Property crowdfunding company DomaCom has completed its first crowdfunded loan, giving users of its platform the flexibility of raising debt and equity.
Newcastle financial planner Shartru Wealth Management used the DomaCom platform to acquire a $1.6 million Melbourne property, with separate crowdfunding campaigns used to raise $682,000 of equity and $984,000 of debt.
The loan is secured by a first mortgage security on the residential property, with a loan-to-valuation ratio of around 60 per cent.
Shartru chief executive Rob Coyte says the combination of debt and equity means that it can offer a tax-effective investment for growth-oriented investors and an income investment with a net yield over 5 per cent for retiree clients.
DomaCom chief executive Arthur Naoumidis says the company is looking forward to growth in funds under management with its new debt facility. Its FUM was $30.7 million at the end of April.
DomCom has an arrangement with the property site Domain, which allows DomaCom users to choose any property offered for sale on Domain and set up a crowdfunding campaign to buy it.
“We don’t source the property that can be funded on the platform. Investors can buy any property that is for sale. That is one of the things that makes us different,” Naoumidis says.
The DomaCom process is that a financial adviser can start a campaign on behalf of clients or an individual can set up their own campaign.
DomaCom pays interest on cash that is sitting in a campaign. When bids reach the target, DomaCom buys the property and Perpetual takes custody. The property sits in a trust called a sub-fund.
The new debt option has alternative approaches: investors can arrange their own finance, they can use a bank or broker or they can use a DomaCom loan.
After five years investors vote to keep the investment going. The vote in favour must be 100 per cent.
In the meantime, DomaCom offers a market facility, so investors can trade their units.
Naoumidis says DomaCom is looking for a bank that will provide loans for self-managed super funds that acquire property through the platform.
“We see crowdfunding as a good option for SMSFs that want to use leverage because it simplifies the process. Under this structure, DomaCom is the borrower and the debt sits in the sub-fund. It is an internally geared investment,” he says.