Fractional Real Estate Investment: What is it and How To Make Money – Explained

Fractional Real Estate Investment: What is it and How To Make Money – Explained

In recent years the concept of Fractional Real Estate Investment has become quite popular in the rising nations like the U.S.A, Canada, the Middle East, and now India. People who were once unable to become involved in the real estate industry now can easily have that with this smart and accessible solution. It’s the new assured way to earn profits in commercial real estate and this article is to detail to you what it is and how it works.

What is Fractional Real Estate Investment

Anyone who’s had their ears close to the real estate industry must have come across this trending term - Fractional Ownership. And it is a blessing in disguise, for now, anyone, even if you have a tight pocket, can invest in commercial real estate.

 Here, you as an individual can buy a portion of commercial property and enjoy the same advantages as if you were to own it. And many more individuals will also invest in such fractions, attaining impressive annual and monthly returns. It is as if, instead of one person buying an entire commercial property, a number of people, say a 100 for instance, all together as an individual front buys off a property. This is a great way to increase the range in your portfolio, and also keep a steady, guaranteed passive income by your side.

Types of Fractional Ownership

Even in Fractional Property Ownership, you have investment models designed according to your financial convenience, the respective tax treatment and the type of property you are investing in. So you can find what’s applicable to you and start investing. Here are the 4 possible common types of fractional investing models you’ll come across:

-        The Joint Model

            Here, every co-owner owns the title to the property and can use the property as they want without affecting the ownership rights of other co-owners. Here, one can choose to even sell their property shares, granting other owners consent to it as well.

-        The Company Model

Here, every fractional shareowner has to come together and form a company and invest in the asset under the rights and regulations of the company. The property becomes company-owned and must be in compliance with the standards of the Companies Act. How is this helpful? You can make savings on several fronts, such as stamp duty.

-        The Co-Operative Model

            Here, every interested investor has to come together and form a cooperative society and invest in the asset they are interested in, under the identity of the cooperative society and not the individual owners. If anyone in the society chooses to leave and sell their shares, the shares of the co-operative society will be given to the new owner.

-        The Trust Model

This model too has its advantages, where you can save up in taxes if you produce an offshore trust with a country, and your country has a tax treaty. Here, the property seller itself has to author a trust where they write it in terms of benefits for the fractional owners. Trust ownership can only be established according to certain specified directions, otherwise, the model might prove ineffective.

How to Make Fractional Investments in Real Estate

Owning commercial properties is always a high-expense affair and had been for long limited to people with a high net worth. Fractional Investment opens up the world to any and every individual.

How do the proceedings go? Let’s say a company buys up a property. Now, this commercial property’s cost is divided into a number of equal shares. These are now individually or as a portion sold to interested investors. Now the property value is bound to increase with time. And these investors who are partaking in the fractional investing real estate will now receive the monthly rent charges, along with the capital returns if the property is sold or they individually decide to sell their shares.

All you have to do is open up a platform like CoVESTA, BrickX or any site dedicated to fractional investors. You’ll find a bunch of unlisted properties on the platform. Select any one you prefer and choose an amount you’d like to invest. You’ll receive a rental income based on the amount you invest and can monitor the growth of the property in the respective platform. You can choose to sell your shares when you’d like or retain them as the longer you hold them, the more your returns will be.

Fractional real estate investment in India has become quite popular, as it has made the industry diversified and accessible, and anyone from young entrepreneurs to corporate employees to celebrities can partake. Moreover, the flexibility and the minimal entry barriers this form of investment offers have proven to be quite helpful.