Earlier real estate investments used to be pictured as an investment avenue for the rich upper class due to the high ticket sizes of all investments. However, with the introduction of fractional ownership in real estate, it has become affordable for all types of investors irrespective of their specific financial background. Fractional ownership or fractional realty investment has existed in the real estate market for many years, but owing to the advancement of the technological platforms it is quickly gaining popularity amongst investors due to ease of accessibility.
Fractional ownership refers to an investment model where you own a part of a property or co-own a property with several other investors. The properties mentioned in this case are usually high-worth real estate properties (mostly commercial real estate) that are divided into sizeable small tickets and put up for sale for investors looking to own these sizeable tickets of the property as per the volume of their investment. These pools of investors share a common goal, that is, to earn rental income based on their share of the property. Here are 4 ways in which fractional realty can diversify your portfolio.
It Offers a Variety of Asset Classes
Investing in multiple asset classes is an important way of diversification and fractional ownership offers a variety of asset classes for investors to choose from. The asset classes under the dominion of fractional ownership range from multi-family residential investments to luxury real estate. Using fractional ownership you can own a part of the following asset classes:-
- Luxury vacation resorts– You could own a part of a prime vacation resort that allows you to stay within the premises as well as earn a rental income from it.
- Co-living spaces– Co-living spaces are one of the trending real estate investments at the moment that are affordable spaces that provide various amenities such as wi-fi, gas, electricity and common kitchen to several single tenants who live together in the shared apartment. This is highly popular these days amongst the millennials.
- Farm houses- Farm houses are used as weekend get-aways and are gaining more popularity these days in the sharing economy. There are many owners that rent out their farm houses for people to enjoy over the weekend or for longer periods.
- Senior living communities- Senior living communities are unique housing options for the elderly that appeal to their unique needs. In addition to having all of the services needed to live independently, these neighbourhoods also have health care units available in the event of an emergency.
- Residential properties- Residential properties are a common real estate investment. People either buy these properties as their personal residence or as a source for generating a monthly rental income by renting out to tenants.
- Commercial properties- Commercial real estate properties are also another common investment. Investors may invest in many different types of commercial properties such as co-working spaces, office spaces, malls and warehouses and may lease it out to companies in return for capital gains.
Since each of these different asset classes offered by under fractional ownership sees better returns at different times of the market cycle,your returns will maximise accordingly.
When the market changes, being overly exposed to any one at a given time will increase your risk. As a result, you are unable to fully benefit from market returns, even if other parts of the market are seeing higher returns. Therefore, investing through fractional ownership helps you reduce this type of risk.
It Offers Geographical Diversity to Your Investments
Geography is one of the best ways to diversify your portfolio. Just as fractional ownership offers a variety of asset classes to invest in, it also evidently has many different geographical locations where these different asset classes are present. Many investors stick to a particular known locality either where they live or around their neighborhood when it comes to real estate investing. However, it is not the most profitable scenario as when the economy changes it would affect your returns.
Hence, fractional ownership helps you own properties in different geographical locations. For example, you could own a residential property in the city, a co-living apartment near the industrial hub as well as a vacation resort based in a landmark tourist spot, all within your fractional ownership portfolio.
It Offers an Affordable Share Price
Fractional ownership makes it easier for investors to diversify their portfolio. Many investors do not even consider investing in different real estate avenues as most of these require a large volume of investment. However, investing in fractional realty allows you to buy high-worth assets at an affordable share price.
It Offers Passive Income Without The Hassle of Managing the Property
It goes without saying that when an investor owns a certain type of real estate property, he/she is liable for making repairs and managing their properties. This can be a daunting task for investors, especially for those who do not have any property managers hired to do that for them. This is one factor that could discourage investors from investing in several assets to diversify. But, fractional ownership makes this possible as it allows investors to own a slice of a property that generates passive income without having to worry about maintaining and monitoring the property personally. You do not need to worry about marketing as an investor. You would not have to think about property maintenance after you’ve bought it. A manager is usually assigned to fractional ownership properties to oversee the land.
Whether you are an investor who has recently entered into the realty market or an experienced investor who is looking to diversify his/her portfolio, fractional ownership is for all to discover. It has a variety of features to offer as compared to the standard rental and commercial real estate investments that can help you diversify your portfolio and offer you profitable returns.
Do you wish to start your fractional ownership journey in real estate? Assetmonk is a website that offers thoroughly curated fractional ownership assets. Growth, Growth Plus, and Yield are three types of properties listed on our platform that are appropriate for all financial objectives and investment terms. Growth plus is a product designed specifically for investors who want to diversify their risk by investing in multiple assets by collective ownership. The investor would benefit from the annual rental gains as well as the asset’s capital appreciation. The IRR on growth plus properties is 16-19%, which is higher than the IRR on traditional investment options. For more details, visit Assetmonk.
Frequently Asked Questions:
It refers to an investment model where an investor co-owns a certain share of an asset with several others. These co-owners share the common objective of generating income through rent or asset appreciation.
Fractional ownership is indeed a convenient form of real estate investment that may be short-term or long-term depending on the type of asset. It offers attractive returns in the form of rent or asset appreciation without burdening the investor with the expenses of maintenance and repair.
Multiple buyers who are interested in the same property come together to pay for an equal share of it in fractional ownership. Then, the company offering the fractional ownership service puts the property up on rent. The rent generated is shared amongst the co-owners in the form of dividends according to their share of investment.
It can be difficult to resell in the absence of prospective buyers. This could render your asset illiquid. Moreover, there could be an overlapping of usage among the co-owners; this means that co-owners of a vacation resort may want to access the place at the same time.