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    Due Diligence in Fractional Ownership Investment

    • 5 min read
    • Last Modified Date: March 20, 2024
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    Due Diligence in Fractional Ownership

    Just like a tasty, well cooked meal, the success of any investment depends on two things: Timing, and preparation. And thorough due diligence puts you in pole position to make the right investment, at the right time, and take advantage of any investment opportunity presented before you. 

    We, at Assetmonk, know that entering the world of alternative real estate investments can look daunting at first, especially when you haven’t done the requisite due diligence required for a successful fractional ownership investment. 

    But not to worry, because that’s exactly what we’re here to do: Here are all the things you need to know and do before investing in fractional ownership of real estate, a due diligence checklist of sorts.

    Investing in Fractional Ownership Real Estate: A Recap

    We’ve all seen enthusiastic, school-going kids pool in money to buy a ball so they can play football. Well, just like that, fractional ownership of real estate allows multiple investors to invest collectively in a property, wherein all of them can own shares of the property. 

    In doing so, multiple investors can collectively own shares of high end residential or commercial real estate, mitigate the risk of investment, and collectively reap the attractive yields that are synonymous with grade A real estate. 

    And if you’re wondering why it’s called fractional ownership, it’s because it offers a unique opportunity for investors to participate in lucrative real estate ventures with a fraction of the capital required for sole ownership.

    Due Diligence in Fractional Ownership 

    Due diligence in alternative investments is key. While alternative investments offer higher returns than traditional investments, lack of knowledge and accurate information about them can spread misinformation, and in turn, create obstacles for your successful alternative investment opportunity. 

    Here are the top 7 things to know before investing in Fractional Ownership:

    1. FOP Reputation & Track Record 

    Fractional ownership investing is done through a fractional ownership platform (FOP), such as Assetmonk. This alternative investment platform provides you with the investing opportunity, and also creates an SPV (Special Purpose Vehicle) through which multiple investors put in the money for the property. 

    Your job is to evaluate the FOP’s reputation, track record of successful investments, and look for client testimonials. Assetmonk is proud to boast of a number of fractional ownership products with an IRR of 15-18%, and 100% assured exits on our projects. 

    If you look for businesses with a proven history of successful fractional ownership initiatives & a commitment towards investor satisfaction, you’ll be all the more closer towards a good alternative investment. 

    1. Property Selection & Management 

    Number 2 on your due diligence checklist should be what strategy the alternative investment company uses for property selection, due diligence of the property, and the protocol for ongoing property maintenance after the property has been bought.

    After all, location & property maintenance are key for any real estate investment, especially if you aim to get your investment returns from rental income and value appreciation of the property. 

    1. Transparency And Communication

    The alternative investment platform should provide you with thorough and clear information about asset selection, acquisition, and management of the asset. 

    This includes tax information, procedure regarding creation of SPV, expected Rate of Return on the investment, and so on. 

    1. Opportunities to Diversify 

    Diversification should be a number one priority on your alternative investment due diligence checklist. When it comes to fractional ownership investing in real estate, opt for FOPs or platforms that offer a number of investment products that can help you diversify your portfolio. 

    This means, fractional ownership across multiple properties (commercial real estate or residential), or structured debt backed by real estate, and so on. 

    1. Professionalism and Investment Values 

    Evaluate the experience & expertise of the investment team. Do their values align with yours? Are you happy with their professional insights? Financial values & investment strategy? 

    Choosing an alternative investment platform that matches your financial goals and values is invaluable for maximising returns and effectively mitigating risks. 

    1. Regulatory Compliance 

    Make sure while doing your due diligence in alternative investments that the company you choose is compliant with RERA Act 2016. 

    For investing in fractional ownership of real estate, the company should follow the SEBI (REIT) Amendment) Regulations 2024, which states that for fractional ownership to come under the regulatory authority, there should be a minimum of 10 lakh rupee investment per investor, with a minimum asset size of 50 crore rupees. 

    1. Risk Assessment 

    Understand the risks of fractional ownership, including market volatility, property value fluctuations, and liquidity concerns. Conduct due diligence, evaluate your risk tolerance, and integrate fractional real estate investments into your overall investment strategy.

    Invest in Fractional Ownership of Real Estate

    The landscape of alternative investments and real estate fractional ownership has grown exponentially in India in the last few years. 

    According to a JLL analysis, the Indian fractional ownership market is currently estimated at around $500 million and is projected to grow more than tenfold to surpass $5 billion by 2030.

    Data from Knight Frank indicates that the market for fractional ownership in India was valued at USD 5.4 billion in 2020 and is projected to grow to USD 8.9 billion by 2030, with a compound annual growth rate (CAGR) of 10.5%

    Fractional ownership provides an attractive avenue for investors to gain exposure to commercial real estate assets, while diversifying their investment portfolios.

    By doing the right due diligence, making sure your due diligence checklist is on point, investors can make informed decision & maximise the already high potential returns offered by alternative investments in India. 

    Bottom Line 

    Fractional ownership has changed how the world looks at real estate investments. It is a paradigm shift, providing ease of access and potential for global growth through technological advancements. It’s a cornerstone of the modern diversified investment portfolio. 

    As the real estate sector in India grows, platforms that prioritise transparency, due diligence, and an overall good experience for investors will come to the front. At Assetmonk, we’ve embraced our role in shaping the future of fractional ownership in commercial real estate in India. 

    Fractional ownership of commercial real estate is all set to become a mainstream investment avenue. Investors who embrace this model stand to benefit from a more flexible and rewarding real estate investment experience in the years to come.

    Assetmonk’s web based investment platform facilitates access to these opportunities. We also contribute to the evolution of the real estate sector, and are ready to guide investors in their fractional ownership journey. 

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