What is Fractional Investment / Fractional Ownership?
Active income is on. All is well! But is that enough?
We prefer a good life even while we’re working, and hence may require passive income. Sure, we’d love passive income with the hope our investment returns work for us. Some savings give us only interest as returns, while some give both returns and capital appreciation.
We could save in equities, mutual funds, fixed deposits, ETFs, REITs, real estate, and so on. Investing is a necessity. Today, with online apps, one can complete a KYC and start investing almost immediately. One needs to beat inflation, but we also need to understand our risk appetite.
The idea is to maximise interest earnings on our investment. Typically, ROI on a fixed deposit is around 5% (a little more for senior citizens in India). Landlords earn a typical 2% odd on residential investments, and over 5% on commercial — relying on capital appreciation. Investing in commercial space gives a better ROI. Fractional real estate investing is what allows many investors to come together to fund such commercial property investments.
What does fractional investment and ownership mean in real estate?
Fractional ownership in real estate investing is essentially purchasing a portion of an investment property. A group of like-minded investors pool their money together, allowing them to invest in higher-value properties. This lets all stakeholders share ownership of high-value assets without having to pay for the whole investment themselves.
This is for commercial real estate investors. The low cost of investing (around ₹25 lakhs) and high return has made it one of the best investment options.
Advantages of fractional ownership
- Passive income
- Easy diversification of assets
- Low capital investing
- Invest in fractions of premium pre-leased commercial properties and earn a monthly rental yield while building long-term wealth
- Long-term capital appreciation
- A stable asset class
- Ease from managing the asset
- A diversified portfolio
Difference between REITs and fractional ownership
A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-producing real estate. REITs often trade on major exchanges like other securities and provide investors with a liquid stake in real estate. In a REIT, we don’t own the commercial property but enjoy the dividends — and we can’t put the property up for sale.
On the other hand, fractional owners are co-owners in the commercial property. Fractional ownership is a percentage ownership in the property — be it an office space, showrooms in a mall, or warehousing spaces.
For further information, do contact us!
Disclaimer: The views expressed in this blog are those of the author. Kindly conduct your own due diligence or seek advice from your advisor before investing.