Fractional Real Estate As a Field of Investment
If the pandemic has made us review how we save, invest, and make financial decisions, it has helped us. As if wage reductions and layoffs weren’t bad enough, hundreds lost their hard-earned savings in mutual funds and the stock market. Even some had to cut fixed deposits or sell their property to access their funds.
There are many critical concerns that almost everyone faces. It includes how we can create a trustworthy investment that is pandemic-proof, pays out dividends regularly, and increases in value over time.
Fortunately, one investment strategy stood out in the preceding year: fractional ownership of commercial real estate (CRE). India’s market is still developing, but it is now worth $5 billion and growing. As a result, there will be greater demand for fractional real estate.
Why is Fractional Real Estate Growing in the Industry?
Over the past few decades, the idea of fractional ownership has developed on a global scale. This change in ownership mode has been made possible by democratizing fractional ownership and allowing for small investments.
Investing in and partially owning a valuable asset through a reliable platform is crucial. To diversify one’s ownership and lower investment risk, it is ideal for making multiple property investments. The property can be sold with a profit margin or rented monthly to generate income. The process involves monitoring and growing your investment while consistently checking for better chances.
The prominence of fractional ownership is rising due to several major trends. A clear one of them is the state of the stock market. A growing number of retirees are becoming more interested in fractional ownership of attractive vacation properties as their investment portfolios and corresponding net worth is at all-time highs.
However, there are many practical explanations for why fractional ownership is becoming more popular. Apart from the maintenance already needed for the owner’s main residence, the total ownership of another home needs full-time maintenance. Fractional ownership eliminates that hassle.
Owning a second home has the cost vs usage issue as another drawback. No matter how often you use a second home you own, you are still responsible for paying the full cost. Since they are rarely used, many second homes end up costing their owners their full purchase price.
The rental yields of fractional assets are three times greater than those of residential assets. This is due to the professional management and maintenance of fractional properties. It is something that typically only professionals can provide. This non-volatile investment type offers greater flexibility for portfolio diversification. It assists the investor in boosting his upstream profits.
Finally, the flexibility of fractional ownership allows for diverse investment options. An investor can sell their shares at any time during the investment to receive a return corresponding to the rise in the property’s value. And even after selling them, the investor retains real estate ownership. It is based on the amount of history and the number of fractional expenses.
Things to Know Before Investing in a Fractional Real Estate
Due to the numerous advantages, complete transparency, and safety, investing in CREs is a smart move. When it comes to investing in fractional real estate, however, there is no substitute for experience. You can choose wisely regarding CRE investments by considering the factors listed below.
Choose Location by Growth Potential
Making wise decisions when choosing a city and location is essential to long-term value. A report titled “Internal Migration and Urbanization” states that when permanent and semi-permanent migration is considered, the temporary and seasonal migration rate is seven times higher. The micro market’s demographic trends will affect how quickly properties are in demand.
For instance, the micro market’s aging demographic trends will harm the demand for CRE. On the other hand, as the population grows, so does the need for more homes and workplaces. So, picking a place with stability, constant high demand, and low supply is crucial.
Reputation is important when selecting a tenant profile
Rental income in residential properties is unstable because tenants frequently move out. But, when it comes to commercial properties, big profit-making MNCs and listed tenants are the most reliable because they have long-term leases supported by security deposits and corporate guarantees.
For this reason, selecting tenants with a solid reputation and a thriving business is essential to generating a consistent income.
A stable business is one with a longer lease term
Successful tenants will likely have a large workforce, making them more likely to seek out fixed office space with long lease terms. Another crucial factor is the lock-in period, which guarantees revenue visibility up until that time. Since the tenants renovate their own spaces, which results in significant capital costs, they do not want to move because doing so would require a second round of cash outflow.
Find the right partner
Look for a property partner who spends money in a high-asset quality structure. Your partner should have a variety of profitable investments in “A” grade assets. It can only be done with in-depth industry knowledge, predictive analysis, and expertise. It is also important to assess the partners’ real estate knowledge and ensure they have the skills to locate, manage, and sell the properties displayed on the platform. As a result, choosing the right partner can drastically alter your investment strategy.
Last but not least, planning and strategy will always pay off in the long run. Being a hard asset, commercial real estate is a limited resource. With time, its value increases, providing investors with a steady source of revenue, long-term growth, and portfolio diversification. Due to a rise in demand for rented office spaces, 75 to 90% of the country’s total office space is leased.
Fractional Real Estate creates a long-lasting change in the modern investment era. The idea could be a remedy, particularly after these difficult situations when the market and the rest of the world were struggling due to the pandemic.
You should invest in CRE using the fractional ownership model if you want a secure and long-term investment. Compared to traditional investment options, which are volatile and offer lower returns, it offers stability and higher returns. Investors can benefit by owning a small portion of different asset portfolios.
For more details, contact our experts or visit our website at Bhive for advice.