What Is Fractional Real Estate Investing?

What Is Fractional Real Estate Investing?

Private pilots who love to fly purchase their airplanes with other aviators. At municipal airports across the country, you’ll find Cessnas, Pipers and Beechcrafts owned by several different folks. Airplanes are expensive and getting more so — those who love to fly usually don’t have the funds to buy their own, so they team up with a group of friends or acquaintances who also like to fly. Just as flying enthusiasts can purchase fractional interests in airplanes, investors can buy fractional interests in real estate. 

Fractional real estate investing isn’t a time-share, where you pay for a certain amount of time every year in a vacation home. Timeshares don’t offer you ownership rights. Fractional real estate investing allows you, together with other investors, to own a home, vacation property, apartment building or commercial facility. You share the costs and split the profits for valuable real estate. 

What Are The Advantages And Disadvantages Of Fractional Real Estate Ownership?

Advantages

  • No large down payment or excellent credit score required
  • Potential passive rental income without the responsibilities of being a landlord 
  • Everyday issues handled by a property management company 
  • Diversification from small houses to large apartment buildings

Disadvantages

  • Long-term commitment of 5 to 10 years
  • Risk of market fluctuations and economic downturns
  • Fees involved especially with early redemption 

Fractional Real Estate Is Different Than Owning A REIT

Some may be tempted to compare fractional real estate ownership to investing in REITs through a brokerage account. There are big differences between the two:

  • Investors in fractional real estate ownership actually own their property and can transfer ownership without restriction. When you purchase REITs, you buy shares in companies that own real estate. With a REIT, you don’t own real estate directly.
  • Investors in fractional real estate have personal control over the properties they purchase. With a REIT, the management company decides what properties in which to invest.

So What’s The Best Investment? Fractional Ownership Or Investing In REITs? 

What is the best investment between the two? It depends on your personal situation. If you want to own a piece of property and you can maintain the investment for several years, then fractional ownership may be for you. If you want regular monthly or quarterly income with the liquidity to get out of the investment at a moment’s notice, then you may want to consider a REIT. 

The choice is yours.

Read next: The Best Fractional Real Estate Investment Platforms

Posted In: Alternative investmentsfractional real estatereal estate investingReal Estate
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