What is Fractional Real Estate Investing?
Fractional real estate investing allows multiple investors to pool their money together to invest in property. It is similar to stock investing, where the value of the property is divided into shares and distributed among investors. Returns from the property, such as rent or the profit from the sale, are then shared among the investors.
Can You Invest in Apartments Too?
Currently, commercial buildings dominate the fractional real estate investment market due to higher rent yields compared to residential apartments. However, the scope of properties is gradually expanding to include cafes, residences, and even large logistics centers.
Why is Fractional Real Estate Investing Popular?
Investments can close out quickly due to high demand. Some properties in Seoul's central district, for example, were fully funded within five minutes. The popularity is attributed to:
- The high cost of properties making it difficult for single investors.
- Easier valuation compared to other assets.
How to Start Investing in Fractional Real Estate
Firstly, find a platform specialized in fractional real estate investments such as Casa, LucentBlock, and Funble. Once selected, you'll need to create a trading account through a partnered securities firm.
How Much Does One Share Cost?
The cost varies depending on the property. For instance, a coffee shop in Seoul recently raised around $1.29 million by issuing shares priced at $4.30 each, with a minimum investment requirement of $4.30.
When is the Property Sold?
Conditions for selling vary and must be examined carefully before investing. Some criteria include:
- Property value increases by at least 10%.
- A potential buyer expresses interest.
- A majority of investors agree to sell.
Can You Sell Your Shares Before Property Sale?
Yes, you can sell your shares to other investors on the platform. However, the trading volume is much smaller compared to the stock market.
How is Profit Generated?
Income usually comes from rent or the profit from a sale. Some properties may also have unique income structures like sharing a portion of a tenant's sales revenue.
What's the Average ROI?
The ROI varies widely depending on various factors but many companies suggest an annual rental yield of 3-5%. The profit from selling can vary even more.
When Do You Get Paid?
Rental income is mostly paid out monthly. The distribution of profit from a sale happens after the sale has been finalized.
What Are the Platform Fees?
Fractional investment platforms typically charge fees for property valuation and transactions. These fees vary by platform and should be considered before investing.
By understanding the ins and outs of fractional real estate investing, you could potentially earn more than what you would get from a bank interest rate. Always do your research and choose your investments wisely.