The Australian housing market crisis might be slowly improving but there is still little relief for younger investors who want to enter the market. These investors might be first time property buyers, or they may simply be finding it difficult to save the 20% deposit required to avoid paying hefty fees in Lenders Mortgage Insurance (LMI). So what options to these buyers have?
Fractional investment is one solution. As the name suggests, fractional means a portion of the sale price is what is required between a group of investors. Once the investors nominate a property or properties they would like to invest in, the price is determined for each party and then the sale is made. The property is then held in a sub-fund with each investor holding units in the sub-fund, entitling them to any capital gain and a share of the rental income in proportion to their investment. The beauty of investing in property this way is that typically investments can be as little as $2,500 making it an affordable option for almost anyone who is looking to break into the property market.
Buyers are still able to determine what property they purchase, but because they are only investing in a “fraction” of it, their risk is minimised.
The returns from fractional property investment work in a similar way to shares. Buyers can expect rental yields, potential capital gain as property prices continue to rise the opportunity to diversify across multiple properties.
Investing fractionally has a further added benefit of an online liquidity facility allowing trading between buyers and sellers. This means that each buyer is able to individually respond to their own personal circumstances, making it an attractive investment for retirees or younger families who may require faster cash out options.
The fractional investment model is fast becoming a favourable way to households to increase their family capital, and for seniors to be able to share their property share with younger buyers while they unlock equity for their retirement.
CAAA Commercial Concierge can assist you with planning strategies for your retirement, or provide advice on wealth management strategies to grow and unlock equity. If you would like to know more about fractional investment to determine if its right for you, speak to your concierge today.