Fractional Investing in Real Estate

October 19, 2020 – Real Estate Investing

Fractional real estate investing is a trendy business model that is starting to gain traction. Imagine owning a 10% stake in a high-value investment property and share in the risk of ownership with other unrelated parties. The market dynamics are changing as more people become willing to embrace the sharing economy.

Making money in potentially high-growth real estate is no longer reserved for the super-rich. And real-estate investors are joining the bandwagon of fractional ownership. At small investment amounts, consumers can invest in high-value residential and commercial properties using a commercial real estate investment firm.

Thanks to the opportunities that come with this type of investing, many people have discovered the hidden potential of fractional investing and seen their financial returns markedly improve.

The potential to realize substantial capital appreciation and double or even triple their investments has further increased the popularity of fractional investing.

But most individual investors still face the same age-old question: Is it better to be an active or passive real estate investor?

Active Investing

Most real estate owners start their journey by investing actively in single-family homes or residential real estate. Active real estate means that you are in charge and make most of the decisions.

At the very least, you’re making buy-sell decisions, creating budgets, determining renovation plans, and working with the property manager.

It’s not uncommon for an active investor to take on the day-to-day operations of the property, including dealing with tenant complaints and answering phone calls in the wee hours of the morning. You can end up with a lot on your plate, especially if you’re handling multiple properties.

If you don’t like the idea of being a landlord or don’t have the expertise and experience to turn a profit, active real estate investing may not be for you. If you choose to go with this approach, it’s essential to be extremely cautious and learn how to invest wisely. Many investors prefer the passive real estate investing approach.

Fractional Investing in Stocks

Residential real estate has the potential to make a lot of money. You have more control and higher returns, but mistakes can be costly. Essentially, it’s a high-risk, high-return investment strategy.

Another way to invest in real estate is to be a passive fractional investor. Fractional investing is common in the stock market and can be replicated in the real estate market.

So how does stock investing work? A share or stock is a paper security representing partial/fractional ownership in a corporation or company.

Fractional share investing is when investors pool their resources to purchase partial shares of a company or asset. Rather than owning one or more full shares, the investor owns a fraction or portion of one.

Fractional Investing in Commercial Real Estate – Syndication

Passive investing in real estate gives you less control over your investment, but it exposes you to much less risk as an investor. You’re choosing to pool your money with other investors to purchase property managed by an experienced apartment sponsor (a real estate professional skilled at acquiring and operating highly profitable properties).

This type of investing is referred to as syndication: the pairing of investors and a sponsor to acquire a property.

Real estate syndication allows you to invest in high-value properties and prime areas that would typically be out of your price range, which is the most intriguing aspect of fractional real estate investing. It opens up new possibilities to own a share of multimillion-dollar properties without being a millionaire.

Is Fractional Investing Right for You?

Fractional real estate investment is a great way to build and accumulate wealth, but not all investment strategies are the same. It’s crucial to understand the pros and cons of each investment strategy to ensure you are choosing one that will set you up for success.

That’s where we come in. Our core mission is to leverage our industry experience to provide valuable information to existing and potential investors. We will become familiar with your investment goals to ensure you make the right investment decisions.

Many investors opt for fractional investment in real estate to take advantage of tax incentives and own equity without being constrained by capital limitations. Fractional property investing also offers a great way to diversify for risk reduction in an asset class that responds differently than stocks to inflation and interest rate risk. What’s not to like about commercial multifamily real estate and fractional investing?

Want to start your journey in multifamily real estate investing? Call Yankee Capital today at (781) 400-8778 to speak to our experts and become an investor today.


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