Fractional real estate investing is aptly named: it is a way to make a profit by buying a slice or a "fraction" of a larger asset.
"Split investment is a method for investors to raise capital to acquire valuable assets such as residential properties, residential developments, land banks, renewable energy assets and rural properties. This gives an individual investor exposure to an asset for a fraction of the total cost, "says Pitt Street Research in a report published in April 2019 at the request of DomaCom.
"Rising real estate prices have made housing unaffordable [but] investors with limited resources can rely on split investments."
Although investing with as little as $ 100 will not necessarily generate a huge return, it can provide the investor with secondary income and flexibility, without the investor having to have both experience and savings.
But how does fractional investment actually work in the property?
"If the fund buys the property for $ 500,000, the manager will issue 10,000 units – sometimes called financial bricks – at $ 50 per unit. Each unit therefore entitles the owner to 1 / 10,000th of the underlying asset, "says Matthew Lewison, director of OpenCorp and fractional real estate investment expert.
"If the value of the asset increases by $ 10,000, for example, the value of each unit associated with that asset will increase by $ 1, which corresponds to a 2% increase for the year. investor. "
Although a large number of investors participate in the platform, the average investment is small.
"BrickX has more than 13,000 members after a multi-year operation and currently owns $ 19.7 million. That equates to about 35 properties at the median home price in Australia, suggesting that the average investment with BrickX is about $ 1,500, "says Lewison.
With such small sums, what is the attraction of fractional real estate investments?
In simple terms, you do not need a lot of capital to start with, and the investor also has the power to choose the properties to which his money is linked.
Where to begin
It can be difficult to get a first chance as an investor, especially for low-income people. In an economic climate in which real estate prices have risen faster than incomes, it may be years before they are able to make their first confident step into the market.
It's also challenging for beginners to test the water when the economy is about to collapse, with all eyes fixed on the future direction of housing prices.
This is where fractional real estate investing can, in some ways, be a shortcut.
"Theoretically, investors seeking to engage in split investments can not start with $ 50," says Lewison.
"Fractional investment platforms offer a range of properties ranging from houses located in regional areas to apartments located in inner suburbs or at the seaside."
And with a lower entry barrier – a single paycheck – the platform opens up the pool of participation to a wider range of demographic data and types of income.
For investment beginners, making high-risk investment decisions can be a bit of a pain, although it is recommended that you use all the services of a qualified financial professional before taking any investment. an investment decision.
"Investors can save time because a lot of the work is done for securing and managing properties," Lewison said.
The above is excerpted from a thorough interview.
Read the full article on fractional investments in our article "How to profit from fractional real estate investments".
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