For investors who cannot or cannot invest in an entire house for time or money reasons, a new alternative has recently emerged on the real estate investment market. In the future, investors will have the option of acquiring even the smallest portions of real estate – so-called bricks. The platform for this is provided by the Cologne startup Brickbuy.
How does Brickbuy work?
Owners of private real estate can sell up to 49 percent of their residential property as shares to investors through the startup. To do this, Brickbuy first breaks down the apartment into so-called “bricks”, each representing 1/10 square meter of the property in question. The advantage: investors can purchase these bricks at a discount. You pay the calculated price per square meter of the condominium with a discount of 18 percent. Furthermore, brick owners do not have to contribute to the running costs or the real estate transfer tax for the property. These will continue to be borne by the owner of the property being treated. This should enable small investors to benefit from a long-term increase in the value of the property.
No risk diversification when buying shares
According to founder Fausto Lorfeo, the company’s goal is to turn real estate into a tradable financial product: “We call real estate ‘concrete gold’, but to date there has not been the liquidity and tradability that gold does. We want to change that and at the same time open up access to real estate investments for everyone, ”explains Lorfeo during an interview with deutsche-startups.de.
Economist Prof. Steffen Sebastian, holder of the chair for real estate finance at the University of Regensburg, is very critical of this, as he emphasizes in an interview with procontra. The problem: According to the expert, there is no sufficient risk diversification with this form of investment, because investors only invest their money in a single apartment. In his opinion, the exit opportunities for the investor in the event of a loss in value of the property are very poor, as a renewed increase in value of the property in the short contract period appears unlikely to the expert.
The economist sees the greatest problem, however, in the lack of experience of the addressed investors: “What bothers me above all is that it is apparently intended to specifically target small investors who themselves hardly have any way of assessing the intrinsic value of a property,” emphasizes the expert in the interview.
Early withdrawal from the contract is possible
As a rule, a brickbuy contract is concluded with the property owner for a contract period of 20 years. After this period, the owner is obliged to buy back the sold shares from the investors at the current market value. Alternatively, the owner can also sell the property and the investors share in the sales proceeds according to their share in the property.
If an apartment has a square meter value of 6,000 euros at the time of sale, the investor has paid the owner 4,920 euros due to the discount of 18 percent. If the apartment is sold 20 years later at a prevailing square meter price of 9,000 euros, the investor receives 9,000 euros for his square meter – without incurring additional costs for the maintenance of the property.
According to the company’s website, it is not a problem to get out of the contract early. Because even before the end of the contract period, the investor receives the full payment amount for his participation. That means: If an investor intends to sell his shares in a brick-buy apartment, he can resell it on the company’s marketplace, according to the Cologne startup. The owner also has the option of selling his apartment. However, this can happen after five years at the earliest; the investors receive a percentage of the sales proceeds.
Continuous valuation through partnership
In order to further protect the investors with regard to the property, the owner cannot determine the selling price of his apartment himself. In the course of a collaboration with Immobilienscout24, according to Brickbuy, the current market values of the properties being traded are continuously determined and made available to investors and owners in a detailed view. This not only makes the price development transparent, but also sets a certain minimum price that must at least be reached when the property is sold.
Incidentally, Brickbuy charges a commission of 3.57 percent for each transaction carried out.
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