Many individuals want to purchase a home and work hard to save enough money. It may be a car or a piece of property. However, it may take several years for a person to accumulate the required amount. Do you want to be able to get ownership of a property/asset more straightforwardly and cost-effectively? What if you could own a share of the property and profit from it at the same time? Property fractional ownership is an interesting approach to buying a property you’ve had your eye on for a while. Here are all of the fractional ownership in the real estate information you should be aware of.
Table of Contents
A fractional ownership arrangement is one in which a group of investors pools their resources to buy a home. They are both passive owners of valuable assets. This method reduces the financial burden placed on a single investor when purchasing a property while simultaneously allowing the investor to earn returns on his or her investment.
The asset in this situation might be anything from a commercial building to a private dwelling, an airplane, a boat, or even a warehouse. All investors will share the revenue and expenditures connected with such assets in proportion to their investments. Automobiles, equipment, and furniture, which are leased by firms, have recently followed the trend of fractional ownership. The first investment in these assets might be as low as Rs.20,000. Furthermore, the lowest investment required to get fractional ownership of commercial property might be as little as Rs.5 lakh.
In the case of commercial real estate, the ritual of fractional ownership is carried through through the use of a Special Purpose Vehicle (SPV). SPVs are used to secure financing for the acquisition and management of real assets. In this case, an investor will own stock in the SPV that owns the property.
Why is fractional ownership gaining popularity?
Fractional ownership is the ideal solution for assets that are less liquid, more difficult to run, or more expensive for small investors. The key reason for this concept’s success is its cool aspect. Owning a jet, a yacht, or any other valuable asset may help you present yourself in a more favorable light. People are adopting this trend since it gives a bigger image without requiring a significant investment.
In addition, the whole amount invested in achieving fractional ownership is allocated to net distributable cash flows. The fractional ownership company, unlike other forms of investments, does not charge any fees on your investment. However, a small, acceptable price for the services may be levied.
This type of investment becomes steadier over time and is an excellent choice if you have a medium-to-long investment horizon. The standard procedure is to accumulate money over 5-8 years before selling the asset. If you wish to pay out your investment before the end of time, you can do so by selling your share.
Why is commercial real estate fractional ownership growing so quickly?
A business concept in which a group of unrelated people pools their resources to acquire commercial real estate is known as fractional ownership. Grade A property with a risk-reward ratio. The fast popularity of this system can be due to the following factors:
Previously, high-net-worth individuals and institutions had exclusive access to luxury real estate assets. Experts are investigating novel approaches to breaking down the dominance of one type of investor and establishing a democratic environment in which all investors may benefit from high-end investments as technology advances.
The Pandemic’s Lessons
For Indian investors, fractional ownership in commercial real estate is still a novel concept. Despite this, the Indian market is rapidly rising, with a 16 percent increase predicted over the next five years. The commercial real estate market passed the pandemic test with flying colors. Despite being hurt by the epidemic, commercial real estate has won the trust of many investors as a safe investment, as opposed to equities and mutual funds, which have declined dramatically.
There is a lot of competition for available space
As multinational corporations shift their headquarters to India or establish themselves there, demand for offices and workplaces will rise, necessitating a huge supply of such assets. As a result, there are several investment and income prospects.
CRE is a good investment since it is mostly leased to banks and foreign corporations. These organizations not only lease the property for longer periods, but they also pay their rent on time and are more likely to renew their leases. All of these factors should ideally combine to make this the best source of passive income creation for any investment. Among the most valuable fractional ownership properties include banks, international enterprises, multistory retail stores, and other analogous assets.
Liquidity and Transparency
Many investors are curious about the asset’s liquidity now that we know fractional ownership investing might be a good long-term option for collecting passive income. An excellent asset is exceedingly liquid. Commercial real estate is considered illiquid, whereas cash is the most liquid asset. Assetmonk, on the other hand, provides high-liquidity assets while also ensuring that transactions are transparent and that nothing is concealed from the investor.
Commercial Real Estate Fractional Ownership in the Post-Pandemic Era
The pandemic has awoken many investors, and many have begun to transfer their money away from riskier investments like shares and mutual funds. We might even argue that the outbreak spurred investors to look into real estate investing. Indians and non-resident Indians alike have established a strong interest in fractional real estate, which is unlikely to dissipate very soon.
However, the lack of rules and laws governing fractional ownership may cause a problem shortly, as such rules and regulations do not now exist.
When compared to other sorts of real estate investments, fractional ownership is a more recent, relevant, and practical option. This is owing to cheaper buying and operation expenses, as well as the benefit of diversifying investors’ portfolios. However, one crucial aspect of such transactions is to invest utilizing secure and reliable methods. At the absolute least, any firm must provide significant liquidity and IRRs.