The fractional property investing model gives you the tools to offer your clients all the benefits of a prudent investment strategy within the property asset class with a reasonable acquisition cost and ongoing holding costs.
The fractional property investment model is expected to pay an attractive rate of interest and can be used to hold money not ear marked for property investment. In other words, it can be used as your client’s primary portfolio cash fund.
Fractional property investing allows your clients to hold a portfolio of property investments in much the same way as they hold equities. You would not put all of a client’s share allocation to a single stock, so why put all their allocation in the property asset class to a single property?
The major property investment options available to your clients are;
- Direct purchase – often too costly and likely to require debt to complete a purchase
- A-REITS – track the equities market rather than the property market
- Unlisted trusts – no residential options and no choice of property plus disadvantages of a pooled structure
- Syndicates – costly legal agreements, lack of liquidity and lengthy terms to expiry
In addition to these limitations there is little or no opportunity to;
- diversify across property types and geographic locations
- choose the underlying assets that interest your clients
- liquidate holdings in a timely manner
- access the pure return of property – rental yield and capital value
Property investment frequently involves;
- substantial debt
- periods of vacancy
- maintenance issues
- substantial management and running costs
The fractional property investment model overcomes these issues through the ability to purchase smaller holdings and avoid single asset risk exposure which minimises the impact vacancies may have on a portfolio.
DomaCom employ a robust due diligence process that includes;
- Conveyancing – contract review and legal oversight
- Formal valuations – to avoid overpriced properties
- Property inspection – to ensure properties are structurally sound
- Pest inspections – to avoid any threat to the integrity of the building
- Buyers agent – to negotiate best price (often the buyer’s agent will source the property on behalf of the investors)
- Property management – to ensure minimum periods of vacancy
In this way, actual property investing simulates the experience and process of purchasing an investment property but as part of a syndicate of like-minded investors. Returns, rent and capital value, are attributable to a specific property in proportion to the amount invested, just as they may be to a specific stock in the equities market.
Just as a planner may brief a stockbroker to create an equities portfolio they can, and should, engage a qualified property specialist to take a brief from the adviser and source suitable property to meet the brief. Generally, investors will be seeking a higher income yield or higher capital growth potential from an investment property, or a combination of the two. A property adviser will source suitable properties and depending upon the available capital may recommend a portfolio of different properties to provide diversification.
