How to Choose the Right Platform for Fractional Real Estate Investment?

 

Fractional real estate investing has disproven the concept that real estate investment needs a huge amount. This transformation has drawn many individual and institutional investors towards real estate investment. Thus, today, the number of intending investors is growing rapidly. With that, choosing the right platform for fractional investment has also emerged to be a crucial question.

This article reflects on the overall proceedings of fractional real estate investing. Its primary focus is on the right move in finding the most suitable platform offering this mode of investment.

 

How Does Fractional Real Estate Investment Work?

 

To answer in one sentence, fractional investing works through Fractional Ownership Platforms (FOPs). The real estate game changed entirely with the advent of FOPs. Why? Because they let individual investors invest in large-scale commercial real estate (CRE) assets.

The FOPs operate through Special Purpose Vehicles (SPVs). An SPV is a company created with the sole purpose of raising funds to own and manage an asset. This way, SPVs let multiple investors invest in that single but big-ticket real estate asset at an affordable cost.

Let’s discuss it thoroughly and understand the working process of fractional property investment.

In real estate, fractional investment works according to a model, where a group of investors invest in a single real estate property. Thus, they become partial owners of that particular asset by owning a partial share of that asset. This mode also binds the investors to share the profits, the appreciation of value, the losses, and the management costs generated by the whole investment.

When you become a fractional owner of a property in fractional ownership real estate, you can benefit in two ways. First, you might potentially get a share of the overall income generated by the property. Second, you might own the right to make shared use of the property (if suppose you invest in a vacation home or resort). In both cases, your share depends on your investment ratio. That means, your share of the ROI (return on investment) will be equal to the percentage of your investment amount.

Enabling retail investors to invest in high-yielding CRE is not the only advantage of fractional investing. Another relieving factor here is that being an investor, you don’t have to hold the responsibility of managing and maintaining the property when you are investing through an SPV. The only thing you need to do here is to invest your share of capital and gain the profits out of it. The SPV will take on all the maintenance-related responsibilities.

 

What Are the Risks Involved in Fractional Investment in India?

 

The advantages of fractional ownership have led the investment mode to gain popularity in India in the current scenario. However, no investment comes without any risks. Despite all its perks, fractional real estate investment, too, involves certain inherent risks.

Let’s have a deep dive into the prospective risks associated with fractional ownership real estate in India.

 

  • Low Liquidity: As fractional investment allows investing in high-value assets, these properties often lack sufficient liquidity. So, when you want to buy a fractional share or sell your fractional share, there is a very limited number of traders available in the market.

 

  • Regulatory Changes: Regulatory laws related to the real estate and investment industries keep changing. Very recently, in May 2023, the Securities and Exchange Board of India (SEBI) proposed regulating fractional investing platforms under the regulation of REITs for the better good of retail investors. While this has a positive aspect, sudden regulatory changes might impact investors negatively.

 

  • Lack of Transparency: Lack of transparency can be a potential risk involved in fractional ownership of real estate in India.

 

  • Limited Authority: In fractional investing, you share your property ownership with other shareholders. Thus, here you are left with a shared authority over the asset, which is spontaneously limited.

 

  • Conflict of Opinions: When an investment involves multiple owners, the management and maintenance-related issues regarding the asset will automatically raise multiple opinions. With this, there is a high chance of a conflict of opinion among the shareholders. In such a scenario, the investment decisions might not always go in your favour.

 

  • Prospective Costs: Truly, fractional ownership real estate lets you invest in a big-ticket property at a significantly lower cost compared to the actual investment value. However, it still involves some upfront costs. Here, high transaction fees at certain times, upkeep and maintenance costs, etc., can be mentioned.

 

Who Should Invest in Fractional Real Estate?

 

  • Property Investors: The huge minimum investment requirements of real estate investment spontaneously prevent access in this field for interested investors with a limited budget. This inspires newbie investors to consider investing in fractional real estate assets. The reason is that, starting up with a high amount often proves to be risky. Apart from that, real estate investing involves a lower risk profile compared to other investment assets. Thus, it is a safer way to set foot in the field of investment.

 

  • Professionals Looking for Portfolio Diversification: If you are a professional investor looking to diversify your investment portfolio, fractional real estate investing can help. It will add another asset to your portfolio which already contains stocks, bonds, ETFs, etc. As they are relatively less volatile, fractional real estate shares also help in risk adjustment for your investment portfolio.

 

  • Retail Investors: Once, real estate investment was limited to institutional investors only. With fractional real estate investment, now it is open for retail investors too. So, individual investors interested in real estate investment with limited budgets can go for fractional ownership in real estate.

 

  • Passive Investors: Fractional ownership opens up a way for passive investors looking to invest in real estate. If you have planned to invest in a property while not living there, investing in a high-end asset and sharing the ownership can be the right option for you. It can relieve you from the responsibilities of active property investment and add diversification to your investment portfolio.

 

  • NRI Investors: Fractional ownership is conveniently manageable from anywhere, even if the investor is not physically present in the locality or country of investment. The privilege of investing in grade-A properties, hassle-free professional management, and the rental income potential attract NRI investors towards fractional ownership of real estate in India.

 

  • Portfolio Managers: Fractional investing is a potential way to diversify a portfolio, while at the same time managing risks. So, it can boost the work of a professional wealth manager who manages investment portfolios for others (preferably clients).

 

How to Choose the Right Platform for Fractional Real Estate Investment?

 

Choosing the right platform is significant for a hassle-free investment journey. Here, to pick the right platform for fractional investment, all you need to do is a calculated move with thorough research in the field. In this, your responsibility includes checking if your chosen platform supports the elements essential for a smooth investment experience.

Confused? Check the factors necessary for a platform offering fractional ownership for real estate.

 

  • Establishment: Select platforms that are experienced enough with track records of successful fractional ownership management for real estate. It will make sure you obtain the best prospective returns on your investment.

 

  • Available Asset Type: Investing in different types of assets indicates different investment goals. Once you decide on the property type you want to invest in, it is time to check if your chosen platform offers to invest in that particular type of asset. To consider a platform as the right platform for fractional investment, make sure that it conveys the option of investing in multiple asset types, e.g., holiday homes, resorts, luxury residential properties, commercial properties, etc.

 

  • Type of Investment: Fractional investment platforms offer different investment types. Among them, time-based ownership, joint purchasing pooling, fractional leasing, syndicated investment, etc. can be mentioned. You need to find the platform that offers the investment type(s) you are interested in.

 

  • Important Features and Requirements: Thorough research is the first step of investing. Do in-depth research to collect proper information about the essential features and requirements related to different fractional real estate investing platforms. Consider characteristics like the fee structure, minimum fund requirements, security measures, liquidity options, etc., and compare different platforms on the basis of these aspects.

 

  • Transparency of Information: A platform providing clear and comprehensive information about properties as well as other investment details can be deemed reliable. Since you are going to invest your hard-earned money on their platform, it is your right to be properly informed. Make sure to check the transparency of the platform before going to invest there.

 

No doubt, you can check these factors on your own. Still, seeking advice from financial advisors or expert real estate and investment professionals in finding the right platform for fractional investment is always better.

 

Best Fractional Real Estate Investing Platforms

 

Everyone’s priorities and preferences differ. So, the best fractional real estate investment platform might differ too with different investors.

However, after analyzing multiple platforms, we have prepared a list of some of the best fractional real estate investing platforms available in the market. It is up to you which one sounds the best for you.

 

Fundrise

A low minimum entry barrier has led Fundrise to obtain popularity among the topmost fractional ownership platforms. The company lets investors invest in as low as $10. Primarily, they offer long-term investments. Still, the convenient quarterly liquidity option also makes it worth considering. While a low annual fee of 1% is applicable, portfolio diversification is a plus point of investing through Fundrise.

 

Strata

Another fractional ownership platform letting you invest in grade-A commercial properties is Strata. The technology-driven platform offers hassle-free investment opportunities with added transparency and accessibility. The platform works through an SPV. Here, you can start your investment at as low as 25 lakh rupees. They focus on earning an IRR of 14—16% for their investors.

 

Yieldstreet

If you want to invest in fractional real estate along with other diverse asset classes, Yieldstreet can be the right choice. The minimum investment requirement here is $5k. Here, you can invest in private real estate assets with a diversified portfolio and net annualized return of 9.6%. No matter if you are an accredited or a non-accredited investor, Yieldstreet has an answer for you. Yieldstreet involves 0% to 2% annual fees based on invested properties.

 

Lofty AI

Lofty is open globally for fractional investing in rental properties. An annual return of 14% or even more than that is what you get on Lofty. The AI-integrated platform also utilizes blockchain technology. Here, you can start your investment at $50. Along with that, Lofty lets you earn rental income on a daily basis. Such advantages make this platform tempting enough for fractional ownership in real estate.

 

RealtyMogul

Here, you can invest in professionally managed and well-leased commercial real estate assets. They claim to provide their clients with a stable monthly rental income. RealtyMogul has a track record of real estate investing with 20.7% overall realized IRR. The data-driven platform is aimed at making real estate investment easy for all types of investors.

 

DiversyFund

DiversyFund is focused on providing easily accessible fractional property investment services to every investor interested in real estate investment. With that intention, they have kept $500 as the minimum investment amount required. With the necessary tools and guidance, DiversyFund is beginner-friendly. It lets you invest in institutional quality multi-family assets. However, a 2% management fee is applicable here.

 

EquityMultiple

EquityMultiple is one of the topmost fractional ownership provider companies in the field of real estate. It can be the right choice for self-directed, accredited investors. Here, you can invest in high-yielding exclusive commercial real estate assets for a minimum investment amount of $5,000 to $30,000. They claim to offer a well-diversified portfolio to their clients. The platform involves an annual fee of 0.5% to 1.5% along with an origination fee.

 

Major Companies Involved in Fractional Real Estate Investment in India

 

While the concept of fractional ownership has taken over the globe, Indian real estate firms have also established themselves in the field. Here is a list of major Indian companies involved in fractional real estate investment.

 

Strata

Strata is one of the pioneer fractional real estate investment provider companies in India. The platform offers the opportunity to invest in high-yielding commercial real estate properties. Strata works according to a data-based model with end-to-end portfolio management. The specifications of their investment model are available in the previous section.

 

hBits

It is another primary fractional ownership platform in India. It offers fractional real estate investment in commercial real estate assets. Grade-A properties at an industry-best IRR of 17.54% is what you achieve at hBits. They provide personalized services both online and offline with low entry barriers. HBits offers a low minimum investment margin of INR 25 lakh and average rental yields of 8—10%. The platform’s transparency and convenient liquidity options speak for its reliability.

 

Assetmonk

Assetmonk, another leading Indian crowdfunding platform, provides you with passive income opportunities through fractional ownership in the real estate industry in India with 14—24% IRR. Here you can invest with a minimum investment barrier of INR 25 lakh. Considering the individual financial goals of different investors, they provide high-quality assets in the most active commercial real estate sectors. The convenience of investing in Assetmonk also lies in its integrated customer support.

 

Property Share

If pre-leased commercial properties are your investment priorities, Property Share can be the right platform for fractional investment. They let you invest in high-yielding commercial real estate with 8-10% yields and 17-20% projected returns. As it is known, the transparency and due diligence provided in the platform are also considerable.

 

Yield Asset

Yield Asset is another notable option for investing in Grade-A commercial real estate properties in India. An annual return of around 12% or even more than that at a minimum investment amount of INR 25 lakh is what you get on Yield Asset. With a remarkable history of investment in real estate and other asset classes, transparency of information, and ease of liquidity, this platform is worth considering to build your fractional real estate investing portfolio.

 

PropReturns

PropReturns is an end-to-end commercial real estate company based in India. It also offers fractional real estate investment services. The technology-enabled and data-driven platform lets you invest in pre-leased commercial real estate properties. Their credibility comes from their backing from leading investors from across India. Transparency of information is another plus point of fractional property investment through PropReturns. Investing in this platform draws rental yields of up to 9.27%.

 

WiseX

With a minimum investment amount of INR 15 lakhs, Wisex offers willing real estate investors the opportunity to invest in high-yielding real estate assets. They claim to provide investors with 12%—16% IRR with stable cash flow. The tech-enabled platform follows a thorough and systematic asset selection procedure while presenting you with institutional investment assets. They believe in a data-driven investment approach. Transparency of information and convenient liquidity options are two other factors speaking for WiseX’s credibility.

 

Are All the Fractional Real Estate Investing Platforms Same?

 

All the fractional real estate investment platforms work almost in a similar way. However, they can be differentiated based on multiple factors.

 

  • Investment Type Provided: As we discussed in a previous section, different fractional real estate investing platforms might offer different types of investment services. For instance, if one platform offers fractional real estate ownership through timeshare, another might offer joint development agreements (JDA) instead of that.

 

  • Types of Property: Different fractional ownership platforms can provide different property types for investment purposes. You can distinguish platforms depending on this factor, and go ahead according to your requirements.

 

  • Fee Requirement and Fee Structure: While going for fractional ownership real estate, you will come across varied fee requirements and fee structures applied in different fractional investing platforms in the market. In our previous discussion, you have seen that Fundrise requires a 1% annual fee, whereas the annual fee requirement with YieldStreet is 0% to 2%.

 

  • Minimum Investment Amount: Again, the minimum investment requirement in all the platforms does not match. Usually in the Indian backdrop, the minimum investment amount varies between INR 15 lakh to INR 25 lakh.

 

So, all the crowdfunding platforms are similar, but not exactly the same. Choosing the right platform for fractional investment according to your needs and preferences is in your hands.

 

Fractional Real Estate Investing via Blockchain

 

Due to technological advancements, blockchain has found its way towards the fractional real estate investment field. Certain fractional investment platforms are integrating blockchain technology through the tokenization of properties. This approach has made real estate investment hassle-free and secure.

Integration of blockchain technology in the field of real estate investment including fractional ownership real estate has brought about greater accessibility, transparency, and scope for better automation within the industry. While some countries, especially developed countries have already seen the real estate industry implementing blockchain technology in the field of investment, it is still at the initial stage in many other countries like India. Complete implementation of this technology can potentially cut down the high initial amount needed for real estate investment.

Now, let’s see how blockchain technology works in the field of fractional real estate investing.

Blockchain technology works through tokenization in fractional real estate investment. This process of tokenization is again supported by Decentralized Finance (DeFi). To describe tokenization in simple words, this process digitalizes the physical fractions of real estate assets, where these fractions get converted into digital tokens stored on a blockchain. Here, one token stands for one share of the property. This process makes the trading and transferring of fractional assets quicker and easier.

One significant point coming here is that the integration of blockchain technology makes cross-border fractional property investment possible. So, practically, by utilizing blockchain, you will be able to open a real estate project for crowdfunding on a global level. It will enable investors from any corner of the globe to fractionally invest in your real estate asset.

Integrating blockchain technology in fractional real estate investing can be quite promising. However, it still has certain limitations.

 

  • The government’s measures related to regulatory compliance and legal framework for blockchain are still in the initial stages. Thus, these two factors can potentially come in the way of blockchain integration in fractional real estate investment.

 

  • The entire concept of blockchain integration is very new to real estate investors. For this reason, educating investors on how blockchain integration works in fractional ownership platforms is a challenge in itself.

 

  • Integrating blockchain technology with fractional real estate investment platforms is not simple and easy. Because of the complications involved in the process, it will take much time, costs, and effort on the part of the fractional investment platforms.

 

  • Security is another challenge in blockchain integration in real estate investment. It is true that blockchain technology ensures better security than traditional investment approaches. But, it is also considerable that no security system is completely invulnerable.

 

Conclusion

 

Fractional ownership platforms have made real estate investment more accessible than ever before. The introduction of technology in the field has made it even easier. In today’s world, it is possible to invest in real estate shares with digital currency like bitcoin. It is a revolutionary era where you can fractionally invest in the once-expensive real estate field at as low as $10.

So here, we have discussed how fractional ownership works in general along with the work procedure of FOPs. Based on this discussion, you have an idea of how to choose the right platform for fractional real estate investment.

Basically, no fractional investment platform can be marked right without considering the particular needs and preferences of an investor. So, after going through all the characteristics and regulations of different platforms, only you can decide which platform is right for you.

Your own research is the first significant step while selecting one particular platform for your fractional investment requirements. However, if you are a newbie investor, seeking professional advice before investing can make your investment strategy better.

 

FAQs

 

What are fractional ownership platforms?

Fractional Ownership Platforms or FOPs are platforms that allow investors to invest in fractional shares. These platforms establish an SPV or Special Purpose Vehicle, and through it, let multiple investors collectively invest in a prime quality investment asset.

 

Is fractional ownership a good investment?

Fractional ownership is a good investment for those looking to invest in high-value assets at a low cost. However, whether it is a good investment or not depends on factors like the asset type, the fees and other costs associated with the investment, the investment goals and risk tolerance of the investor in question, and the market condition.

 

How to start a fractional real estate business?

To start a fractional investing real estate business, the first step is to set up a legal entity for your business. Then, you are good to go after setting up a corporation, establishing a limited liability company, and then registering your company’s business name with the country where the business is set up.
 

Are fractional shares profitable?

Fractional ownership allows individual investors to invest in high-value assets with a limited budget, offers diversification in the investment portfolio, and offers good potential returns. Thus, it can be considered a good source of passive income.

 

How can I buy fractional property in India?

To buy fractional property in India, go through different real estate investment provider companies including Strata, hBits, Assetmonk, Property Share, Yield Asset, PropReturns, etc. Based on your research and according to your requirements, choose the right platform for fractional investment. The last step is to get yourself registered with the particular platform and go ahead with their investment process.

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