How to Buy Fractional Real Estate for Passive Income

Passive aggressiveness is annoying. So are the pointed and often anonymous notes that passive-aggressive types like to leave in their wake. Passive income, on the other hand, is a beautiful, beautiful thing.

This type of income is just what it sounds like: income generated with minimum effort. It is revenue generated even while you sleep soundly, dreaming of all the things your passive income can help you buy. Sign me up!

Best way to earn passive income

Passive-income pundits have no shortage of creative ways to earn passive income. From selling stock photos or writing an e-book to creating Udemy courses or starting a YouTube channel, passive-income opportunities are seemingly all around us. I don’t know about you, but writing a book or creating coursework doesn’t seem that passive to me. I can’t sleep while writing a book. Trust me, I’ve tried.

Those looking for a genuinely passive income-generating experience with sleep opportunities galore will find real estate investing one of the best passive-income scores.

Barriers to real estate investing

Real estate investing is easier said than done, particularly when you consider the current nuttiness of the real estate market. For example, in January 2022, 70% of homes on the U.S. housing market ended up in a bidding war situation, representing the highest rate on record. So, unless you come from a fifth-generation, passive-income stock, you might find real estate investing to be financially unattainable—even if it is of profound interest.

Other costs also start to add up around homeownership. You’d have to contend with legal fees, property maintenance costs, and realtor fees. That last one averages almost $18,000 alone. All of these costs make real estate investing out of reach for the average millennial wannabe real estate mogul.

Or is it? Enter fractional real estate investing.

What is fractional real estate investing?

Fractional real estate investing, lets you own a portion of a property in partnership with multiple unrelated parties. Then, when the co-owners want to sell their shares in the property, the cooperative’s shares are transferred to the new owner of the shares. Fractional investing real estate is well worth exploring for investors who have money to invest and want to diversify their property holdings rather than invest everything in one property.

Fractional ownership opportunities exist for a wide range of property types, including commercial properties, warehouses, vacation rentals, and even potentially farmland. Simply put, fractional real estate investing lowers the barrier to real estate investing, a type of investing that has historically been an asset class with a high barrier to entry. Recent shifts in business models are fundamentally changing the way we think about asset ownership.

How does fractional real estate investing work?

Getting started is straightforward as long as you meet the following criteria:

  • You are at least 18 years old.
  • You have a U.S. social security number.
  • You can pass anti-money laundering checks.
  • You have a valid U.S. residential address.
  • You have an email address.

Provided you meet the above-noted criteria, you can open an account and verify your identity. Once the platform properly verifies your identity, it will prompt you to deposit funds into your account. You can also use an Individual Retirement Account (IRA) to invest in fractional real estate, depending on the platform.

Shopping for your fractional real estate  property

Many fractional investing real estate platforms use artificial intelligence (AI) technology to identify properties on the market that would be most attractive. Multi-family homes are a popular choice, as their long-term investment potential is strong. The ability to earn stable rental income with residential properties (hello passive income, there you are!) gives investors the warm fuzzies.

Once these AI-identified opportunities undergo another round of vetting by a team of real estate experts, a more detailed screening ensues to make sure the property is the right fit. Criteria for fractional property success include:

  • Location, location, location.
  • Financial history of the property.
  • Rental contract particulars.
  • Details on the structure.
  • Market conditions.
  • Economic trends.

Recommended: See which properties are available for fractional real estate investing on Ark7 from various states, including Arizona, California, Pennsylvania, Texas, Tennessee, and Washington.

Riding the passive income train

Once you find the fractional ownership opportunity of your dreams, you’ll buy shares in the offering, making you a shareholder in the property. The property title itself is owned by a registered series LLC, not unlike when purchasing stock. Also similar to stock market holdings, fractional shareholders can earn money through rental income (distributed monthly) and value appreciation (either when you sell your shares or when the property sells).

This monthly passive income may fluctuate depending on what is going on with the property, since all property expenses are deducted from the rental income prior to distribution. While these shares have indefinite terms, they will be tradable on a secondary market in the near future.

Dotting the I’s and crossing those T’s

This all sounds like a no-brainer and wonderful fit for those diversifying from the traditional stocks and bonds portfolio fodder. Here are a few additional points of clarification around the process:

  • The property management fee is a percentage of rental income and is deducted along with other expenses before rental income distribution.
  • This management fee covers the standard property management fee deliverables, including rent collection, oversight on maintenance and repair requirements, marketing of the property to new prospective tenants, and responding to tenant requests.
  • Investors are not required to pay property taxes directly; the registered series LLC covers those.

Are you ready to take the next step in building your passive income empire? Sign up for Ark7 today and experience the kind of deep sleep that only fractional real estate investing can deliver.

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