Want To Invest In A Posh Property That You Can’t Afford On Your Own? Try Fractional Real Estate
You might not know it, but the real estate industry is undergoing profound changes. The sharing economy and new technologies have given rise to several innovative solutions, allowing people to lease or sell their properties in new ways. Fractional real estate has gained a lot of traction in recent years as an emerging property ownership model that has the potential to revolutionize how we look at real estate investments. In India, for example, the fractional real estate market is projected to grow at 16 per cent over the next few years, and fractional ownership is likely to surpass $5 billion.
This blog post explores what fractional real estate is and why it is becoming so popular among investors. Read on to find out more!
What is Fractional Real Estate?
(Fractional real estate lets you own a part of a property; Source)
Fractional real estate refers to the sale of non-controlling interests in properties. These partial interests are called “fractions,” and they are not represented by shares. It is an investment model that allows people to buy a portion of a real estate asset without buying the entire asset. It means that investors get a share in the cash flow generated by the property without having to pay the total cost of owning it.
Let’s say you want to buy a house, but you cannot afford to buy it on your own as the cost is on the higher side. With fractional real estate, you can buy into the house by paying a smaller amount for a fraction of the property. This way, you will invest in a property that you like but couldn’t afford. Now, you would own a part of the property with other investors owning the remaining part of it.
In other words, the cost gets divided into several fractions among the many investors. It is similar to co-owning a car with someone, except it is done on a larger scale. For example, a 3,500 square feet office compound in Mumbai, which would cost upwards of 10 crore in the market today, can be owned by as many as 100 different investors at the same time if each invests 10 lakh with fractional real estate.
How Does Fractional Real Estate Work?
The main difference between traditional and fractional real estate investments is that investors don’t buy the entire property. Instead, they buy into an asset and receive a share of the cash flow generated by the property. Simply put, they purchase partial ownership of an investment property rather than the whole thing. When you buy a fraction of a property, you also get a share of the profits and losses that come with it. If the property value increases, so will your share of that growth. If the property value decreases, you won’t be on the hook for the complete loss. Fractional real estate is a growing trend in the real estate investment industry. It allows investors to buy property shares without paying the total cost. It means that investors can earn money from property investments without having to assume all of the risks.
Why Is Fractional Real Estate Becoming More Popular?
There are several reasons why fractional real estate is becoming more popular among investors.
- The first reason is the rising cost of homeownership. When the Great Recession hit in 2008, it caused the housing market to go into a tailspin. The housing prices fell drastically, and many people lost their homes to foreclosure. The housing market has since recovered, but it has done so at a cost: the median home prices have skyrocketed in many areas of the country. Many people have found it challenging to afford to buy homes.
- Fractional real estate presents a viable alternative to traditional homeownership. Investors can buy shares in a property rather than the entire thing, making it easier for them to afford the investment.
- Additionally, the rising popularity of short-term rentals has made investors more interested in fractional real estate. Airbnb and other similar platforms have allowed people to rent their properties for short periods. It has led to the growing demand for vacation and short-term rental properties. It has created a higher demand for investment properties that can be easily converted into cash-flow-generating assets. Fractional real estate is the perfect solution for this, as it allows investors to buy a share in a property and then rent it out.
Fractional Real Estate As An Alternative Investment
Due to its partial ownership structure, fractional real estate is an alternative investment strategy. Investors buy into properties but don’t buy tangible assets. It differs from investing in stocks, where you purchase a small ownership piece in a company. Traditional real estate investments are structured so that people buy the entire assets. They can range from single-family homes to commercial buildings and everything in between. Fractional real estate investments are a subset of real estate. They focus specifically on non-controlling interests in real estate assets. Fractional real estate has a lot of benefits compared to traditional real estate investments. For one, it allows investors to focus on niche markets. It is easier to find a specific type of property to invest in with fractional real estate than to buy entire properties. Fractional real estate also makes it easier to manage investment portfolios. It is possible to diversify your investments by purchasing shares in different properties.
Three Advantages Of Fractional Real Estate
There are several lesser-known advantages to investing in fractional real estate over traditional real estate. Here are three of them.
Focus On Niche Markets
Fractional real estate allows you to focus on niche markets. It is helpful if you are looking to invest in specific types of properties, such as vacation homes or short-term rental homes. Traditional real estate investments require you to buy entire properties. It means you have to find a wide range of properties that allow you to diversify your portfolio.
Diversity In Investments
Another advantage is that fractional real estate helps you manage your portfolio. It is easier to diversify your investments by investing in different properties. You can also sell your shares if you need the money.
A Starting Point
Investing in fractional real estate is also a good way to ease into real estate investing. You can start by buying shares in existing properties instead of an entire property. As you gain experience, you can begin to increase your investment.
Fractional real estate is a new way to invest in real estate. It is partial asset ownership, which means you only get a share of the cash flow from the investment. It differs from traditional real estate investments, where you buy the entire asset. Fractional real estate is an alternative investment strategy. It is an excellent way to ease into real estate investing and manage your portfolio.