

If only you could do that with property.

Fractional property investment is one way to address this problem.

Instead of investing in an entire rental property, fractional property investment allows buyers to buy a share in a particular property. Under the BRICKX model, investors can buy ‘Bricks’ in a residential property trust that holds a single residential property. As with shares, you can then resell your ‘Bricks’ when you choose, provided there is a buyer for them. In the meantime, you receive rental income from the property, just as you would if you owned it yourself.

In that way, fractional property is a half-way step between real estate investment trusts that are traded like shares but typically offer exposure to a portfolio of mixed commercial properties rather than an individual residential property, and property syndicates which allow you to invest in a single property (again, usually commercial) for a fixed period.

As the Australian population ages, fractional property investment has the potential to solve the “sell the bathroom” problem for retirees as well as younger investors. Instead of having to sell a substantial property and reinvest elsewhere to draw down on their capital each year in retirement, retirees may be able to simply sell individual shares in their property investment as the need arises, allowing the remaining shares to continue to grow in value.

The opinions and beliefs expressed by the authors and forum participants as part of this communication do not necessarily reflect the opinions and beliefs of BrickX, BrickX Financial Services or other entities within the BrickX group.

Leave a Reply

Your email address will not be published. Required fields are marked *

Join 1000's of Aussies investing with BrickX

Find Out How

Keep up with the latest news
on property and BrickX

shares