How Does Fractional Real Estate Investment Work?

BuyProperly is an online exchange for fractional investments in real estate which allows investors to invest with limited money and get hassle-free property ownership. Through our online platform, investors can own a slice of a property by investing as low as $2,500. These are high-growth buy-to-let properties, which are sourced and managed through BuyProperly. This makes the investment process hassle-free for investors and they can earn potential monthly rental dividends and potential capital appreciation on exit. Investing in real estate has a reasonably long lock-in period for generating good returns. Our platform solves this by providing a secondary marketplace to our customers to enable them to re-sell their shares in the property.

We are backed by well-known Canadian investors such as the Ryerson Futures, High Park Angels and several experienced angel investors, and an advisor group of renowned experts in real estate, finance, and data science. We are also accredited by Better Business Bureau and have Fasken as our legal advisor.

Key features of investing through our platform include:

• Vetted, high quality investment properties with maximum return potential.
• Simple and digitally enabled investment process for investors.
• Low minimum investment (starting at $2500) enabling access to high return real estate.
• Hassle free real estate ownership with BuyProperly managing operations, distributing rental yield, and facilitating exit.
• True diversification (private residential has low to no correlation to stock market) while guaranteeing high returns.
• Secondary exchange (marketplace) allowing trading of Real estate portfolio like a stock (coming soon).

Equities (stocks), fixed-income securities (bonds), mutual funds and term deposits (such as GICs) are some of the traditional investment vehicles that investors use to diversify their investment portfolio and maximize their returns. However, there are alternatives to these, which are collectively called alternative investments. Despite unique risks and considerations, alternative investments are useful tools to improve the risk-return characteristics of an investment portfolio.

Real estate is a leading alternative investment asset class available to general investors. In fact, institutional investors (including well performing ones such as Yale Endowment) and high net worth individuals allocate approximately 30% of their overall portfolio to real estate. You too should consider investing in real estate due to the following reasons:

• Return potential: Real estate has significant return potential over longer periods.
• Tax efficiency: Post tax returns with real estate are higher as you only get taxed for capital gains.
• Diversification: Investing in individual properties alone has high risk, and huge upfront cash outflow. If a certain neighborhood does not develop as per plan, it could lead to losses. Investing in smaller chunks in multiple neighborhoods helps diversify the risk, while not spreading the portfolio so thin that returns are diluted.
• Tangible asset ownership: As a hard asset, real estate can provide both intrinsic value and growth potential as the economy develops and demand increases.

Fractional ownership is a scenario in which several unrelated parties can share in the risk, rewards and ownership of a high-value tangible asset (like real estate). In simple terms, by investing $10,000 in a $100,000 asset you will get the ownership of around 10% of the asset. Fractional ownership, unlike full ownership, allows customers to diversify their portfolio, access high-worth investment avenues, reduce capital constraints and hedge the risks.

Our investor’s interest is our top priority in the entire process. We ensure this by:

• Investing alongside: BuyProperly invests along with its customers to ensure our interests are completely aligned.
• Performing rigorous due diligence: We go through extensive research and analysis to select the right properties including AI based tools for objective evaluation. We also conduct thorough third-party inspection and diligence on the property before closure to minimize surprises.
• Deploying an efficient value chain: We use lean and cost-effective ways of property management.

No. Real Estate investments are subject to market risk and we recommend you treat it as an addition to your portfolio and not put your entire savings into BuyProperly investments. BuyProperly does not provide tax or investment advice and any general information is provided to help you make your own informed decisions. See Key Risks & Disclosures for further information.

We have implemented all necessary physical, organizational, contractual, and technological security measures to protect your personal Information against loss, theft, and unauthorized use, disclosure, or modification including:

• Deployment of technological safeguards such as data encryption, security software and firewalls to prevent hacking or unauthorized computer access.
• Internal password and compliance with relevant security and data privacy policies.

Your investment is backed by a real tangible asset (property that you invest in) as you get fractional ownership. Your investment moves inline with the market value of the property. This is just like buying real estate but without high capital requirements and without the hassle of managing it. To protect the rental returns, we have rental guarantee insurance that ensures that in case of vacancy or rental default, the full rent is covered by insurance. Read offer details for exact terms and conditions and detailed risks.

We are always on a look out for good deals irrespective of the asset class (Residential, Commercial, Warehouses, Hospitality) and all stages (pre-construction, assignment, re-sale). The latest deals are for everyone to see on the platform.

All properties listed on our platform are assessed on multiple criteria to determine their suitability as a high-grade investment property. We conduct due diligence and analysis at three levels - City, Neighborhood and Property to identify properties with potential for high returns. At every level we have a defined set of qualitative and quantitative information to analyse. In addition, we have a proprietary AI-driven model to vet the deals and leads before listing on the platform.

Each BuyProperly investment property functions like a separate Special Purpose Vehicle. The title is owned by this Special Purpose Vehicle which is setup like a limited partnership company for the sole purpose of owning and managing the property and investors own units (shares) of the company. Individual investors do not own title to the property and are not entitled to live in the property simply by virtue of their share ownership.

Our deals might have a debt component which is sourced from financial institutions at negotiated commercial rates. The gross rental earnings for the property is adjusted for the interest payment before distribution to equity shareholders.

You can invest through pre-order, current sale and secondary sale or resale (through secondary marketplace - coming soon).

• Pre-orders are properties that are still under negotiations and have not yet agreed for the transaction. The final value of sale of these properties for you would be adjusted based on the actual price paid at closing. If any property sale is over-subscribed, we will allow everyone to participate in the investment, but would proportionally scale down the size of the investment in the final value. Till the closing of the property, the money is held in a trust (escrow) account at the bank set-up specifically for this purpose.
• Current sales are when we have closed negotiations on the property and are putting together the deal for closing.
• Secondary sales or re-sale are properties that have already been closed and existing shareholders are looking to exit for various personal reasons and have offered some of their shares up for sale.

Investing is simple – you create a profile on our website and provide your details. Our team will validate the details and allow you to invest in properties you choose. Our investments are meant to be an alternate supplemental income.

BuyProperly does not provide tax or investment advice and any general information is provided to help you make your own informed decisions. See Key Risks & Disclosures for further information. In case you need help with financial planning or an expert advice, we can connect you to our select set of pre-approved financial advisors for a complimentary session. If interested, let us know by sending an email to [email protected].

If a property does not eventually close due to any complications or new information that comes to light which makes the deal not good for customers your money is returned.

The minimum investment required is CAD 2,500. The maximum investment will depend on the investor eligibility based on the Securities Commission guidelines. To protect our customers, we may limit the amount of investment to a certain percentage of their annual household income.

You need to be at least 18 years of age to invest through our platform.

No, you do not need to be a Canadian citizen in order to invest with BuyProperly.

One Time costs: As with individual property purchase, there are purchase costs such as stamp duty, legal fees, survey and home inspection costs, title insurance and other one-time costs. These costs or their estimates would be known at the time of investment. The final price for the investors will include the property price and the one-time costs listed above.

Recurring costs: There will be recurring costs for advertising, letting, managing, and maintaining the property on an on-going basis. This will be adjusted from the monthly rental dividends on actuals.

BuyProperly Fees: BuyProperly charges an annual management fee of 2.5% + GST/HST on the asset under management value. We charge this fee in lieu of the following services:

• Running and maintaining the BuyProperly platform.
• Sourcing and managing the properties.
• Fund management - collecting investments and distributing monthly rentals and capital on exit.

You can pay through Interac, Wire transfer or Cheque.

You cannot use RRSP/TFSA to invest directly in real estate. An RRSP (or locked-in RRSP, or LIRA) or TFSA account should be viewed as a basket of investments. In the basket you can place various eligible investments or financial instruments. Some of these RRSP or TFSA eligible investments can include: stocks, bonds, GICs, mortgages, call-options, cash or mutual funds but NOT real estate DIRECTLY.

However, investing in or participating is real estate can be done inside your RRSP or TFSA INDIRECTLY with some restrictions. There are three broad options:

• Option 1: Mortgages- single mortgage, a share in a single mortgage or a Mortgage Insurance Corporation (MIC).
• Option 2: Publicly traded stocks that invest in Real Estate.
• Option 3: Private firms that invest in Real Estate (e.g. BuyProperly Limited Partnerships. For details, get in touch with our team).

(This is not financial advice. Please contact your financial advisor for any investment advice or let us know if you want to connect to our panel of advisors by sending an email to [email protected]).

There is no impact on credit score. There is no impact on eligibility for first time home-buyer benefits, since you are not owning the title, and this is only an equity investment.

BuyProperly charges a management fee of 2.5% of initial capital annually for all the service it provides from sourcing the deal, to managing it and ensuring successful exit. The fees do not increase with the value of the asset over time. All capital appreciation gains are hence passed on to the customer.

Investing with BuyProperly implies that you will be a fractional owner of the asset you invest in. The other owners/investors in the property can be either individuals or corporations. However, other investors will not have any bearing on your holding, and you can exit your investment at the end of your holding term.

We use a combination of in-house and outsourced models for property management for a lean and cost-effective solution. Costs are deducted from the earnings that the property makes. However, we conduct through third party inspection and diligence on a property before closure of the transaction to minimize surprises.

As per industry statistics, average property management costs tend to be about 6-12% of rental costs. All property management costs are deducted from the rental earnings of the property without any markup by BuyProperly.

BuyProperly takes care of all property issues, including tax payments, insurance, maintenance, and day to day management. We work with qualified partners to manage the property on behalf of the investors.

After you make an investment, there will be a host of information and metrics that you can access through your online BuyProperly account:

• Details of investments bought and sold.
• Fees and taxes levied.
• Rental earnings accrued and dividends paid notification.
• History of money transfers.
• Latest valuation and gains estimation based on latest valuation.
• Realized capital gains.
• All investment documents - Shareholder agreement, Quarterly statements, Tax statements, Management services agreement, Investor terms and conditions, Trust incorporation details.

Rents may not be enough to cover costs even when costs are steady, like in the following scenarios:

• Apartment rents at below market price.
• Actual vacancy during the holding period of the property is higher than forecast.
• Unit has mortgage that needs refinancing and renews at very high interest rate changing unit economics.
• Untoward / Force Majeure scenario (e.g. environmental issues, regulatory changes, natural disaster) happens that leads to losses not completely covered by building and content insurance.

To account for such scenarios we leverage the reserve/ contingency fund which is up to 2% of the property value, included in the upfront cost estimates (as part of unit acquisition costs) to avoid a capital call scenario (i.e. scenario where investors have to put in more money at a later date). The reserve fund will be held in a savings account and earn prevailing bank interest rate.

In extreme circumstances such as a natural disaster, when the reserve fund does not cover this, and insurance is insufficient to cover all losses, we will put to vote options for (a) liquidation of assets or (b) additional capital call to shareholders. Provisions would be defined for potential circumstances in which this would be done.

All BuyProperly investment properties are insured by a rental guarantee. Rental guarantee insurance ensures that in case of vacancy, the full rent is covered by insurance, any damages by the tenant, or in rare cases of dispute/ eviction situation all costs are covered through insurance. Rental guarantee also covers the scenario if the tenant defaults on the rent payment.

We have a default lock-in period of 5 years. Property’s planned exit is scheduled +/- 3 months from the due date to optimize for returns. However, you can sell to other interested buyers before the end of term through our secondary marketplace (coming soon).

The agreement for purchase of units for customers, includes criteria for handling crash year by defining (a) threshold decline % that qualifies it as a crash year (b) potential for extension in increments of 1 year at a time based on majority shareholder vote. You can sell to other interested buyers anytime you want through our secondary marketplace (coming soon!).

Income on rental dividends is taxable income and the actual tax rate would depend on your marginal tax rate. At the time when the property is sold, the gains are taxed at the capital gains rate.

No, the structure is pass-through, and you only get taxed at individual level when the asset generates income or when it is sold.

At the time of capital sale, which will provide exit to all investors in the property (unless they have already exited through a secondary marketplace sale), BuyProperly will run a market sale process to sell the property at the highest possible price.

The sale process will be managed by BuyProperly and backed by rigorous analysis of current trends, estimated fair market value and market intelligence through our network to ensure that the investor returns are maximized. Since we invest alongside our customers, we are aligned with customer interests and would always ensure maximizing returns.

To make it easy for our customers, you will purchase your shares in Canadian dollars. You will be investing in a Canadian Partnership that has been set up specifically to purchase equity in the US property.

You will follow the same purchase steps to invest in the US property as in a Canadian property.

Yes, in the future we are planning on offering additional properties in the US.

The partnership will distribute the income after paying taxes in the US and this income will be taxed in Canada at your federal/provincial tax rates on worldwide income. You can claim a foreign tax credit on your Canadian tax return for the US income taxes that have been paid to reduce the tax that will be payable in Canada.