Buying Bricks

Hi Scott

Just read about a company called BRICKX which lets you buy a ‘brick’ in a property investment with very small amounts of money. (They split a house into 10,000 bricks you can invest in.) With houses prices so crazy at the moment, is this a clever way of getting into the market? Any thoughts?

Natasha

Hi Natasha,

‘Shoot a brick!’, as my old man would say (well, something like that).

I took a look at one of the properties they’re selling a ‘fractional ownership’ of on their website: a two-bedder in Prahran for $1.2 million which currently rents out for $750 a week ($39,000 a year).

If you invested $100 into this property, it would take you roughly 31 years to get your money back via the rental income, assuming it’s rented out continuously (which it won’t be) and assuming there are no maintenance costs (which there certainly will be).

Ah, but what about the capital gains? Well, that’s what you’re banking on, obviously. But prices in Melbourne and Sydney are in a bubble and, in my humble opinion, are ripe for a correction. Then there’s the fees: BRICKX takes a 1.75 per cent clip when you buy and when you sell.

You’d have to have bricks in your head to touch it.

Update

BrickX have been in contact with me.

They tell me that some people have misconstrued my answer.

So, in the interests of clarity, here’s the deal:

There are two ways to make money in any investment:

First, via the income it delivers while you own it.

Second, via the capital growth.

BrickX provides a market to sell your bricks at any time. Depending on the cycle, that could be at a profit, or a loss.

My view?

If readers misconstrued my original answer, they will almost certainly misconstrue the “Total Estimated ROI” figure that’s stated for each of the properties: https://www.brickx.com/properties

Case in point:

A beginner investor could be seduced by the stated Total estimated ROI, thinking that’s the return they’ll receive.

However in reality, that ROI figure is based largely on the recent boom-time growth in property values, and it’s unlikely to be repeated.

Honestly, the only thing you can reasonably estimate is the net income it will deliver you. And that’s why I personally wouldn’t purchase a two-bedroom apartment for $1.2 million on a skinny 2.48% yield ...  and it’s also why I certainly wouldn’t be buying the above Balmain property on a 1.13% yield.

Scott