People have for long been trying to make their money work for them with the aim to eventually stop working for money. This goal combined with inflation is the reason individuals are constantly on the hunt for investment opportunities and fractional real estate happens to be the next hot thing in the market.
So what is Fractional Ownership of real estate? It is exactly what it sounds like! It is the collaborative purchase and consumption of property that is split between all the parties involved. The party that takes on the ownership of the said property will decide whether the property will be used for personal needs or put down to generate income.
An example of fractional ownership is the purchase of a holiday home by a group of friends to use for their leisure at their convenience. To look at this as an investment opportunity, a similar home purchased can be put out on a platform like Airbnb that will generate income which will be split among all the investors.
Fractional Real Estate initially began in the United States around the early 1990s and slowly gained acceptance in Europe as well. Fractional Real Estate offers a sense of flexibility by reducing the financial burden on a single investor to buy, maintain and monetize a property irrespective of the nature of the property.
Fractional Real Estate in India
The Alternative space in the real estate market has for long been the playground for Institutional investors and they have used this space and ability to afford the ticket size to their advantage. Fractionalization has now opened up such opportunities to retail investors. The Indian population too over the past couple of years has acclimated themselves to tapping into such investment avenues.
While we’ve already discussed why Commercial Real Estate is a wiser investment option when compared to Residential Real Estate, let's dive a little deeper into how can this Commercial Real Estate be fractionalized and what platforms and avenues help an investor do this.
The initial capital required to purchase a sizable Commercial Real Estate Property is one of the leading reasons to push retail investors out of this space. This comes along with the management hassle and the risk to reward ratios that might not hit the sweet spot.
When you bring in a group of investors who are willing to invest in the same property within their personal capacity and will in the same proportion reap the benefits of their investment, it counts as a fractional real estate investment.
This overrides the initial hassles and provides the investor with an opportunity they would otherwise not be able to take up. When it comes to property management, there are designated property management companies that you can outsource this entire process too. These two components alone level out the risk to reward ratio in the favor of the investor, making it one of the best ways to diversify one's portfolio.
How to play the Fractional Real Estate Game
There are a couple of things a potential investor must consider before getting their hands into this world.
Assess the opportunity at hand. Like any other investment, you should thoroughly analyze the property at hand and the potential this property holds over the next decade. Right now looking at the way the world works, data centers and warehouses are great options to consider.
You can also look into asset leasing opportunities where the usage is high and application accompanied by revenue generation through these assets should also be considered.
A long-term lease also indicates safety and longevity, so make sure the lease is not a very short one.
Once you’ve carefully assessed the opportunity at hand, take some time to look at the company/organization offering you this opportunity. Their portfolio, the team working behind the curtains, and their past reputation.
If all these hit the right checkboxes you should be almost convinced. Does the location of the property serve the purpose? Is the managing company well reputed? Are the partners trustworthy? Lastly and more importantly, do you have the patients to play the long-term game?
If yes, you’ve found the right fractional real estate opportunity for yourself.
While all these seem obvious, the deals aren’t readily available and aren’t easy to orchestrate by yourself or a small team. Therefore, platforms like bhive.fund are setting up a plethora of such opportunities that you can access via their tech-enabled investment platform.
They’re racking up a multitude of such investment opportunities and you can pick that one that suits you and your financial needs the best. Do check out our investment page to know more.