Real estate investing is one of the tried financial instruments you can get into if you have the financial capacity and patience.
It’s not a secret that this type of investment is very lucrative and can help you with inflation hedging, as well as portfolio diversification and protection.
Unfortunately, real estate investing requires significant capital, which means fewer people can afford it. It’s good that emerging investment instruments, like digital real estate and fractional real estate, are becoming more popular.
These types of investments open doors of opportunities for novice investors who’d like to build their wealth through passive income generation.
If you’ve been hearing the buzz about it, but you’re still hesitant to dive in, here are four things to know about fractional real estate investing:
1. This Business Model is Used in High-Ticket Asset Investments
Fractional property investing is when one invests in high-ticket items, such as sports cars, aircraft, or residential and commercial real estate, like vacation properties, through dollar value rather than whole shares. Some commonly interchange the timeshare business model with fractional ownership.
They may sound like they use the same business model; still, the main difference is that fractional real estate ownership is directly owning a slice of a property, while timeshare is owning an allotted amount of usage. Learn more about timeshare ownership and timeshare cancellation services here.
One also has to consider that fractional real estate investing allows the investor to earn when the value of the property increases.
This business model has been prevalent in Europe and US for years but has been largely participated in by institutional players. This emerging type of investment avenue is made available to retail investors and the middle class.
2. You Don’t Need to Be a Millionaire to Invest
Investing in fractional real estate is one of the cheapest ways to get your foot in the property market industry. Believe it or not, the minimum investment can go as low as US$25, and that amount makes you an owner of a premium commercial or residential real estate property.
Getting into this space allows investors like you to access institutional-quality deals, which an average person usually can’t afford by themselves, especially if they don’t have any credit.
Aside from earning passively, this type of real estate investment is an excellent way to diversify your portfolio—a benefit one can enjoy as a novice investor.
It’s also easy to get into this type of market. Creating an account with a broker you can find online or through a mobile app is the only thing you need to do to start. Investing in fractional real estate properties works as a great equalizer when it comes to owning real estate.
3. Two Types of Ownership Arrangement
Fractional real estate ownership is a concept built on the idea of getting together with a bunch of people who are all interested in chipping in to fund a particular property. There exist two types of ownership arrangements in this type of investment.
This type of arrangement gives you the rights and responsibilities you share with other co-owners to physically control what happens to this particular real estate property bought through fractional real estate.
The challenging part here, however, is that you have a maddening number of options, suggestions, and decisions you all have to agree on as a whole should a problem pop out of the woodwork.
LLC- Or LLP-Controlled
If this type of ownership arrangement is what you choose, then expect to have limited to no rights in managing the property.
This kind of arrangement is preferred by most as they’re only concerned about partaking in the passive income this investment generates.
4. You Still Pay Taxes
Real estate taxes, unfortunately, are one of the constant things in life. This remains true even if you only own a percentage of fractional real estate.
As a co-owner, it’s also part of your responsibility to pay for your share of property taxes. Be accountable and do your due diligence in researching if the property you co-own is under the jurisdiction where sales of fractional properties trigger tax reassessment and increase.
A World Full of Opportunities
Real estate investing has always been a delectable type of financial instrument that continues to entice a whole spectrum of investors.
Owning physical or digital real estate is an excellent way to enjoy appreciating values if you have the patience for this type of long-term investment.
What makes fractional real estate investing attractive to novice traders is the affordability and accessibility of entering into this investment space.
A word of advice, as with any type of investment, your financial stability comes first and foremost before trying to enter any kind of investment project.
Owning a fraction of real estate will not matter if you and your loved ones end up homeless or on welfare just because you tried to hedge your family’s savings. So, always be cautious and do thorough research first before investing.