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Investors struggling to enter the property market due to the high costs can still enter the market for as little as $50 through fractional property investment, a property fund manager has highlighted.
In conversation with Smart Property Investment, ResiFund director Matthew Lewison discussed how fractional investment is a way for investors to align growth of their funds to a property market, meaning that if the property market booms, small-time investors don't have to be left behind.
“Investors appreciate the fact that the new fund has low gearing, is focused on generating positive cash flow, which puts money in their pockets and is able to create value over and above the market price movements through a buy-add value-hold strategy,” Mr Lewison explained.
How does fractional property investment work?
Who can benefit from fractional investment?
Mr Lewison said that younger investors trying to get into the property market and older investors looking to retire are the two main beneficiaries of this sort of investment strategy.
Investors trying to save for a deposit for a property can take advantage of potential property booms through fractional investment.
By putting their money into fractional investments, investors can “ride the property market” up should another boom occur while saving.
As an example, Mr Lewison explained: “Say, an investor has $30,000 and needs to get to $60,000 to get a deposit. If the market booms again by the time the investor gets to $60,000 the deposit can get up to $80,000. The market can get away from people faster than they can save.”
Older Australians transitioning into retirement
At the other end of their working lives, older Australians are able to take advantage of fractional investment if they have outstanding debts.
It provides an option for the divestment of family property, the opportunity to pay off the debt and reinvest back into the property market at a fraction of the cost, according to Mr Lewison.
“At the other end of the spectrum, people looking to transition into retirement but want to stay in the property market because that’s how they have grown their wealth, fractional investment allows them to divest their assets, pay down debt and re-enter the market,” he offered.
Drawbacks of fractional property investment
While there are benefits to be found in fractional property strategies, Mr Lewison did concede there can be drawbacks to the strategy.
Being unable to change the property and potential liquidity risk are two things that individuals need to be aware of.
“You don’t really get to make decisions about the property; there tend to be rules around when the property is sold and voting on improvements,” the director said.
“On some platforms, the ability to trade your ownership of the dwelling on the secondary market [can be an issue]," Mr Lewison said.
From a liquidity perspective, he did highlight that if an investor 'wants out' of a fractional strategy, and other co-owners don't want to get out of that property, investors are relying on being able to sell their interest in that property.