If you’re interested in investing in real estate but you don’t exactly have real estate developer money, fractional real estate investing may be an excellent option for you. Fractional investing allows you to invest in real estate without the need for a massive down payment or loan and without the headaches that come with being a property manager, i.e., 3 A.M. phone calls about burst pipes, tenants not paying their rent, and so forth.
Interested in learning more about fractional real estate and how to invest in it? Keep reading.
What is fractional real estate investing?
Fractional ownership allows investors to own pieces, or fractions, of high-value assets. In real estate, this can be residential homes, high-rise apartment buildings, office space, storage units, etc.
Fractional real estate investing is often facilitated through a real estate investment trust or REIT, which pools investors together to purchase parts of investment properties that otherwise would have been too expensive for a single investor.
Benefits of fractional real estate investing
Some of the most significant benefits of fractional investing in real estate include:
Lower barrier to entry
If you use a real estate investment platform, you can begin investing in real estate with as little as $100 or less. You can set up auto payments each month to continue building your portfolio or you can throw in $100—or as much money as you want—when you have spare cash to invest. This is a much easier way to invest in real estate than having to seek out properties and tour them, get pre-approved by the bank, put down a large down payment and deal with all of the other tasks associated with real estate ownership, which in itself can be a full-time job. This makes fractional real estate investing accessible to the masses.
Diversify your investment portfolio
Fractional real estate investing allows you to only purchase parts of a property (or properties). This empowers investors to spread their money across a wide range of investments instead of sinking all of their savings into an expensive—and expensive to maintain— investment property of their own. A diversified investment portfolio also helps reduce risks faced by investors.
Earn passive income
Who doesn’t want an additional passive stream of income? With fractional real estate investing, all management duties are usually taken care of by an experienced third-party team or sponsor that professionally manages the property, upkeep, tenants, repairs, and other legal requirements. This allows investors to focus on finding a reputable platform, creating and funding their account and sitting back as their investment goes to work to generate returns. In short, fractional real estate investors reap all of the benefits of property ownership without the hassles of managing it.
Fractional investments allow more capital for investors to purchase more properties, which allows them to buy better properties with the best chance of high returns.
Fractional real estate investing gives investors more access to liquidity and flexible contributions.
When you invest in fractional real estate, you have access to flexible operations across a broad spectrum. For example, you get access to professionals, which saves you some of the stress associated with traditional real estate investing, like managing tenants.
Virtually no hassle
Aside from purchasing shares and managing your portfolio, fractional real estate is about as hassle-free as real estate investing could get. The entity responsible for fractionalizing the properties would also take care of the property management and maintenance.
Disadvantages of fractional real estate investing
It should not come as a surprise that there are a couple of potential downsides associated with fractional real estate investing, including:
Unlike sole ownership, fractional investments don’t give investors complete control over all affairs, such as when to make major renovations, when to sell the property, or which tenants live in the units.
Platforms usually have and retain full control of the project and investors are usually not asked their opinion on management details.
Hard to get started—if you’re not using a platform
If you decide to not use a platform for fractional real estate investing, your path will be a bit more burdensome.
If you set out to invest solo, you’ll have the burden of acquiring the assets, preparing contracts to guide investors, and making sure all investors are on the same page and will sign the agreement before you can proceed. Of course, if you use a platform like Ark7, you won’t have to worry about any of this.