What are the benefits and risks of investing in a geared property?

Gearing a property amplifies the impact of the Brick valuation movements, both up and down. Gearing may therefore increase the potential Capital Returns but also increases the investment risk associated with that property.

Gearing a property also generally decreases the amount of net rental income, as interest payments for the mortgage are deducted from the gross rental income ahead of any distributions being made to Brick Owners. You can find information on the percentage of debt for each property on the individual property page.

For Example: If the total acquisition cost of a BrickX property is $1M, and a mortgage was taken for $300,000 (meaning it's 'geared' by 30%), then the equity remaining in the property is $700,000. This would create a $70 initial Brick price rather than a $100 Brick price if there was no debt finance.

Using the example above, where a BrickX Trust is valued at $1M and there is no mortgage, if the property value rose by $100,000 that would be an increase of 10%. Meanwhile, if the same property included the $300,000 mortgage, then the subsequent $100,000 rise in property value, would equate to a 14.28% increase in equity value ($100,000/$700,000).

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