Fractional Ownership Concept In Real Estate Explained
Did you ever think that you could own a share of one of those extravagant, lavish properties like resorts or even commercial real estate including office spaces, warehouses, or retail spaces in a mall and take pride in being called an owner of them?
Fortunately, with the fractional ownership concept, it is possible. You can co-own the property and even enjoy rental income. So, it not only fulfils the ownership longing but also earns you good revenue regularly.
What is Fractional Ownership?
It can be understood as a type of investment in which you share the cost of the property along with several other investors, decreasing the risk of ownership. Generally, they are high-worth assets like real estate property, vacation spots like resorts, yachts, jets, sports cars, boats, aircraft, etc., or even costly artworks and in turn allow you to own a certain fraction of the asset.
Off late, it started gaining prominence in the global real estate market owing to its affordability and security.
What is the Difference?
|Timeshare and Fractional ownership||REITs and Fractional Ownership|
|Timeshare as a concept has always been confused or misunderstood with fractional ownership. Whereas in reality, the former allows you to use the property for a certain period of time, usually 1-2 weeks per year, and the latter actually will allow you to own a property.||REITs enable you to invest in them and in exchange, you get your share every month in the form of ‘dividends’. Whereas in Fractional ownership, you invest in a property along with several others and fractionally own it. Added benefit in this is that you can use the property and also earn rentals based on which type of fractional ownership you’ve invested in.|
How Does Fractional Real Estate Investing Work?
In fractional ownership, multiple investors who are interested in one property come together to pay for an equal share for it.
For example, if a property's actual worth is two crores, this module will bring down your share to 10 lakhs along with 20 others paying the same amount. This will now make the buyers - the co-owners.
Each co-owner is issued a fractional ownership certificate once the sale deed is registered.
Types of fractional ownership:
In commercial Real Estate
You do not use the property for personal reasons. You can only rent or lease the property and share the earned rental income equally among the investors.
In personal use
All the owners have an added benefit which is access to usage of the property. You can either use or give the property on rent during the period of your share.
How Do You Start Fractional Investing?
You can buy such property from certain companies like Assetmonk, Crowdstreet, Real crowd, Realty mogul, etc., or any other best-performing companies available in the market and invest in them.
You can also check out our Assetmonk's Growth Plus product which is a fractional ownership module offering fixed returns along with a major share on the share profits from the high-growth potential real estate properties.
Why Should You Choose Fractional Ownership?
- Firstly, it allows you to buy high-cost properties at an affordable share price.
- The management company performs due diligence i.e evaluates the properties carefully and then lists only the reliable and risk-free properties for you. Thus, decreases the work of hunting histories, legal aspects, etc of properties at your end.
- It will earn you high rental yields.
- In this investment, the risk of ownership is dramatically reduced as the actual cost of the property is shared among several investors.
- If you fractionally invest in a high-quality property at a good location, the returns are likely to be high.
- At the end of the tenure, investors get a major sale share on the profits.
- You can always be worry-free because the property manager is always there to take care of your property.
Pitfalls You Should Consider Before Investing:
- Tough re-saleability and therefore will leave you illiquid for the committed period.
- In the case of personal use fractional ownership, there might be many interpersonal problems raising because it involves several individuals. Here are a few to mention:
- The division of who will take care of the different expenses on the property including the bills, repairs, etc.
- Various opinions on when to sell.
- Overlap of usage, if incase of vacation spots like resorts, yacht, etc.
What is the Conclusion To Draw?
Due to the high affordability and security, fractional ownership has been a great passive investment option in the market for a while now. This type of real estate syndication allows you to invest in prime properties at elite locations that are out of reach when alone. It's now your option to either choose to invest in these stable and tax-advantaged assets and benefit from them or not.
Fractional ownership has been a great passive investment option ever since it found its way in the residential real estate sector owing to its high affordability and security.
- Firstly, it allows you to buy high-cost properties at an affordable share price along with other shareholders and this in turn will reduce the risk of ownership dramatically.
- It will earn you substantial rental yields.
- The management company will leave you worry-free because it is there with you right from the start till the end of the transaction.
It can be understood as an investment in which you share the cost of the property along with several other investors, decreasing the risk of ownership. High-worth assets like real estate property, vacation spots like resorts, yachts, jets, sports cars, boats, aircraft, etc can be fractionally owned.
Timeshare with fractional ownership has always been a popular misunderstanding. The former allows you to use the property for a certain period of time and the latter will own you a property.
In the case of personal use , there may be many interpersonal problems raising like:
- The overlap of usage of property if incase of resorts, yacht, etc.
- As in who’s to pay the repair bills, maintenance charges, and so on.