Transcript:

I wanna give you a bit of background as to where the concept of fractional investing came from. It really came from my previous business, which was Praemium. And so there we had 40,000 odd portfolios administering $40 odd billion. And in coming up with the idea for DomaCom, I looked at those portfolios to see was there a problem that needed the solution? And the first one, the problem that really stood out for me was that out of those 44,000 portfolios, focusing just on the self-managed super funds there 18,000 SMSFs on the platform. And looking at those 18,000 SMSFs, 90% had no real property in it, 10% had 100% or more simply because they’d leveraged to buy the properties. So, that was really the problem that I set out to solve because that problem was symptomatic or the transaction size was too great for most portfolios. 80% of self-managed super funds are less than $1 million and you can’t really buy a residential property in the hole within a super fund and stay within any reasonable asset location, even if you could borrow. So, it really was to take this lumpy asset and divide it into bite-sized chunks, exactly as you would with equity. So, that was the first problem.

The second one was in 2011, we’re two years away from FOFA coming in. And similarly, what I saw with FOFA is that it was basically changing the financial planning community in Australia to become fee-based. And one thing I saw at Praemium was that all the financial planning firms that used us were asset location-based, they were fee-based. And one of the key components of most fee-based financial planners is they have asset location in their business model.

So, the other driver of the business was to really enable financial planners to include a major asset class that up until now they haven’t been able to do so, which is residential property. The reality is, is that on what service agreement do financial planners have with their clients that says, “Oh, we’ll look after your retirement future for everything except one of the single biggest transactions you’ll ever do.” So, basically, that was the second driver with FOFA coming along and 17,000 planners becoming fee-based was to enable them to include property as part of the asset location model.

The third driver was SMSFs again. A million Australians are telling us something by their actions. Forget about what you read about opinions of market commentators and fund managers, etc. about saying, “Well, SMSFs really shouldn’t manage their own investments.” The reality is if they didn’t wanna manage their own investments, that wouldn’t be in an SMSF. If they wanted a pooled investment strategy, like employing a fund manager to do it all, guess what? They would have stayed at industry fund and corporate super. Instead, that went through this arduous task of doing a rollover, three-month process. It’s harder than changing bank accounts. And then they moved their money toward their SMSF. If they wanted the pooled investment vehicle, that wouldn’t have done that. So, SMSFs are telling you about their action, a million Australians, they want engagement with their investments, they want to see and make the decision. And that’s the third driver is that we wanna provide access to residential property investment, allowing the investor to select. And that’s a key part of DomaCom.

DomaCom itself does not select the asset, but what we do do is do independent due diligence on the asset in terms of for residential property, do conveyancing checks on a title, contract of sale, we’ll do building inspections, pest inspections, we’ll do valuations. So, we give some protection and comfort to investors that regardless of who selected the asset, who initiated the transaction, someone independent of them has undertaken due diligence on the transaction on the asset. So, the third driver was enabling SMSFs to have choice. And in fact, that’s one of the special things about property. Unlike equities, everyone has a very good idea of how property works. We all have opinions. There’s 100 people in a room, there’s 100 opinions. North-facing, south-facing west, east, one-bedroom, two-bedroom, car spot, not, inner, outer. And guess what? Everyone’s right in the long-term, as long as you pay the right price. So, we enable investors to have that choice.

Now, for people that don’t want their choice, well, go elsewhere, use a pooled fund. Now, as you have probably noticed, the reason I pulled a residential fund, so, that’s the other thing. So, really that’s where DomaCom came from, was to provide solutions to SMSFs accessing property within a proper asset allocation model which suits the fee-based financial planning business model and then enables investors and their advisors to exercise their choice. So, basically, they’re the three underlying drivers behind the DomaCom business model to enable self-managed super funds, to fractionally invest in properties exactly as they would in equities, to diversify across properties exactly as they would in equities, and also to enable financial planners to include property, particularly residential property as part of the asset location business model. And then thirdly, and finally, to enable choice, enable advisors and investors to exercise their opinions and choice.

This is the DomaCom transactional platform. And so what we’re gonna do now is use our connection with Domain. So, as you may know, we’ve got a hookup with Domain where we’ve got every property listed for Australia available for syndication. So, let’s just pick a suburb. I’ll pick Hampton because that’s where I live. But you can pick any suburb you like. Let’s search for properties in that suburb. And let me scroll down a little bit. So, basically, so here we are, here’s properties available for sale in Hampton. So, let’s pick this one here. A five-bedroom, 1.3 to 1.4 million in David Street. So, I’ve clicked the property details. And so you’ll be familiar with this. This is just a normal listing information, the map, the description, how many beds, bathrooms, etc., and pictures, and floor plans. The bit that’s special about DomaCom is this little button on the right, which is start a campaign. And so I’ll just click that button. And what I’m doing is I wanna start a campaign to raise money to buy this property. And it was between 1.3 to 1.4 million.

Let’s go to maximum price, 1.4 million. And I want 60% debt, sorry, 60% debt. And you see La Trobe. So, basically this is one of the new features. We’ve now got a funding line with La Trobe. So, what will happen is that out of this 1.4 million, what we’ll do is seek a 60% loan from La Trobe when we get to the right stage. Also, I wanna go and allow sharing. I’ll click next step. Let’s put a transaction description. I’ll say, “This should be a great investment.” Reality is you’ll have something a bit more structured than this, but this just gives you an idea. And go select the picture that I want my campaign to use. I can upload pictures if I like, I can select what the rent and capital growth will be. DomaCom obviously validates this information, but you can put in what you think will happen. And then this is what the campaign will look like. And then just to put it in perspective, to do this traditionally, you’d have to go to your account and get a private trust set up or a proprietary limited company. And then you’ve got restrictions on how you raise capital and everything else. And you’ll pay thousands of dollars for that privilege.

In DomaCom, you’ve just created effectively a campaign that if we are successful, DomaCom will create a sub-fund. And the cost of all of this is zero so far. So, let’s start the campaign. And there we are. We’ve started the campaign. Remember it was 1.4 million? So, we’re gonna raise 600,000 in equity. DomaCom has automatically added provision for stamp duty and the transaction settlement costs. And at the moment, we’ve raised zero. And one of the special features of our platform is that as I’ve mentioned before, DomaCom does not select the asset, DomaCom allows investors, advisors to select any property for sale in Australia. What we do do is that as we start building our interest in this campaign, so as the pledges start building up, we begin to do due diligence. So, at 30%, so roughly about 200 grand, we engage conveyancing lawyer to check the title and contract of sale, at 50% we do building inspections, pest inspections if necessary, and valuations.

If we pass the due diligence, we allow this transaction to go to 100%. At 100%, DomaCom would basically stop and prepare the what’s called a supplementary product disclosure statement. But one thing before we do that, you’ll notice here I’ve started this campaign at the moment at zero, I can make a pledge using my own money, I can share this campaign by Facebook, Twitter, LinkedIn, I’ll do email links to my friends, colleagues, my clients. But if I was an advisor, I’d go and then make a pledge on behalf of my clients’ accounts obviously using my advice capability. The actual asset is now put under the ownership of the custodian, Perpetual Corporate Trustees. We appoint a property manager who finds a tenant. Business as usual model, the property manager collects the rent and then passes it through to us. And we pay the mortgage if there’s one, pay our fee, and then any leftover amount gets paid to investors. And that really is how that fund works. It’s a medium to long-term investment structure.

Now, the first thing people ask, of course, is that how do I get out? What’s the liquidity? And there’s several liquidity mechanisms. The first is that when we create a sub-fund, it has a life between five and 15 years. And at the end of that life, and then usually for residential, we suggest five years is what normally happens. At the end of that period, investors vote to renew for another period or not. And it must be 100% to renew. Under the terms of our PDS, the people who want to renew can compulsory acquire the units of the person who doesn’t at the valuation we would’ve done in five years from now. So, that provides the liquidity guarantee for all the people wanted to get out but also enables the people who wanna stay to keep it going. Now, how they do that is how they purchase the units is using our second liquidity mechanism, which is here.

Now, I think as far as I can tell, we’re unique in terms of… As part of our financial services license, DomaCom has what’s called marker market permissions. So. we can make a market in our instrument and as you’ll see, I’m just gonna select buys and sells. So, I’m gonna get the system to show me those sub-funds that we own that have active buys and sells available. So, effectively for all of you seen equities is very similar to equities. Okay. Here’s a property that we own. This is a farm in Western District in Victoria. We’ve had it for a year and a half. And you’ll see this screen is very familiar to one you’re normally familiar with it. It’s a market depth screen. So, this is how people buy and sell. Bids on the left, offers on the right. If the bid and offer price matches, that transaction executes and settles immediately. So, that’s how we do it. So, now this guy’s obviously dreaming, he’s trying to buy it at a dollar and a dollar was the original issue price a year and a half ago. These people are trying to sell it at closer to the current valuation. And as you can see, there’s been a couple of trades the last few weeks and a dollar, $7, $6, $7, $5.

So, this is a true liquidity feature. A true market people can buy and sell at the price they wish. And so what we do is we offer to buy units from people willing to sell it if we ourselves have a matching offer to buy off us. And we charge a small amount for this. So, that’s really DomaCom. Like all things, there’s a…like an iceberg, there’s a lot under the bonnet to make this happen. But hopefully, you’ll see that this is pretty straight forward. You select the asset, you syndicate investors, we do all the due diligence, prepare the offer documents, we create the legal structures. And for all of that, we charge 0.88% as an ongoing fund management fee, which is the equivalent of the wholesale management fee, which is for what we’ve delivered, I think quite a reasonable price.