Investment is a crucial step in anyone’s life. Utilising the money one earns in a useful way so that they multiply in the future is quite essential. One of the most popular sectors for investment in real estate. Real estate is considered the most profitable form of investment when properly maintained.
Even though real estate was very popular back in the day, acquiring properties as a form of investment is becoming increasingly difficult. Due to inflation, the costs of most properties are much higher than the average income of a middle-class person. Many people considered the future of real estate investment to be bleak. Fortunately, newer methods of real estate investment have started that makes it possible for one to increase their profit margins, even with low down payments. This method is known as fractional real estate investment.
What is Fractional Investment?
Fractional ownership in real estate is a legal setup where a group of individuals owns a singular property together. A high-value asset is shared between investors which diminishes the financial burden on a single individual. This asset can be anything- from a commercial property like an office space or mall, to a building, to an apartment. The group of investors has passive ownership of the asset which lets them earn returns over their portion of the investment. The income and expenses are also shared by the investors.
Models of Fractional Ownership
There are a few kinds of models of fractional ownership commercial real estate that the co-investors can follow to make the ownership legally and monetarily binding.
● Joint Ownership
This is the easiest model for fractional real estate investment. Here all the investors have rights to the property. This means that the individual owners are entitled to the property and they can use it according to their wishes as long as it doesn't harm the detailed rights of the other co-owners. In this model, owners either use certain portions of the property or give the rest on rent. They might also share usable areas according to the agreements of their contracts. If an investor wants to sell their share, they can do so with the approval of the other co-owners. It is the simplest form of co-ownership since this gives each person their own right to the property. This model is more suitable for domestic real estate properties.
● Company Ownership
In this type of fractional ownership of real estate, the group of investors forms a company and each of them becomes a shareholder of the company. Depending on the percentage of property they want to buy, each investor is to own the same percentage of the company as well. The real estate property, in this case, is named after the company. The company owns the property instead of the individuals separately. The profits are distributed among the shareholders depending on their ownership percentage. This is more beneficial for fractional ownership commercial real estate. Even though this model comes with its unique set of responsibilities, this model saves a lot on taxes and duties. The real estates under this co-ownership are generally available for rent.
Reasons behind growth
Affordability-
Even though real estate has always been a well-favored form of investment, it has been so in upper-class circles, among people who have a lot of capital. Making real estate investment accessible to the middle class would inadvertently grow the market. Fractional ownership provides that accessibility. It gives the chance to people with lower capital to increase their assets without having to risk their savings.
Risk Management-
Even though it is true that the value of real estate never drops, there might arise some unforeseen changes that might affect the profitability. In such cases, fractional ownership acts as a safety blanket. All your savings are not invested in one place. If the popularity of one of your invested properties decreases, all your money doesn’t sink. This risk management makes fractional real estate investment a safer option.
Tenant Contract-
With domestic real estate like an apartment or house, the lease of a tenant is quite short, and if one tenant leaves, finding another takes time which results in a period of loss. When one utilises fractional ownership, the most common types of properties available are commercial which are rented by large companies like banks, malls, software, etc. The contracts extend for a long period of time and the rent paid is also quite high. The return with fractional ownership commercial real estate would be higher.
Direct Payout-
The profits on your fractional investment would come from rent which is mostly monthly or quarterly. The returns are more direct and faster than that of bonds or deposits which take time to mature. The profits from your investment are directly delivered into your bank account every month which is a better way to use your savings.
The term “tokenization” is a widely evolving trend among business entities currently.
Tokenizing a property means, to divide the shares and create tokens which are sold to the investors for capital.
And the tokens usually represent a single property or shares from various real estate properties.
The tokens are backed by blockchain technology which will ensure the investor’s interest and helps, store and protect the properties information and record every transaction on the chain of blocks.Investor Benefits from tokenized real estate assets:High-volume liquidityBlockchain offers Immutability for the transaction records TransparencyElimination of third parties and thereby, eliminating transaction fees.
Dividend sharesFractional ownershipLow transaction costsAutomated share management and reportingEnd-to-end security integrationNow, to buy tokenized real estate, there are already many existing real estate tokenization companies and there are new ones evolving each passing day!
To attain reliable tokens, you must conduct extensive research and choose the right platform to enhance your business and to gain high-profit values.
Blockchain in real estate has enhanced the new leaf for this industry.
Then blocks are encrypted and linked in a chain that takes place with a network of nodes.
There is no party that has control of or can change and each individual transaction is only verified via cryptography.
However, blockchain in real estate may soon usher in a change in their roles and participation.
Furthermore, fractional ownership allows them to avoid the hassles of property management, such as maintenance and leasing.Transparency and Decentralization of InformationBlockchain is well-known for its trust and security as a decentralized innovation.
This kind of process creates transparency and immutability of the information.
What is a commercial real estate property?Buildings for retailBuildings for office space.Warehouses.Buildings for Industrial purposesBuildings for apartmentsBuildings that have retail shops, office space, etc.Investment in commercial Estate increases your income, compared to renting to a single-family, which yields a profit of around 2-4%, commercial estate gives you a profit of around 6-12% on the price it was purchased.
Commercial real estate has specific hours when the shops are open, you won’t have to worry about any hassle at night, unlike renting for housing where you can be called for maintenance anytime.The retail tenants manage their space by themselves as they need to catch the customer’s eye, you can save yourself putting extra efforts into that.You can have more business to business customer relationships with the tenant which will help in keeping the conversation professional.Retail tenants have to maintain their image for their customers, for which they take care of the property which is in the common interest of both the tenant and the landlord, hence the quality and value of the property increases with time.If your commercial real estate property is in a very premium location, megabrands would be interested in your property, and because they have to maintain a very good reputation amongst their customers, your property’s condition will improve along with its value.
Shops like Adidas store or Starbucks would further increase the value of your property.You don’t have to pay any expenses on the property, it is the job of the lessee to pay the taxes and expenses.
You only need to pay the Mortgage.To have access to the best Investment property commercial Real Estate services, visit Infinity commercial group.
