Just stumbled across this website which allows you have fractional ownership of Australian real estate. From the looks of it, it feels simple and straightforward to use. Just wondering if anyone has had dealings with them?
p.s. In the interest of full disclosure. I have no affiliation in any shape or form to this website.
Did you even open the link to see what they are about?
Yes I did, and my scam warning fired off immediately.
Care to elaborate?
It makes my 'warning, warning' klaxon sound, but looking at the fees table it doesn't look openly crooked.
The issue you have, is how do they value the purchase price of the property?
Because they get paid more if you buy a more expensive property, they have little incentive to 'buy low'. In fact, they will do fine if you buy and the market crashes.
They do have an incentive to sell for as much as possible, and they might well seek to inflate capital returns to maximise their fee cut too.
For example, if there is a house worth $1m but they buy it for $2m they will make $35000 selling the bricks versus only $17500 if they paid market rate. You can see they won't negotiate too strenuously. If their annual audit then values the property at $3m they will make more as people trade the brickx, with later buyers funding the growth.
But if the property ever had to be sold because the redemptions exceeded their reserve, and the property sold for it's true value of $1m, the later owners of the brickx would lose 2/3rd of their money.
There are legitimate real estate investments (REITs) which are largely valued on rental return should you want more property exposure.
But do you really think property is going to rise that much more?
Also, from the PDS, it appears brickx holders will assume the investment liability.
So if you bought in Moranbah at the top of the market for $1m with 50% debt. Prices crash, rents plummet and the mortgage payments are now higher than the income. You will be responsible for any shortfall. Worth thinking about.
Valid points you make.
In reality, no one would pay 2m when the market is at 1m. I reckon people would be reluctant to purchase 'bricks' for $35 when a similar property is selling for $17.5. As for the valuation, it would be nowhere near 3m if the market is at 1m. I guess my point is unlike commercial real estate, residential is comparatively easier to value as there is a lot of similar stock selling/sold.
As for assuming liability, I guess that would also be limited to the number of 'bricks' you own. so your exposure is 100% of your investment.
Sure, the numbers were just illustrative. But I'm suggesting it is in the interests of Brickx to not seek the lowest purchase price. If this only a 5% more than could have been achived with hard negotiation, it is still a substantial deficit to be made up.
And I think you need to check the liability issue. My reading is that you have liabilities that are not limited to your investment. E.g. if you borrowed half the purchase price, and prices fell like they did in Moranbah, you would still be on the hook to repay your part of the mortgage as well as having a Brickx of no value.
Not a big deal with a $35 investment, but if you invested $100k, you could lose that and still owe another $80k, for example (using Moranbah figures as worst case again).
I can't imagine one could loose more than be 100% of your investment. Is it like shares right? the worst that can happen is that BrickX goes into liquidation, which means they will have to sell the properties in a fire sale, deduct all fees and owing they have if there is anything remaining to distribute it to the fractional owner?
After a little bit of more reading, one person is only allowed to have a maximum stake of 5% in any of the properties.
@gaurav1504: Not like shares, it's a leveraged product (more like CFDs). You can be liable for more than you put in upfront.
OP it's clear you are hunting for someone to support your view that this is a good investment. So far it hasn't come. If you think it's a good idea and want to invest, just go ahead. If you want unbiased opinions then I think you have found your answers here.
@PBG: I'm not here to champion my opinion, the premise of the discussion was to ascertain if anyone has come across this product before or had thoughts on what it is like. I certainly don't need crowd wisdom from OzB to advise me where i should be putting my money
Somewhat unrelated, but have you read Superfreakonomics? One of the chapters touches on incentives, and how real estate agents have very little incentive to increase the price of the house they are selling. If they get an extra $10k, they might get, say, $150. I couldn't find where it was from exactly, but the authors talk about it in this clip.
Tl;DR I agree with you, the brickx people do not have a large incentive to negotiate down the price.
@ilikeradiohead: This i agree. mskeggs made a similar point too. I reckon should this platform take off BrickX wouldn't care much to buy slightly above the market as they'd simply divide it up into 10000 bricks, whilst making a sizable trailing commission.
So if they go broke (Brickx), and you're not on the title, is this basically an unsecured investment in a model we haven't seen before? Just initial scepticism.
Apparently, there is some clause which puts the members in a trust and "Should the BRICKX Platform be wound up, Members will have a Platform proportionate entitlement to any residual funds in the BRICKX Platform, after payment of wind up costs and amounts owed to creditors (if any)* "
*"if any" being the operative words there!
Hi All, Jamie, Customer Services from BRICKX here. The Platform has only been open to all Australians for a short number of weeks now, so really pleased to see you have heard about it, and are having a lively debate.
I'd be happy to answer any questions you might have, and of course you should read the full PDS which certainly answers some of the above comments/questions (you can view the PDS at www.brickx.com/pds).
I hope you don't mind me just clarifying/touching on a few points mentioned above:
The Platform is designed to give Members transparency and control over their investments and investing decisions. The idea of being able to invest in the residential investment properties you choose based on your own investing strategy, at such low entry prices and with such ease, is a first in Australia. With this freedom of choice over which property or properties to invest in, we are empowering our Members to have much more control than they would with a pooled investment (REIT or other unit trusts with pooled investments). In addition, the ability to invest when you want, and put your Bricks up for sale when you like, gives increased opportunity to enter and exit this type of investment (especially compared to traditional property investment).
We take a very rigorous, data driven approach when identifying properties to buy, and work closely with our Adviser Panel (Tim Lawless (Head of Research at CoreLogic), Nerida Conisbee (Chief Economist at REA) and Peter Chittenden (Head of Residential at Colliers) in ensuring the macro acquisition strategy is well thought out. Our local buying teams are seasoned buyers, and are working with us to bring quality properties to the Platform at the lowest cost possible. We walk away from many more deals than we actually pursue, as we want to bring the properties to the Platform that we believe might be of interest to our Members. You might find this blog interesting - https://www.brickx.com/blog/how-we-select-properties
As Members have full control over what they do and don't invest in, and in addition to all the content and information BRICKX provides, with the huge amount of independent content, figures and comparable sales for Members to research on other well known property sites, Members can decide what is right for them. As such, it only makes sense for BRICKX to acquire properties that represent fair market value. BRICKX has an external funder who funds the property purchases upfront (unlike crowd funders) which enables us to move quickly and be competitive in a very competitive environment, however we are realistic that the properties that we bring to the Platform need to be sensible investment opportunities for our Members, otherwise the funder may not sell down the initial 10,000 Bricks. To be clear, the only fee charged for buying any Brick is 1.75% (and the same fee when you sell) - there are no performance fees, funds under management fees or contribution/trail. Each property has its own monthly expenses which are paid out of the gross rental income ahead of any net income distribution. These expenses are those you would expect from an investment property, and can be viewed on the Monthly Distributions Tab on each property.
The Scheme has regulatory approval and is overseen by a Responsible Entity. Each Trust (which contains an individual property) is independent from the other, and have their own external Trustee. This structure means that in the event the BRICKX business was not to succeed, the Trustee would either appoint another manager, of could sell the properties and wind up the scheme, returning net proceeds to individual Brick Holders. You might find this blog interesting - https://www.brickx.com/blog/why-brickx-values-transparency
To be clear this is Managed Scheme, and not like CFD's (as referred to above). There is no recourse to any further funds beyond your investment for any Members. Each Trust contains a property, a small amount of cash, and the value of the acquisition costs (which are amortised over 5 years). The trust is split into 10,000 Bricks, and these Bricks are then sold to Members - in essence a Brick would make you an indirect beneficial owner of 1/10,000 of the property. Some properties do have debt/gearing and this is clearly displayed. We only ever positively gear, and up to 50%. The debt is secured against the property as a mortgage.
I hope I have provided some clarification to the points above. If you ave any further questions, I'd be happy to answer them, but cannot give any financial or personal advice, just general advice around the Platform and BRICKX. Also reminder to read the PDS.
We're also having our formal Press Launch on Monday, so look out for articles in the AFR, Sydney Morning Herald, The Australian and The Telegraph.
Thanks Jamie
If a property goes in a loss like down are the bricks owner has any liability? Would they be paying anything out of pocket at any time?
I think this platform could function as a useful hedge for those saving up for a home. If you are working on saving a sufficient deposit but are worried about house prices appreciating faster than your nest egg does, then putting your money into "bricks" of a similar property to that which you're saving for could align your savings with the market movement.
Yes, the bricks could depreciate (or appreciate more slowly than other investments), but in that case you would likely be benefiting from being able to buy your own property more cheaply. However if property values continue to rise beyond the level of conventional investment returns, then your nest egg will have experienced a proportionate appreciation while you have been adding to it.
As a pure standalone investment, there are probably better alternatives. But as a store of value while you save for your own home, it could be a useful instrument.
Brickx = inferior version of a REIT
Fees will eat up small accounts.
Fees will eat up small accounts.
Aren't the fees the same no matter investment size? 1.75% buy or sell tranaction.
No management fee or anything else. So unless you are buying and selling multiple times?
Hi Gents can I say how glad I am to have found this discussion as I was "pitched" today by a current investor in Brickx and seriously have thought about investing all day, so I am listening to everyone's pov or thoughts VERY carefully,
may I ask"what if or worse case scenario" & Brickx goes belly up and implodes & liquidators take over, a certain area or Town starting with Q had suffered huge property value deacreases as a reference and I believe the term fire sale was used, both sensational points, my question id like to put out there is If you have invested in a well to do area that has consistent for property value rises and has shown it rises every year hyperthetically castle hill or Redfern The north shore perhaps of Sydney,the liquidators would not surely need to have a fire sale' or sell a property way under value would they not given the Sydney real estate market ?? I have a genuine concern when they can the company would or could have the possible potential to sell for one price and the investors are told another. As someone mentioned we are not listed on the title !! it's something I did not consider until listening to you guys just now. sincerely thanks for such valid points from all its really made me think now as an hour ago I was just about sold .. Matt
I posted earlier, but to reiterate.
My reading of the PDS was you are liable for a percentage of the investment.
A reply from a user who says they are related states this is not the case, as it is a trust structure, so that is good. They also claim to only positively gear, so that is some margin of safety if rents stay high. My concern would be if the 50% mortgage takes all the initial rent, but then rents fall 10%. How will the cash flow be covered? When I looked at the PDS it wasn't clear to me, and I haven't looked again.
I can't give you any real advice, except that your investment strategy appears to be "but prices have been going up in Sydney".
This is a good strategy as long as prices continue to rise, but would be a terrible strategy if prices began to fall. When I see someone say that any investment has consistently risen, and that is a reason to buy, I get edgy. If I flip a coin 10 times and it lands 10 heads in a row, what are the odds it will be heads again?
In financial circles, the name for this strategy is called "the greater fool theory." I'm not joking, it applies to an investment that is costly, but that you buy not because you think it offers good value, but because you believe you will be able to sell it for even more to a 'greater fool.'
Exotic investments like Brickx come along all the time when markets reach bubble stages. In 1929 it was LICs to buy shares in a company that was buying shares. In the 1980s there were various schemes to get access to the then hot, hot, hot Tokyo real estate market (which like Castle Hill and Redfern had been consistently rising for years, oops).
In the late 1990s there were dotcom funds, I lost some money in those.
None of these were charities, all were set up by financiers who saw there was excitement at the latest investment trend, and who made their money from fees, regardless of whether the investment was sound or not. They simply jumped on board the latest trend to earn their commissions.
Consider what Brickx is bringing to the table. They will sell you a portion of a house for a fee, then charge fees to administer it. Why is this a good deal? Are their fees lower than alternatives? Is there really going to be liquidity to easily trade your investment?
You can already gain (commercial) real estate exposure via REITs, which were brutally smashed in the GFC, but the survivors have done well. It was a dicey time for investors who had their money locked away, unable to sell for months or years. Some lost everything if the funds gearing was too high.
Brickx will probably be a good investment if property keeps rising, but equally, will be a poor investment if it doesn't.
The absolute bottom line in investing is to buy low and sell high. Is Sydney real estate a time to buy or sell at current prices, do you think?
Beware all BrickX investors, a warning to exercise caution when investing with upstarts and immature business models like BrickX. Having dealt directly with BrickX and their property manager as a former strata manager, if you knew how lax and sloppy your properties are managed by third tier property managers you would run a mile with your hard earned dollars. Hands on risk management is non-existent in my opinion coupled with an appalling low level of understanding of compliance matters and duty of care to the investors. This can be a falling dominoes brick scheme when the property cycle turns down..
sounds as legit as buying a square foot of Scottish property, just without the title.