- 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.
Inside this review
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 $2,500.
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).
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’. Alternatively, investors may liaise through an accredited financial advisor and may have access to more 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).
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 $2,500 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.
- Investment amount (minimum $2,500).
- Annual fee of 0.22% p.a. for any cash held by DomaCom (that’s not invested in a property/sub fund).
- Annual fee of 0.44 – 0.88% p.a. based on the gross value of the property in the sub fund (for a $2,500 investment this works out to between $11 and $22/year, assuming no capital gain).
- 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).
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
- Invest in property with low entry funds. Opens the property market to many more Australians.
- Opportunity to diversify portfolio with different types of property.
- Hands-off method of property investment. Invest without having to handle call-outs to fix things and deal with tenants.
- Minimum buy in of $2,500 may still be too much for some investors (compared to other investment platforms with lower minimums, e.g. BrickX’s single "bricks" starting at less than $50).
- Can’t renovate or have an active involvement in the property, as per traditional property investment.
- If the purchase isn’t successful you may lose fees you contributed to property due diligence (building inspections, pest inspections, etc.).
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 for most DomaCom campaigns is $2,500.
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:
- Offer it for sale tp other DomaCom investors via DomaCom’s online market. There may be a limited number of potential buyers.
- 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).
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 not be suitable 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.