Owning real estate is a great way to diversify one’s investment portfolio. However, for most people, the initial capital required to own a residential or commercial property is inhibitive. Becoming a landlord and managing the real estate business can also feel cumbersome, and for those without the expertise or time to conduct due diligence, finding the right properties can be time-consuming.
This post defines fractional real estate investing, its advantages and how you can participate in one.
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What is Fractional Real Estate Investment?
Fractional real estate investment is a type of investing in which the investor owns a portion of the property rather than the entire property. The ownership stake is typically determined by the amount of money the investor has contributed to the purchase price. It’s like a crowdfunding model for real estate which allows you to own shares in apartment complexes, industrial buildings, vacation rentals, and multifamily residential properties. The costs of maintaining and running these properties, along with the rental profits, are split between the investors depending on their ownership shares.
Fractional real estate investment can be a great way to start real estate investing without having to come up with a large sum of cash to buy an entire property outright. It can also be an excellent way to diversify your portfolio, as it offers the potential for both appreciation and income.
What are the Key Benefits of Fractional Real Estate Investing?
Fractional ownership can be a good way to invest in a property that you would not be able to afford on your own, or that you don’t have the time to manage. It can also be a good way to invest in a property that is located in a desirable location, but that you don’t want to live in.
Here are the key benefits.
1. Low upfront investment
Fractional real estate investing typically requires a minimum investment of $50,000. That’s a small amount compared to the equity required in property purchases. As your funds increase and returns come in, you can invest more. Transaction fees are also lower, which gives your investments more room to grow.
2. Less active involvement
With fractional real estate investing, you have property managers handling landlord responsibilities and other administrative tasks. They take care of selecting the best properties and purchasing and renovating them. They also deal with finding tenants, repairs and maintenance, and managing day-to-day expenses.
3. Better liquidity
The average length of time that fractional real estate investors hold onto their investment is 5 years. However, you can sell your ownership of the investment property at any time without enduring the cumbersome task of finding buyers and getting the property ready for sale. Just inform the investing company and they’ll take care of selling your shares.
4. Better properties
Fractional real estate investing opens the possibilities to own lucrative real estate properties like large multifamily complexes, commercial real estate, and bigger single-family homes, which give you higher rental income and bigger returns.
You can also own properties in better cities, even if you don’t physically live or travel there.
5. Access to professional expertise
Through a property management company, you can confidently rely on professional real estate experts with several years of industry knowledge and experience. This reduces the risk of investing in underperforming properties.
6. Access to diversification opportunities
Through fractional property ownership, you can quickly diversify your portfolio by investing in different property types in different locations and markets. This investment strategy will mitigate risks further and allow you to experiment on the best properties with the highest returns. This approach typically involves huge investment capital if you’re single-handedly purchasing the properties.
7. True passive income
Most people new to real estate investing make the common mistake of thinking it’s a passive investing strategy. The reality is that properties require upkeep, repair, and active landlord duties to generate monthly rental income. With fractional real estate investing, there’s no energy investment required from you. The fund managers handle everything and you are assured of a reliable monthly income stream as your capital appreciates.
How to Get Started with Fractional Real Estate Investing
Fractional real estate investing sounds like a dream come true to investors who want to gain from real estate investments without the headaches associated with it. One way to get started is through real estate funds, which are professionally managed pooled funds invested in rental properties.
Saint Investment offers high returns and secured real estate funds that you can take advantage of right away to start your real estate investing journey. Get in touch to learn more.
President of Saint Investment Group
Nic is a two decade seasoned expert in investing and capital raising, specializing in Real Estate and debt markets. With Saint Investment Group, he leads large-scale distressed asset purchases and innovative syndications for investors.