We know that the process of selecting properties is quite daunting, especially if you’re a newcomer to the property market and investing.
While we can’t advise you on which property to invest in, we want to help you navigate the BrickX platform and explain a few concepts to make your experience as easy as possible.
There are a few factors to consider when buying Bricks including:
One source of Brick return is from capital. Capital return is realised when you sell your Brick. It can be positive or negative depending on whether the price at which you bought the Brick is lower than the price at which you sell it.
Investing in Bricks is like investing in the property market. It is a medium to long term investment.
While this figure is not an indication of future performance, it gives you an idea of median performance of properties in the suburb over the past 20 years and might help you decide when to sell your Bricks.
Net rent is the other source of return from your Bricks and comes in the form of 'distributions'. This figure estimates any return you get from rent paid by tenants, minus expenses. Rental yield is sometimes lower if the property is paid partially with loans since interest payments are deducted from the rental income. This concept of buying property with loans is called gearing. Non-geared properties are paid for in full, by BrickX, while geared properties are paid in part, by loaned funds. (Note: all of BrickX's properties are positively geared)
Brick valuation is calculated by splitting the value of the property trust, excluding any debt, into 10,000 Bricks. Say your property trust is worth $1,000,000. If it wasn’t geared, the Bricks would initially be worth $100.
The same property trust with 20% debt, would have Bricks valued at $80 each.
If the trust’s value grows by $100,000, each Brick would grow by $10, or $100,000 ÷ 10,000. As you can see, the growth rate for the geared trust, is larger than the growth rate for the trust without gearing.
On the other hand, if the value of the drops, geared trusts will have equity drops that are larger than un-geared trusts.
Read more about BrickX gearing here:
- What are the benefits and risks of investing in a geared property?
- How does BrickX manage the debt on a geared property?
- What is a geared property?
Brick Price Compared to Valuation
Finally, we compare Brick price and valuation. The buying and selling of Bricks is made through the order book with prices set by sellers. Bricks are always sold at the lowest available price on the order book and this price changes based on investor sentiment. When buying Bricks, you may wish to consider the price compared to the valuation. Every 6 months, properties are valued by an external valuer based on changes in the property market along with other factors such as fees. Valuation allows Brick-owners to see how their investment is performing and whether to buy or sell their Bricks. Considering these factors, you can sort these properties on the page and decide which Brick(s) to purchase. As with any financial investment, diversifying your portfolio reduces risk.
Watch the video version of this article on the properties page.
Read more about the difference between Brick price and valuation here:
- User Guide: What does above and below valuation mean?
- User Guide: How are properties valued?
- What determines the price of a Brick?
If you have any other questions about the process of selecting bricks, don't hesitate to contact us at brickx.com/contact.
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