How to use Domacom to get invested in property

• Get a foot on the Australian property ladder via the DomaCom fractional investment platform.
• How good is it as a way to invest in property without buying?

An alternative to traditional property investment, DomaCom offers a platform for investors to buy into property in fashion similar to the one they use for shares. But how does it work and is it worthwhile? Read on for our review of the fractional investment platform.

What is DomaCom?

DomaCom is an Australian fractional property investment platform. It allows investors to purchase a share in a property – rather than the whole asset – allowing much lower entry costs. The minimum investment amount varies, depending on the property type, but can be as low as $1,000.

It works by crowdfunding the cost required to buy the property from as many investors as needed. Once enough capital is gathered, DomaCom purchases the property and gives each investor a share (unit) in proportion to the amount invested.

Investors may choose between a range of properties and property types, including residential, commercial, rural, retail, industrial and resort/leisure. The platform also offers the option to invest in conjunction with friends or family, rather than with strangers.

Is it safe?

DomaCom has its checks and balances in place and is registered with the Australian Securities and investments Commission (ASIC) as a Managed Investment Scheme (MIS).

Melbourne Securities Corporation act as Trustee for the Fund and therefore the sub-funds that hold the property asset. Perpetual Corporate Trust acts as custodian for the Fund, holding the assets on behalf of the investors, and DomaCom is the operational fund manager.

However, investment through the DomaCom platform is subject to risk, as with any investment. Potential investors may read the DomaCom Product Disclosure Statement (PDS) for more specific information or seek professional financial advice.

How it works

DomaCom works by allowing interested property investors to crowdsource the capital needed to purchase a property. After enough money is raised, DomaCom purchases the property and splits the investment between investors, depending on how much each one contributed.

For example, property investment with DomaCom may follow the following steps:

Investors find a property they’re interested in

Available properties can be viewed directly by investors via the DomaCom website. They are listed under ‘Public Crowdfunding Campaigns’. Investors can also search all properties listed on Domain.com.au via the platform, because DomaCom receives a feed of all sale listings on Domain. Alternatively, investors may liaise through an accredited financial advisor and may have access to additional properties.

Investors pledge money they’d like to invest

Investors pledge an amount they’d like to invest and put money in the DomaCom cash account. Since this account is registered with ANZ Bank, while money is in this account investors earn interest.

DomaCom purchases the property and places the property in a sub fund

Once the campaign’s target has been reached, DomaCom organises all necessary property checks. Just before DomaCom buy the property, a supplementary PDS (Product Disclosure Statement) is issued for final acceptance from investors. Once accepted, the property is purchased with the money in the cash account. The property is placed in a sub fund.

Property in sub fund split between investors

Each investor is given a share of units in the sub fund, based on the amount they invested in the property.

Investors pay annual fees/receive returns based on gross value of investment

Investors receive their share of returns from the property (e.g. rent) while also paying annual fees and other costs (such as property maintenance).

Investors can sell their share of the property internally, or vote to sell the entire property

Capital gains (not forgetting the possibility of potential losses) can be realised by investors by selling their share of the property to other investors via DomaCom’s online marketplace, or by voting with at least 75% of other sub fund investors to sell the property (or at least 50% of investors after five years).

Sub funds have a term to expiry which can be extended by a vote. The term to expiry is generally five years, after which time investors who want out can get out either by the sale of the property or by a buy-out from other investors. Terms may be longer for rural farmland or commercial type properties.

Who can use it?

DomaCom is an alternative form of property investment. It can be used by those who would like to invest in property without buying the whole asset. The platform may suit investors who:

• Do not have the funds to invest in an entire property.
• Would like to diversify their property investment.
• Want hands-off property investment.
• Want the option to invest in a property with friends and family.
• Are SMSF trustees and want to borrow (from DomaCom, in this case) to invest in property without having to set up a Limited Recourse Borrowing Arrangement.

What it costs

According to the platform’s website, investors need a minimum of $1,000 to invest in property via DomaCom.

As a managed investment fund, investors are also charged annual fees as well as costs associated with the purchase of the property and ongoing property maintenance costs.

Cost breakdown:

• Investment amount (minimum $1,000).
• Annual fee of 0.22% p.a. for any cash held by DomaCom (that’s not invested in a property/sub fund).
• DomaCom charge a 1% syndication fee, plus 0.66% p.a. of the sub fund value. For a $1,000 investment over five years, this works out at $43, the equivalent of $8.60 per year.
• Purchase costs of property such as conveyancing fees, building inspections, etc. (split between investors in sub fund based on proportion owned).
• Ongoing property maintenance costs (split between investors in sub fund based on share/units held).

Alternatives

Investors who are interested in investing through DomaCom may also find it useful to investigate similar alternatives:

• BrickX. Also a fractional property investment platform. Requires a lower upfront investment than Domacom.
• Real Estate Investment Trusts (REITS or A-REITs). These are considered in more detail in the next section.
• Raiz. Invest small amounts in ASX-listed exchange traded funds (ETFs) rather than property.
• Spaceship Voyager. Works in a similar way to Raiz and lets users invest small amounts in an index portfolio of Australian and global stocks.

DomaCom vs REITs

It’s worth looking at the features of DomaCom compared with a traditional REIT. There are two types of A-REITs you can invest in – equity REITS and mortgage REITS. The latter type of investment, as the name implies, earns interest on loans offered to property investors. This comparison will concentrate on DomaCom vs Equity REITS (ASX-listed property investment funds), although Domacom does offer mortgage investments.

• DomaCom offers more choice. When investing in a REIT, the only choice you have is whether to invest in it or not. You can’t select an individual property to invest in, because the REIT owns a pool of properties aggregated in a fund.
• DomaCom offers more diversification. Again, the choice provided by Domacom means that its investors can put their money into a range of properties – residential, industrial, commercial, retail, renewable energy – all within the same platform. Although you can choose which REIT to invest in, each one tends to concentrate on a specific type of property.
• DomaCom is not subject to share market volatility. A-REITs listed prices often move up and down in line with share market movements and other economic factors. But DomaCom rental income and property values are more likely to remain steady.
• DomaCom may be less liquid. A-REITs are traded on the ASX, so it may be easier to find a buyer for the fund units than it is to find a buyer for DomaCom sub-fund units, where the market is limited to other DomaCom investors.

Pros and cons

FAQs

How does DomaCom make money?

According to the DomaCom Financial Services Guide, DomaCom receives its income through the management fees paid by investors using the platform, minus any Trustee and Custodian costs which are also paid using these fees.

What is the minimum investment?

The minimum investment is $1,000.

How do you fund your account?

Money needs to be transferred to the cash pool account before it can be used to contribute to a property purchase. Money may be transferred by a financial advisor on behalf of the investor.

Can you withdraw funds?

Money can be withdrawn from the cash account via the DomaCom online platform by using the investor’s unique ID and password. Withdrawal requests may be denied if the money has already been committed to a purchase or if the withdrawal would leave insufficient funds to cover outstanding obligations.

Can you sell the property you invested in?

There are two ways to sell your share of a property:

1. Offer it for sale tp other DomaCom investors via DomaCom’s online market. There may be a limited number of potential buyers.
2. Vote, along with other investors in the same property sub fund, to sell the property. At least 50% of unit holders will need to vote to sell (75% if the property has been held for less than five years).

Verdict

DomaCom offers an alternative, ‘hands-off’ method of property investment. Its low funding cost and structure could appeal to all sorts of investors, ranging from young people who may use it to get a foot on the property ladder to older people who may use it to diversify their portfolios.

However, the platform is likely to be unsuitable for those who prefer a more hands-on style of property investment. Properties are managed and investors are not able to use the homes and cannot conduct personal renovations to add value.