Real estate is a low-risk, high-return investment. It has the potential to increase your wealth and diversify your portfolio. This is why many people would love to get in on it. Nevertheless, getting your foot in the real estate market can be a massive challenge—it requires a lot of capital and expertise, making real estate investing out of reach for so many people. In our economic climate, property prices keep rising faster than incomes. If you don’t have a particularly high income, you probably think that owning real estate is not for you. This is where the magic of fractionalized real estate investments comes in. As the name suggests, fractional investing involves investing in a small piece of a whole asset. Fractionalized real estate investments make it easier to gain access to the property market because it lowers the financial barrier to entry. It offers a way for potential investors to invest in real estate at a more affordable price point.
In fractionalized real estate investments, property or properties are divided into small shares or units. The shares are then sold off at prices a lot lower than if you were buying the whole property. So, a group of unrelated investors get to partially own a property. The concept is similar to a timeshare, but, unlike timeshares, where investors own units of time, with fractionalized real estate investments, investors own part of the title. The investors will then often earn income from the rent charged on the properties. The investors can also gain profit from capital gains once the property sells, or if they sell their shares at a higher price than they bought them. As an investor, your gains and returns will be directly proportional to the size of shares you bought. Hence, the more you invest, the better your returns.
What are your Fractionalized Real Estate investment options?
When it comes to fractionalized real estate options, there are currently two ways you can go about it, either through a unit trust or through tenancy-in-common.
A unit trust is a trust or fund managed by a fund manager who is usually a real estate professional skilled at acquiring and operating highly profitable properties. The fund manager is responsible for purchasing the properties and splitting them into separate units. Potential investors then come in, purchase one, two, or even more units of a property, and then reap the benefits of their investment. The fund is responsible for renovations, repurposing, property management, and brokering any sale. This option is a passive form of real estate investing, as investors have little to do with the properties. It is the best option for an investor who is looking to invest in real estate but who knows very little about the industry. It offers very little risk for the investors, as trained professionals handle everything.
In this option, there is no company owning the fund or trust. A few people come together and each buy and own part of a property. The owners share the responsibilities that come with owning the property. This option, while more casual, does offer more risk, as the owners are responsible for the decisions that come with managing the property. If they do not know what they are doing, they run the risk of making mistakes and running their investments into the ground.
Benefits of Fractionalized Real Estate Investments
Fractionalized real estate investment offers a way to get into owning real estate at an affordable entry point. Owning real estate is normally capital intensive. But, with fractionalized real estate, the property is divided into shares, so getting a piece of the pie is easily affordable. It gives investors a unique opportunity to start small while thinking big, to become property owners without having to buy an entire property.
One of the disadvantages of the real estate business is that it is not very liquid. Real estate is a long-term investment. When you own a property on your own, the way to make the most money is to sell it at a higher price than when you bought it. However, getting a buyer is not always easy and can take time. This can be a challenge, especially when you need the money fast. With fractionalized real estate investments, you’ll find it easier to sell your share if you choose to.
Peace of Mind
Owners of fractionalized real estate share everything: losses, gains, and responsibilities. There’s comfort in knowing that the burden of homeownership does not lie on you exclusively. You don’t have to handle maintenance and checking up on the property alone; instead, you’re part of a team that does it.
Selling Can Be Hard
Selling fractionalized ownership can be difficult. The process is not as straightforward as selling whole ownership. You will have to do your due diligence, research the ownership structure, and understand what restrictions you may have when it comes to selling your share.
People Do Not Always See Eye to Eye
People are all different and do not always agree. In a fractionalized ownership, where every decision is made together with other part-owners, clashes of opinion or wishes can cause discord.
Fractionalized Real Estate and Invown
Invown offers everyday investors all the benefits of fractionalized real estate with few disadvantages. With Invown, the investor gets to own a share in real estate without having to worry about owning the underlying asset and dealing with maintenance or paying property management fees. Invown sources all of the properties and allows investors to scroll through them and decide which to invest in. Invown then manages the entire transaction, including all legal documents and filings on behalf of the investors. Invown also offers data and calculators to help you, the investor, make sound investment decisions.
In short, Invown makes buying fractionalized real estate work at scale, so that people like you seeking to invest in real estate can do so at affordable cost, low-risk, and trouble-free.