An Investor’s Guide to Fractional Real Estate Investing

An Investor’s Guide to Fractional Real Estate Investing The Real Estate market is always an attractive option for boosting your investment portfolio. But for the most part, it had been sealed off for the HNIs. Well not anymore! Today there are plenty of options at your convenience if you want to start slow and steady in the industry. And that brings us to one of the most popular options - Real Estate Fractional Investment!

The only factor restricting us from getting into this investment market is completely absolved by this trending concept. Only new in India, Fractional ownership has been around for a while in countries like the U.S.A, Canada, the Middle East, and so on. And if you want your hands on some international real estate, fractional investment also makes that attainable - in fact at ticket sizes as low as 10 USD. So, how does this work?

A Basic Understanding of Fractional Ownership - Private vs. Commercial Unless you have a huge stack of cash ready at your expense, buying up an entire property, and especially a commercial property seems nearly inconceivable. And that’s where Fractional Ownership comes into play. It divides up a property, private or commercial, into several investors - a few or a hundred so that the company in question can raise the expenses of the specific property. And as a result, the investors get a share of the rental income and added profits. But as an investor, you need to make sure of the property or company you're investing in, as not every property will start yielding at the very start.

When it comes to fractional ownership commercial real estate, it is the more favoured and popular approach as the yield is always more, about 7-8% more. However, private property investment has its benefits to offer. For instance, time-sharing in residential fractional real estate may allow you to physically occupy the rented property during a certain period.

Ways to Getting into the World of Fractional Real Estate Investing There are multiple approaches to Fractional Real Estate and they may vary from company to company. And since this concept is still at its dawn in the country, you need to be sure of what you’re going into. The common practices include: 

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An LLC company purchases properties and distributes the shares to the specific property among many investors to raise the equity to the property. The investors in return receive rental income, a steady cash flow, and a fair share of profits when the property gets sold.

Here, instead of investing in a certain property, you invest in a company that invests in Real Estate.

These companies are Real Estate Investment Trusts (REITs), which invest in several properties and you as an investor enjoy a share of the rental income, cash flow, and profits from all the properties that the company invests in.

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If you have a steady hand in the world of real estate, you can always skip the middleman i.e. the company or the trust authority, and come together with some investors and directly invest in an individual property, by identifying as a singular body or under the identity of a co-operative society.

But here you have to be aware of the investors in question, and make sure your property usage rights don’t come into conflict with the interest of another’s.

Why You Should Invest in Commercial Fractional Ownership

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Ticket sizes are flexible and you can invest as much as you feel comfortable with.

You enjoy an assured appreciation value, especially with commercial properties as they heavily rely on face value.

Maintenance upkeeps are the responsibility of the tenants or the companies, and hardly ever the investors.

Commercial real estate offers a return of around 8-11% whereas in residential properties the range is usually 1-3%.

Low entry ticket prices allow you to diversify your investment portfolio rather than relying on one source.

Access to high-end luxurious properties and entry into competitive markets that would have otherwise been restricted.

How to Sign Up for the Journey?

The multiple approaches to fractional ownership of commercial real estate have been discussed above. However if you are new to the scenario, not to worry, there are plenty of opportunities available to make this journey easier. Look up the number of online platforms available, do your research and shortlist them.

Choose one. Some popular options are - PropertyShare, Assetmonk, hBits, Definite, Strata, and so on.

Some powerful global options would be - Charles Schwab, Stash, Robinhood, Fidelity Investments, Betterment, and so on. These platforms usually offer websites and/or mobile applications. Simply sign yourself in as an investor, surf the available options, put in a comfortable amount in the interested company or property, and get started!

A reliable company will always offer you an exit strategy, and there’s not a more viable option than fractional ownership to taste out the waters and assess whether you want to become a big-time investor in the real estate market.