A New Era of Investment- Build Your Real Estate Portfolio With Fractional Investment.

 

Ever wondered, why experts consider investing in real estate to be the best option? And how is buying big-ticket properties through fractional Investment considered an ultimate affordable choice?

 

Now, you must be thinking how could big-ticket properties be affordable?

 

Investment in real estate has evolved from traditional methods to modern investing ways.

Nowadays, people have shifted their choices of investment, they are more likely to be interested in real estate rather than investing in gold, mutual funds, fixed deposits, etc. However, the high costs and complex investment procedures in the real estate sector have become a matter of concern that deterred many from entering the market.

And this is where Fractional investment enters as your saviour in the high tides of investments.

In the coming few years in India, the ownership of fractional investment is supposed to reach $5 billion. This statistic highlights the growing popularity and acceptance of fractional investment as an accessible and affordable option for individuals looking to invest in real estate.

 

What is Fractional Investment in real estate?

 

  • Fractional Investment is about investing in fractions or portions of financial assets like stocks, bonds, mutual funds, or exchange-traded funds (ETFs). These allow investors to invest smaller amounts of money in a diversified portfolio, which can be appealing to individuals who may not have sufficient funds to buy whole shares or want to allocate smaller amounts across different assets.
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What is Fractional Ownership in real estate?

 

  • Fractional Ownership is also an investment approach where multiple individuals or entities collectively own a tangible asset, like real estate, aircraft, yachts, etc. Each owner holds a portion or fraction of the asset and has the right to use it for a specific period each year. This allows the investor to take advantage of ownership without bearing the full cost.
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Functional Ownership and Fractional Investment are related concepts with slightly different meanings. Fractional ownership is about sharing the ownership of physical things, whereas fractional investment is about owning a portion of financial assets like stocks or bonds.

 

Types of Models of Approach of Fractional Investment

 

With shared property ownership, there come various other aspects that one needs to keep in mind. Considering the need of understanding the investment structure and procedure involved in fractional investment it is also necessary to realise the different approaches to fractional investment.

Below I’ve explained the types of approaches to fractional ownership in real estate, highlighting their different benefits in simpler terms:

 

  1. Pay-to-Use approach:

 

Pay-to-use is one type of Fractional investing approach. Here, all the co-owners contribute a fee for using the property. It is a pre-agreed “usage fee” covering all the expenses associated with owning the property, like maintenance fees and taxes. The remaining extra money is divided among the owners if the property's total income, including rental income and usage fees, is more than the expenses. The purchase price and the quantity you can own the property are determined based on what each co-owner can afford and their investment goals.

 

  1. Usage Assignment approach:

 

Another approach of fractional investing you need to know is the Usage Assignment Model. In this model, the co-owners are given an exclusive right to use the property for a specific period, ranging from days to weeks, or months within a year. Moreover, the time period can be flexible, fixed, or a combination of both, and, the co-owner can use the property as desired like renting out the property, exchanging with others, or leaving it empty to the co-owner's preferences.

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The approaches help you define the proper usage of the Fractional investment property, ensuring priority access for each member and offering usage at reduced rates compared to the market and also increasing benefits for co-owners with indexed property price values.

 

How does fractional investment work?

 

When a property is invested through a platform that offers Fractional real estate Investment, a private limited company is created for each of the investors, known as a Special Purpose Vehicle (SPV). the main purpose of the SPV is here to collect funds from the investors to buy a property listed on the platform. Moreover, the property is registered under the name of the SPV, and each investor becomes a shareholder in the SPV. The SPV buys the property from the seller.

When you sign up on the platform, you receive documents about the SPV and the property. However, in order to protect the investors’ interest, these platforms appoint a trustee who looks after the custody of funds, and escrow and ensures that everything is done in the best interest of the investors.

 

How Fractional Investment in CRE is Redefining the World of Investment?

 

In the past, dreaming about owning expensive commercial real estate (CRE) for a middle-class retail investor was a far-off notion that seemed impossible even to consider. However, thanks to the rise in fractional Ownership, even middle-class people can now enjoy the advantages and benefits of Commercial Real Estate properties. This accessibility has encouraged more people to consider investing in CRE.

It's important for individuals to recognize that investing in CRE is a valuable addition to their investment portfolio. By investing in CRE, they can gain a competitive edge and enjoy the potential returns and perks associated with these properties.

Over the next five years, the market of commercial real estate properties is expected to grow by 13% to 16%, which is why the concept of fractional ownership of commercial real estate is becoming increasingly popular.

 

And there are many reasons reason behind its growing popularity. Let's take a look at those reasons:

 

  • Firstly, there is a surging demand on the rise for Grade-offices and co-working spaces in the country.
  • Secondly, the increase in large-scale investors eagerly eying commercial real estate, and
  • lastly, a significant amount of foreign investments are flowing into various commercial projects.

 

These combined factors paint a promising picture of abundant opportunities and lucrative returns on investment.

High-quality properties are typically commercial real estate properties that are commonly leased by multinational corporations, banks, warehouses, factories, or information technology companies. Unlike residential tenants, commercial organizations lease properties for longer periods, usually 3 years or longer, ensuring consistent rental income, because these organizations do not generally leave the property suddenly, which can be problematic for property owners.

Commercial tenants are reliable in paying rent on time and customizing the space to their needs. Since they use the property as an office, they take good care of it and are more likely to renew their lease instead of moving elsewhere.

Many people are attracted to fractional ownership of commercial real estate because investors see regular rental income and a steady increase in property value. This has sparked interest in a growing number of investors looking to buy fractional shares in commercial real estate.

The increase in demand for commercial properties aligns with the popularity of fractional ownership real estate in India. Other additional opportunities that fractional investment provides like it allows them to envision owning a portion of a large commercial property and receiving profits with its potential growth. Regardless of the situation of post COVID-19 pandemic, India has witnessed fractional investment deals amounting to 350 million.

 

Fractional Investment in India.

 

The fractional ownership platform helps to invest in high-value properties. With an annual appreciation of 11.6% CRE in India brought more accessibility to the sector, allowing regular investors to participate in lucrative real estate opportunities that were previously unaffordable. While Fractional Ownership has been prevalent in the USA and Europe for a while, it is now gaining momentum in India.

This method simply enables you to distribute the high-valued properties into fractions, which allows millennials to have an upper hand on new opportunities. Being technologically upgraded, millennials constantly keep researching new methods to generate income. And Fractional Investment through its digitalisation has emerged as a prominent way of earning money. As a result, new channels have been opened for investors with lower security rates, granting retail investors access to the benefits and returns of commercial real estate, previously reserved for the wealthy and institutional investors.

 

Difference between REITs and Fractional Real Estate Investing.

 

Investment concepts such as REITs and fractional Investment offer investors access to better opportunities. Now, with the help of these two options, a general man can also purchase high-value properties by owning a fraction of commercial real estate (CRE) and benefit financially through rental income or interest from the security amount. But there are certain differences between REITs and Fractional Investments you should be considered

REITs pool money from investors and invest in profitable real estate on your behalf. Then, the properties are leased out to other business organizations, by which the co-owner can get a share of their investment.

In fractional Investment, properties are listed in CRE. The minimum price of the properties is determined by the market price, and based on that you choose your fraction of the property according to your investment amount.

Here, are a few differences you should know:

 

Fractional Ownership

REITs

Possibilities of liquidity, sell your share as per your decision

REITs don't allow liquidity.

Returns can fluctuate

Returns are consistent.

Can invest in any property, whether it's under construction or not under construction.

Must invest 80% in income-generating properties.

Not controlled by SEBI

It is under SEBI.

Brokerage and maintenance fees needed

No maintenance or upfront charges.

Investors can choose their desired property

Investors can’t choose their desired property.

The minimum investment amount is as low as 10k-15k

The minimum amount investment amount goes in Lakhs.

 

Major Fractional Investment Companies in India.

 

85% of the CRE is owned and invested by Institutional Foreign funds and High Net Worth Individuals (HNI), leaving very few opportunities for retail investors to invest in Indian Market. Other foreign investors have taken advantage of this growth of CRE, such as Brookfield, Black Stone, Maple Trees, etc.

However, there are only a few fractional investment companies in India that provide retail investors with the opportunity to invest:

 

  • Property share.

  • Strata Capital.

  • hBITs

  • Myre Capital

  • YieldAsset

  • Assestmonk

  • PropReturns.

 

Pros of Fractional Investing.

 

Being a very new concept in the investment landscape, fractional investment is rapidly gaining popularity and expanding in its sector. Some of the key benefits of Fractional Investing are as follows:

 

  • Profitable High-Returns:

 

Commercial real estate through Fractional Investment brings the potential to enable even small investors to make them taste the sweetest of high returns in over time, allowing investors to enjoy full appreciation.

 

  • Digitization of tracking:

 

The current scenario of digitization has propelled the real sector into the digital age, making it effortless to monitor and track fractional investment. This makes the investors easily keep track of their investments.

 

  • Own a fraction of Dream property:

 

This investment opportunity allows investors to purchase a portion of a substantial property that benefits from owning valuable assets and potentially earn income from them.

 

  • No hustle in rental management:

 

Fractional ownership companies handle administrative tasks for investors, like collecting rent and managing tenants, making the investment process smoother for owners.

 

  • Diversification:

 

Fractional Investors allow investors to diversify their real estate investment portfolios beyond traditional methods of investments like fixed deposits and gold etc.

 

  • Ample rental income opportunities:

 

The fractional investment allows the freedom to rent the property out to generate steady monthly profits, which becomes a valuable source of cash flow.

 

  • Flexible:

 

Fractional investment offers flexibility that is not found in REITs, it provides the investors with the liberty to choose the specific fraction or portion of their property they desire to own.

 

Cons of Fractional Investing:

 

Though fractional investment gives you ample advantages there are also a few risk factors that you might consider before investing.

 

  • Conflicts among the co-owners:

 

The conflicts of ideas among the co-owners regarding the property disagreements can lead towards costly and time-consuming disputes.

 

  • Liquid factor:

 

Fractional investment is not as liquid as other investment options. Therefore, selling your share in fractional ownership might not be easy for you.

 

  • Limited control power:

 

As a fractional owner, you might not have full control power when it comes to making any property-related decisions. Consensus among all co-owners may be required for any changes or decisions, which can slow down the decision-making process.

 

  • Property management costs:

 

Owning a property comes with taking care of the property such as repairs and its maintenance, which can become burdensome if one co-owners neglects their duties.

 

  • Market Risk:

 

The value of real estate is unpredictable, resembling a thrilling rollercoaster ride. Property values can experience significant fluctuations, that might hamper the fractional investment property value.

 

Before you go for fractional ownership, do your own research and understand the risk associated with fractional ownership, and seek guidance from financial or real estate experts.

Overall, Fractional Investment is changing the whole investment landscape, emancipating individuals to become part-owners of their dream properties and filling their jars with the benefits of real estate appreciation.

So, if you’ve ever dreamed of owning a high-value property but felt discouraged by financial constraints, fractional investment is your best opportunity to enter real estate and potentially transform your investment portfolio and financial future. With fractional real estate investing, the possibilities are boundless, and the rewards are within your reach.

 

FAQs

 

Q1. How can I Buy a fractional investment property in India?

 

Ans: Firstly, you can fractional property from directly the property holder of the fractional property or can go to the brokerage firms or online firms.

 

Q2. Why buy Fractional ownership?

 

Ans: Buying Fractional Ownership provides you with various ways of generating your returns, through high-value assets, diversifying your investment portfolio, income sharing, and advantages of shared property.

 

Q3. Is fractional ownership legal in India?

 

Ans: Yes, Fractional Ownership is legal in India, but there is no particular legal framework governed by the govt. of India for the fractional ownership of CRE. The regulating frameworks depend upon the SPV companies.

 

Q4. Are Fractional shares risky?

 

Ans: Fractional shares, like any type of Investment, comes with risk. Therefore, it is always necessary for you to study the market industry or ask for guidance from any experts before you invest.

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