Is BrickX different to a Real Estate Investment Trust (REIT)?

This is a question our team members get asked a lot – not only by customers, but by friends, family, even total strangers!

The confusion is not unexpected as similarities do exist between BrickX and REITs – both give investors access to purchase units in a property trust. And both can provide investors exposure to the value of these properties in two ways – capital gains, and rental income.

How long have they been around? Although alternate investment strategies, such as fractional investing have recently increased in popularity, the notion of fractionalised investing via property trusts has been around for a while – the first REIT in Australia started in 1971 and today they are 38 REITs listed on the Australian Stock Exchange (ASX)¹ .

BrickX is much newer, being born in 2014 with the official launch a year later. BrickX are backed by Westpac’s Reinventure and NAB Ventures. As of today, we own 19 properties nationally and are almost 14,000 members strong.

So, let’s take a look at a few differences between a REIT and BrickX – 

Structure

A REIT is a publicly listed property scheme that owns and manages income-producing properties. An A-REIT usually owns a portfolio of large properties which, due to their high-value, are not easily accessible by the average investor. An investment manager selects and buys properties ranging from commercial buildings to shopping centres, industrial properties, and warehouses. 

BrickX owns and manages income-producing residential properties. The Properties Team carefully select each property with a focus blue-chip suburbs and good rental yields. While all properties owned by a REIT are kept in one trust, each BrickX property is held in an individual BrickX Trust.

Ownership

Investors who chose either a REIT or BrickX, will own units within a trust, at BrickX we refer to those units as “Bricks”. In each BrickX Trust, there are 10,000 Bricks available. 

If you own a unit in a REIT, you essentially own a fraction of all the properties owned and managed by the REIT.

If you own a Brick in a BrickX Trust, you own a fraction of the single BrickX property you have selected.

Entitlements

Both REITs and BrickX make money from the properties they own by renting, leasing or selling them, and both pay out regular distributions to their members – usually monthly.

For each unit in a REIT, you are entitled to a fraction of the interest in all the properties – A-REITs generate income through capital growth of assets, property development and property-related fund management earnings².

For each Brick, the amount that Brick Owners receive is calculated based on the proportion of Bricks they own. There are two ways earnings are received: 

1. Capital returns – You have the potential to earn capital returns from the sale of your Bricks and/or the sale of the property. Capital returns are based on the difference between what you paid for the Brick and what you sell it for, which can either be positive or negative. Properties are independently valued twice a year to help give guidance on Brick price movements.
2. Rental income – Each month, earn your share of any net rental income from your Brick holdings. Net rent is distributed among the property’s Brick Owners on a monthly basis, after relevant property expenses have been deducted.

Buying and Selling

Publicly traded REITs can be bought and sold quite easily on the ASX via trading platforms such as CMC Markets, IG Group, CommSec etc. You are able to see what each unit is worth at any point in time and sell them if you no longer want the investment.

Bricks are bought and sold on the BrickX platform via the properties page or through your Portfolio. There are two options – Build My Own which gives you 100% control of the Bricks you buy, or Smart Invest where you contribute a regular monthly amount and authorise BricX to buy Bricks on your behalf via a sophisticated algorithm.

When selling, you can select a sale price for the Brick, as long as it is not 20% lower or higher than the latest Brick valuation. You then list your Brick for sale on the BrickX platform, and wait for a willing buyer! There are a few factors to consider when setting a sale price for your Brick – the current Brick valuation, current lowest available Brick price and the suburb performance. All of this information is freely available for you to make an informed decision.

For Brick-holders, there is an additional exit opportunity. Every 5 years (on the anniversary of the Settlement Date), Brick-holders of a particular property investment are able to cast a vote on whether to hold or sell the property. If Brick-holders holding at least 50% of the Bricks on issue vote for the property to be sold, BrickX will sell the property and Brick-holders will receive net proceeds from the sale.

Benefits of either investment scheme include the low cost of entry, ability to diversify, access to liquidity and no involvement in the day-to-day management of the property however the returns are varied and are based on many factors. As with all major investments, it is important to consider your own financial situation when deciding what’s right for you. 

1. https://www.cromwell.com.au/insights/news/a-quick-guide-to-reits
2. https://www.realcommercial.com.au/news/property-investment-reit