Welcome to the DomaCom Fund overview and update. Please read the general advice warning. The DomaCom Fund is an online investment platform, like many others in the investment advice industry, with a strong focus on property investment through fractionalisation, which, put simply, is a unitisation process. Each asset is segregated in a sub-fund of the overarching fund.
DomaCom can provide debt to create gearing and individual sub-funds through either internal or external means. The DomaCom Fund is a managed investment scheme registered by ASIC with a management team with a strong background in technology and platforms. The fractional DomaCom Fund can be likened to a modern form of syndication, where investors share the income and the future capital value of the underlying asset in proportion to the amount contributed.
Crowdfunding is another common term used to describe syndication, but can, however, be misunderstood, as there are several different types of crowdfunding activity that lack the stringent compliance that fractional investing has. As the fund manager, DomaCom is responsible for maintaining an AFSL and operating the managed investment scheme and product disclosure statement. DomaCom list investment opportunities but do not select specific assets. This is the job of the financial property advisor.
Retail investors can choose their own property as well. DomaCom undertakes due diligence according to a set of rules contained in the PDS and manages the capital raising campaign for each asset in conjunction with the financial advisor. The title for each asset is held by perpetual corporate trust as custodian on behalf of the investors. The DomaCom Fund is a single fund with multiple classes of units that are referred to as sub-funds, each housing individual assets segregated from each other.
A single cash pool account is held with ANZ Bank that currently offer 0.58% above the ANZ overnight cash rate. Note, that there is an independent responsible entity, which is Melbourne Securities Corporation, and an independent custodian, which is Perpetual Corporate Trust. Fractional investing definitely disrupts the traditional method of investing in property by eliminating the all or nothing proposition, which is buy a whole property or buy nothing, and it offers choice which listed and unlisted property trusts do not.
By breaking down or unitising each property asset, investors can spread their money across multiple properties to achieve diversification. Another clear and advantageous distinction with the DomaCom model, with a low minimum entry, fractional investing the DomaCom way finally removes the financial barrier to investing in property. Fractional investing, syndication, and crowdfunding in the sense of what DomaCom does are very similar. Syndication is usually governed by a legal agreement drawn up by a solicitor.
Crowdfunding can be a bit more confusing, as there are several types of crowdfunding. The donation-based, which we are most familiar with to raise money for a worthy cause, the reward-based to help develop a product or service where a free product is the basis for contributing, and equity crowdfunding in a business capital raise in return for shares. Then there is investment crowdfunding, where like-minded people come together to acquire an appreciable asset.
What distinguishes and separates DomaCom from crowdfunding and syndication is that it is a financial product. There are several benefits to investors and advisors in the fractional model developed by DomaCom. For advisors, the benefit is control over the asset allocation for individual investors, plus the efficiency of having a fractional platform that integrates with your administration and reporting software.
Being an MIS means it can fit on any API once approved by the AFSL and there is research to back it up. For investors, there are benefits that are staples within sound investment principles, diversification, asset allocation, conservative leverage, choice, open access to a wide variety of assets, competitive cost, and, finally, liquidity that is greater than single asset investing.
Investing via DomaCom is an online process, relatively simple and easy to use. Read the PDS, complete an application to become a member, transfer the funds you wish to invest, select a property or an open campaign, and make a bid with the amount you wish to invest. Once the campaign has reached its target, which is the expected price plus acquisition costs such as due diligence, a supplementary PDS is issued for final acceptance by the investor.
Behind the scenes, DomaCom complete the necessary AML and other compliance checks. The process for DomaCom is not dissimilar to what an advisor would do with any other investment platform for a client, and once completed, it is there for any further investments. Advisors and clients both have access to the platform and DomaCom provide monthly reports and annual tax statements. There are three liquidity options for investors who want or need to exit a DomaCom sub-fund and they are different to traditional managed funds.
There is no redemption mechanism, so there is no risk of a sub-fund freezing. The first option is to wind up an asset sale at the end of the term, which, for residential property, is usually five years and maybe longer for rural or commercial property. The second liquidity option available uses secondary equity market concepts where you can sell your units. This also improves on the old syndication mechanisms to provide absolute liquidity that is the sale of the underlying asset.
The online secondary market offers buy, sell, and market debt screens and is based on a willing buyer and seller open market. The third option involves a special resolution vote of unit holders for an early windup and must achieve 75% agreement. The DomaCom Fund offers multiple options other than simple property acquisition. There is a senior’s equity release option, where seniors over 60 who own their own home can sell a percentage to a sub-fund, whilst retaining residency rights. This market is tipped to be in excess of $500 billion.
DomaCom can arrange leverage for property investments either through internal means, as an advisor syndicating loans from income-seeking investors, or a pooled mortgage sub-fund. External debt providers are also available. Investment opportunities can be accessed in two ways. Working with a property specialist, a financial advisor can initiate a private campaign, with a specialist selecting the asset and the planner inviting select clients to invest.
In this way, the advisor keeps the asset under their control and within their own client base or dealer group. To access larger or more diverse opportunities such as commercial or rural property, there are public and what are known as strategy campaigns listed on the DomaCom platform and marketing site. Public or pre-existing campaigns are open to anyone and work well if the advisor does not have enough investors to complete a campaign on their own.
SMSFs are established by people who desire three things, transparency, control, and direct ownership of the assets in their portfolio. There are particular advantages for SMSFs investing in property through the DomaCom Fund. Trustees can choose the assets they’re interested in, and the assets are under their control and completely transparent, with DomaCom acting as the manager, providing due diligence and reporting.
Moreover, for SMSFs, there is no need for a bare trust or LRBA and, therefore, no personal guarantees when debt is employed as the loans are non-recourse. All property sub-funds are positively geared, so a low LVR will always prevail. A property portfolio can also be created in DomaCom to eliminate single asset risk exposure. For investors looking for higher income, particularly important in times of low-interest rates as we’re currently experiencing, advisors can create their own mortgage-backed loans with a registered first mortgage to ensure low capital risk.
These can only be applied to property purchases within a DomaCom sub-fund. The maximum LVR is 60% on residential. DomaCom maintain a cash buffer in the sub-fund, and advisors can manage both sides of the investment process, the equity investment and the loan. Another standout product offering within DomaCom is the senior equity release, australia’s first equity release in the financial product that enables AFSLs to include it on their IPL.
Advisors can use equity release to engage a new cohort of clients, affect multi-generational wealth planning and property transfer. ASIC requires advisors to be accredited in the product, and for seniors to receive advice regarding it, DomaCom is assisting this process. Senior Equity Release, unlike any other credit and real estate products, does not have any postcode restrictions as it is not a debt product, but an equity product.
Advisors can be the linchpin between potential investors and vendors with funding coming from a variety of sources, investors, family members using their own or superannuation funds, or institutional investors. Vendors pay an annual fee of 4.4% fixed for life, of which 3% is paid to the investor or investors and a 1.4% platform property management fee and longevity reserve. It is worth focusing on the sole purpose test for a minute or two because this represents a very significant development for SMSFs, a key beneficiary of the fractional model.
The ATO recently clarified the position in a declaration advice to all SMSF auditors. Trustees are advised to sign this declaration if they invest in a property within the DomaCom Fund. The declaration confirms that the objective of the SMSF investment is to provide a retirement benefit, that it was acquired, managed, and rented on a commercial arm’s length basis and that the decision to invest was not influenced for the collateral purpose of allowing a related party to rent the property.
SMSF trustees and their families can co-invest up to 50% and have a related party apply to be the tenant. For investors looking for a good property solution, La Trobe Financial Group have allocated an initial $50 million facility on terms of 5.99% interest only. Loans can be applied to residential, commercial, and development purposes. Secured only by a first registered mortgage, the loan is true non-recourse on a conservative 60% LVR.
In coming presentations, we’ll be talking about five key strategies that advisors can employ with clients that play to the supportive landscape that we see around us. Some of these are the lack of lending for property investment inside an SMSF, the generally poor lending environment for development and other investments, an aging population that is ill-prepared financially for retirement and seeking new funding arrangements, and the swelling populations needing housing, not to mention affordable and disability housing waiting lists.
We will also see a resurgence of interest in agriculture to help drive our economy. And finally, DomaCom’s simple pricing model, which, for property sub-funds, is 0.88% per annum, and 0.66% per annum for rent to own, for lending, 0.44% per annum, and cash, 0.22% per annum. Campaign costs like due diligence and stamp duty and ongoing property costs are borne by investors as is the usual custom, either as part of the capital raising or taken from gross income.
Senior equity releases 4.4% per annum, being 3% rental income to investors, and a platform fee of 1.4%, which includes fund administration and annual valuation costs, property management, longevity risks, and insurances.