Are you keen on diversifying your asset portfolio? Are you keen on earning a good return on your investment? You don’t have enough amount but want to own a portion of a real estate? And if the answer is a YES! Then, you’re at the right place. While your research, you must have come across many different options to invest in like-gold, shares, etc. But, seeing your desire to invest in real estate, the solution to your concern ends in FRACTIONAL REAL ESTATE INVESTMENT. The good news is that there are a variety of products that allow new investors to purchase a fractional share of institutional quality assets in sizes that matches their individual resources. With technology taking investors for a run, commercial real estate investing has become easy as well as tricky at the same time.
WHAT IS FRACTIONAL OWNERSHIP?
Just as the name suggests, in Fractional ownership, investors are able to purchase a fractional share of an institutional grade rental property. This is simply a percentage ownership of an asset. Fractional ownership shares in the asset are sold to individual shareholders who share the benefits of the asset such as usage rights, income sharing, priority access and reduced rates. It is a beneficial investment approach that targets maximising ROI by splitting the cost of an asset. Let’s understand Fractional Investment in details via;
|Give access to a variety of institutional quality assets||Doesn’t offer the same liquidity as stocks or bonds|
|Provides portfolio diversification||Prone to property/vacancy/real estate market/credit risk|
|Runs as a passive income||Sponsor fees are an added burden|
For the above comparative points, its imperative for individual investor to perform their own due diligence on the property and the sponsor before committing capital. Hence, there’s another option provided to the investors, let’s weigh their role individually.
FRACTIONAL INVESTING Vs PRIVATE EQUITY
The two stated above are not an either-or decision. Instead, private equity investment is one type of fractional investment that is available to accredited investors. But it isn’t the only one. The other two popular options are:
- REAL ESTATE INVESTMENT TRUST (REIT)
REITs are real estate companies that own, operate or finance commercial real estate assets. When an investor purchases a share of a REIT, they gain access to income and profits produced by an underlying portfolio of commercial properties. These can be publicly traded or privately held and depending on the exact structure, can be available to both accredited and non-accredited investors.
- YIELD ASSET
It is a company formed specifically for the purpose of commercial real estate investment. Investors purchase the estate with the company, which entitles them to a proportionate share of the income and profits produced by the underlying property.
Although all of the above offers a fractional ownership opportunity, the specific structure of each deal type is unique and must be investigated thoroughly prior to committing capital to any of them.
QUICK SNIPPETS ABOUT FRACTIONAL OWNERSHIP
- It is a type of commercial real estate investment that provides individuals with a fractional share of a property rather than purchasing 100% of it.
- The benefit of this approach is that it can provide investors with access to institutional quality deals that they could not afford otherwise. These investments provide investors with passive income and portfolio diversification.
- These can also demand long-term commitments of 5-10 years, can be more expensive due to the sponsor’s fees involved and the associated risks.
- Investing with a private equity firm is a type of fractional investment, but it isn’t the only one. Other fractional investment options include REIT and Yield Asset.
- As always, real estate investors considering fractional ownership must perform their share of research to ensure the deal is the right fit for their individual risk tolerance and investment objectives.