What Is Fractional Investment in Real Estate?

May 14, 2021

fractional property investment

Fractional investment in real estate is a relatively new concept that opens new doors for investors who can’t gain entry into this sector otherwise. It’s a new pathway toward financial growth, making investing in properties far more accessible.

When it comes to real estate investing, traditional approaches aren’t always viable options for the majority. For example, house flipping requires a major upfront investment. The outcome can be incredibly unpredictable, both when it comes to the size of the return and the time necessary to capture it.

With fractional property investment, many of the obstacles disappear. It allows nearly anyone to focus part of their portfolio on real estate, something that wasn’t the case just a few years ago.

If you’re curious about fractional investment in real estate – including what it is, how it works, and how to get started – here’s what you need to know.

What Is Fractional Investment?

Fractional investment is an approach that lets investors buy only a portion of an asset. Usually, it relies on pooling funds with other investors, ensuring the total amount of money involved covers the asset’s full value. However, whether the venture needs to be coordinated in advance or whether the pooling can happen organically depends on the type of asset involved.

For example, in the stock market, a fractional investment typically means dividing a single share between multiple investors. While the investors could personally gather to pool their money, some brokers make this unnecessary, supporting fractional share purchases through their product and service design.

Typically, fractional investing makes various kinds of asset ownership more accessible. It can include traditional investment vehicles like stocks, as well as other assets, like real property. An investor doesn’t need enough money to acquire the entire asset, allowing those with less cash to get involved in new sectors.

However, this can also mean that the investor doesn’t have a full say in what happens to an asset, particularly if it’s related to real property. They are simply one of many who own a portion.

But that doesn’t mean they don’t control the destiny of their fractional investment. Usually, investors can sell their piece whenever the need or desire arises, giving them a level of say about their investment.

What Is Fractional Investment in Real Estate?

fractional investment in real estate

In real estate, fractional investments allow a person to buy a stake in a property without actually owning it. As with all fractional investing, a group of investors would effectively come together – either intentionally or through a service – to acquire the property.

With fractional investment in commercial real estate or residential properties, higher-value assets can be easier to acquire. The financial burden doesn’t necessarily fall on a single buyer. Instead, multiple interested parties can support the purchase.

There are several fractional investment models available in the real estate sector. One example is real estate investment trusts (REITs). These companies own or finance income-generating properties that investors can purchase a stake in, effectively allowing them to invest in the associated real estate.

Another option is fractional investment models that rely on tokenized real estate investment. Essentially, the investor acquires a token connected to the property, one that they can sell at any time.

The ability to make fractional property investments begins with the asset owner. The owner decides to tokenize the real estate, creating a set number of tokens representing shares in the property. The total value of the collective tokens is equivalent to the asset’s total value.

Once the tokens are official, the real estate is securitized. The tokens – at times referred to as “security tokens” – are then eligible for sale. This opens doors for investors who may otherwise not be able to afford real estate as part of their portfolio.

In some ways, these tokens aren’t unlike cryptocurrencies. They are usually bought, sold, and traded in a similar fashion using the same platforms. However, unlike many cryptocurrencies, these tokens represent a stake in real property. The value of this underlying asset is known, and token owners benefit from any price appreciation that occurs over time.

The Benefits of Fractional Property Investment

fractional investment in commercial property

Fractional investing in real estate is one of the simplest ways for a person to add properties to their portfolio without owning the real estate itself. It opens up unique avenues for diversification that may be hard to capture otherwise.

When using a token-based approach, fractional investing in real estate provides a variety of benefits. First, it makes entering the world of real estate investments more affordable, as an investor doesn’t have to purchase an entire property. Plus, since it’s a pathway to securing a stake in an actual property, the investor benefits from any appreciation directly, as the value of the token rises in accordance with the real estate’s value.

Second, fractional investment in real estate supports greater liquidity. The tokens function similarly to cryptocurrencies, allowing them to be easily bought, sold, or otherwise traded. Further, this allows real estate tokens to be purchased with other cryptocurrencies or fiat currency, creating additional avenues for investments.

Finally, by using blockchain technology, there’s a heightened level of security. Tokens are immutable, and all trade-related transactions are unalterable, creating reliable records of transactions. This simplifies trading. Plus, it’s often far faster than many other approaches to investing in real estate.

How to Get Started with Fractional Investing in Real Estate

For anyone interested in fractional real estate investing, you’ll need a portal for purchasing your stake in the property. If you’re focused on REITs, then you may be able to turn to a traditional broker. Many REITs are listed on stock exchanges, so they are fairly accessible. In some cases, you may even be able to secure a fractional share, increasing the accessibility further.

If you’re interested in getting started with fractional investments in real estate, SolidBlock simplifies the process. Through the use of tokenization, investors can tap into the potential of real assets using a cutting-edge approach that supports growth and maintains liquidity, making it an excellent choice for fractional investing in real estate.

Ultimately, fractional investment in real estate can be a great addition to a diversified portfolio. It opens up avenues that are often harder to tap, allowing investors with less cash to get into the game.


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