Affordable property investing: is BRICKX the answer?

With property values soaring (some Australian suburbs have risen by 50 percent in the last five years), many prospective homebuyers are finding themselves priced completely out of the market.

Property has the potential to be an incredible financial stabiliser and is seen as a smart investment, however those who can’t get their foot in the door have no chance of joining the party.

Or do they? A new ‘disruptor’ has recently been launched, which claims to put buyers on the ladder to home ownership with a starting price of just $100. Called BRICKX, this platform has been featured on major publications and news programs.

What is BRICKX?

Instead of buying a house, you can now start with a single brick.

The BRICKX platform “turns property investment on its head.” It buys selected properties, then divides them (virtually speaking) into around 10,000 ‘bricks’, which it makes available for people to invest in.

For example, if a property was worth $1 million, a single brick would cost $100.

Buyers can ‘buy’ bricks in several properties, across several suburbs. As a brick owner, you can claim a portion of the property’s rent and you are also eligible for capital returns. There are no fixed periods so you can sell your bricks any time you like. The number of bricks any one investor can hold in a property is capped at 500, or 5 percent of the total number.

BRICKX claims to give every Australian the opportunity to invest in property. The company makes money by charging a 1.75% transaction fee when investors buy or sell bricks.

In addition, as part of an individual property’s expenses, a 6%+GST property management fee is deducted from the Gross Rental Income of each BRICKX Trust (before making distributions to Brick Holders), and $75 per property per month fee (equating to $0.0075 per Brick per month) is charged to cover annual audit and valuation services.

Disruptor or disaster waiting to happen?

As with all new schemes, it can be hard to determine at this stage if BRICKX is a money maker or a money pit.

The company was founded by experienced investor Markus Kahlbetzer and has some strong backers. Nerida Conisbee, who is chief economist at REA Group is on the advisory board. As she told the ABC in May last year, the houses BRICKX is investing in are low risk, which means they don’t get the greatest rental return, but they do get good capital growth.

Despite only launching early last year, the initiative has had buy-in from Westpac Banking Corp’s venture capital fund Reinventure Group. This will allow BRICKX to expand its offerings and to implement a plan to provide renters with a path to home ownership.

According to the Australian Financial Review, “if the model ever scales up, it could be disruptive to banks”. It also has the potential to “create an alternative to a reverse mortgage, freeing up home equity for retirees able to bring their existing property onto the platform”.

Despite the praise, and the seven thousand or so investors the company has so far, BRICKX has not been welcomed by everyone in the industry.

As reported in Your Mortgage, David Johnston, founder and managing director of Property Planning Australia, called the idea of ‘fractional investing’ risky business as it relies on strong rental yields and capital growth in a short span of time.

Mr Johnstone is concerned a market slowdown could cause things to become complicated. This was echoed on Domain by Economist and managing director or Market Economics Stephen Koukoulas, who said investing over a short period when the property market was cooling down in Sydney could be precarious. According to Mr Koukoulas, the expectation to make capital gains is unrealistic.

After all, selling a virtual brick is a very different story to selling an entire house.

BRICKX vs bricks and mortar

Investing, no matter where you put your money, can be risky. The term ‘safe as houses’ doesn’t apply to the current Australian property market, especially due to increasing talk of slowdowns.

While BRICKX can be attractive to younger investors who have no hope of entering the property market, it still carries a risk. At the end of the day,the decision to invest is up to the individual and depends on the goals and the flexibility they have with their money.

As a real estate agent, if you have clients asking about BRICKX and other similar ventures, my advice to you would be to recommend your clients seek qualified financial advice. Then stick to what you do best, which is selling a lot more than individual bricks.

BDH Solutions have been buying and selling rent rolls for over 30 years. Keep up with our latest listings here.