What is Fractional Real Estate Ownership

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Contributor, Benzinga
October 31, 2022

Want to jump straight to the best fractional real estate platform? HoneyBricks is the favorite with low minimums and a great selection of properties.

For many, a major goal in life is to own some sort of property. People see property ownership as an indication of true wealth and prosperity and for good reason. Real estate has historically been a major factor in creating generational wealth for most well-off families. However, achieving this goal can be a difficult task that takes years, if not decades, to achieve. It isn't getting any easier either. It seems like every single year there are more and more Americans who can no longer afford property.

Fractional real estate ownership is proving to be a great solution to this problem. Platforms like Honeybricks allow more people to own property without dumping their entire net-worth into it or taking on enormous debt at times of high interest rates. With fractional real estate ownership, investors can reap the benefits of having property without the absurdly high cost of purchasing entire properties by themselves. 

What is Fractional Real Estate Ownership?

Fractional real estate ownership is when you own a portion of a property. This does not mean you own two out of four rooms of a house; it means that the total ownership of the property is shared by all owners. When the price of the property goes up, so does the value of your fraction of the property.

In practice, this kind of investment can play out in many ways. One of the most common kinds of fractional real estate ownership is timeshares. For some, the right kind of timeshare agreement could be useful for buying a vacation home over time. It may not be economically attractive to buy a home and use it for only a fraction of the year. However, if you purchase a fractional share, you can use the house for a fraction of the year. Be careful with agreements like this as many sellers don’t actually include ownership of the property in the contract (just the right to stay there for a period of time) and most just charge too much for the worth of the property. Luckily, timeshares are far from the only kind of fractional real estate ownership.

A generally much better use case of fractional real estate is that of investment properties. You may not have enough to buy a large apartment complex or commercial building, but you be able to own a smaller fraction of it. Some platforms including Honeybricks have minimum investments as low as $100. These slices can still earn passive income from rent, which is one of the greatest benefits of real estate investing. This method differs from a real estate investment trust (REIT), as you have equity in specific properties.

Fractional Real Estate Ownership vs. Traditional Real Estate 

The largest distinction between fractional real estate and traditional real estate is that of accessibility. In the world of traditional real estate, you can only buy and sell whole properties. This feature constrains the properties you have access to based on the amount of capital you have. Fractional real estate allows investors to buy fractional shares of property, drastically lowering the barrier to entry and allowing more people access to real estate investments. 

Another key distinction is that of records. Most records of traditional real estate are stored on paper or by a private company, which can result in issues of identity theft and record tampering. Fractional real estate almost always uses more secure and practical methods of record keeping.

How are Real Estate Investments Fractionalized?

Fractional real estate is a relatively new phenomenon. Because of this, those leading the push for this system are able to integrate newer technologies. The largest of these technologies is that of blockchain. The blockchain is a tamper-resistant, decentralized ledger of data. Blockchains can store data surrounding a variety of topics. However, for fractional real estate, the most important data is that of non-fungible tokens (NFTs). 

NFTs are pieces of data on the blockchain that can represent anything from a photo to the deed for a property. In practice, an issuer would mint, or create, an NFT that represents some fraction of the cost of the property. If you own the NFT, the data is stored on the blockchain and cannot be changed. Each NFT would represent partial ownership of the property. 

What to Look for in Fractional Real Estate Platforms

Fractional real estate platforms are similar to traditional investing platforms. As such, there are many similarities between a good fractional real estate platform and a good trading platform. 

Some of the most important things to consider when choosing the best platform are the number of users, reviews, adherence to regulation, selection of properties to invest in, security and customer support. These were all considered with the best fractional real estate investing platforms discussed below.

Best Fractional Real Estate Investing Platforms

Now that you know the basics of fractional real estate investing and what to look for in potential platforms, you might be interested in checking the scene out for yourself. To start, let’s take a look at some of the most popular platforms. 

HoneyBricks

HoneyBricks is a leading fractional real estate investment platform. It offers tokenized ownership of commercial or residential property for as little as $100. It offers a wide variety of properties to choose from, as well as projected returns and due diligence on properties. Investing in tokenized real estate on Honeybricks gives you all of the same major benefits of traditonal real estate without all the drawbacks. You can even earn passive income on properties. It is led by a strong team of real estate professionals with over $5 billion invested. It also has a liquid secondary market for buying and selling tokens in a variety of cryptocurrencies.

  • securely through HoneyBricks's website
    securely through HoneyBricks's website
    Best For:
    Accredited Investors Only
    Rating:

RealT

RealT is another leading fractional real estate platform that has a variety of unique offerings. It has its own property management company to help lower costs and increase efficiency, as well as weekly rent payouts. It employs over 20 people to assist with operations, web development and customer support. It offers a well-functioning app to trade tokenized properties. 

How to Invest in Fractional Real Estate

The first step to investing in fractional real estate is to select a platform and create an account using an email and password. It is important to check to see if the platform requires you to be an accredited investor first. 

Next, you go to a cryptocurrency trading platform and purchase the required cryptocurrency. It is important to check which currency is used, which can vary by platform. Some of the best trading platforms include Gemini, Webull, eToro and Robinhood. 

After you have cryptocurrency in an exchange, you create a wallet and send the crypto there. You can either get a software or hardware wallet. Software wallets are free, while hardware wallets cost money but can be safer. Once you have a wallet, enter your wallet address into the exchange with cryptocurrency on it and send the crypto to your wallet. 

With a funded wallet, you are ready to purchase fractional real estate. Head over to the fractional real estate platform and connect your wallet to the site. From there, you can use your cryptocurrency to purchase fractionalized real estate.

  • securely through Gemini Crypto's website
    securely through Gemini Crypto's website
    Best For:
    New Investors
    Rating:
    Read Review
  • securely through Webull Crypto's website
    securely through Webull Crypto's website
    Best For:
    Low Minimums
    Rating:
    Read Review
  • securely through eToro's website
    securely through eToro's website
    Best For:
    Demo Accounts
    Rating:
    Read Review

    Cryptocurrency is offered by eToro USA LLC (“the MSB”) (NMLS: 1769299) and is not FDIC or SIPC insured. Investing involves risk

    Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more

  • securely through Robinhood Crypto's website
    securely through Robinhood Crypto's website
    Best For:
    Buying & selling Dogecoin
    Rating:
    Read Review

Risks of Investing in Fractional Real Estate

As with any investment, fractionalized real estate does come with risks. First, there is the risk that the investing platform goes bankrupt or shuts down. In this event, you may lose some or all of your initial investment. This is much less likely than many other kinds of crypto exchanges because they are much more heavily regulated but it's still possible. Additionally, the value of the property could drop, causing you to lose money. Finally, the property could fail to bring in stable cash flows and not provide returns. 

So, is Fractional Real Estate a Good Investment?

Fractional real estate investing could be a game-changing new idea and could completely alter the way people invest in real estate. It offers a unique way to own real estate without the hefty costs. However, it does come with risks. If you think that the potential for gains outweighs the risks, then it may be a solid addition to your portfolio. 

Accelerate Your Wealth

Arrived Homes allows retail investors to buy shares of individual rental properties for as little as $100. Arrived Homes acquires properties in some of the fastest-growing rental markets in the country, then sells shares to individual investors who simply collect passive income while waiting for the property to appreciate in value over 5 to 7 years. When the time is right, Arrived Homes sells the property so investors can cash in on the equity they've gained over time. Offerings are available to non-accredited investors. Sign up for an account on Arrived Homes to browse available properties and add real estate to your portfolio today.

About Caden Pok

Caden has been involved with cryptocurrency for several years. He began trading and investing in crypto in 2018. Now, we mines multiple coins and holds positions in Cardano and Ethereum. He is very experienced with DeFi technology.