For many people, investing in real estate is a costly proposition. With modern investment models enabled by technology now available, high-end homes appear to be within most Indians’ reach. A direct real estate investment involves purchasing a specific property. Either residential or commercial, and earning money through rental revenue, appreciation, and profits derived from any business activity conducted in that property.
The investor has entire control over the property selection, financing, rental pricing, tenants, and when to sell. The most significant drawbacks of direct property investment are the substantial amount of cash necessary. Extensive due diligence, dealing with tenant difficulties, upkeep, and your responsibilities. Furthermore, most investors take out a loan to purchase a property. And if rental income falls short, it can lead to financial difficulties and loan default. Furthermore, real estate is not a liquid asset and may take time to sell if you need cash quickly.
The high returns of commercial real estate are now available to the common citizen through REITs and fractional real estate. While providing a mix of great profits and minimal risk. REITs are extremely similar to mutual funds. It collects money from various investors and then invests it in income-generating assets. The monthly rent from the properties invested in is used to pay the returns. REITs are listed on the stock exchange, and investors hold shares of the firm that represent its entire assets, performance, and earnings.
Similar of investing in any stock share, owning REIT shares requires the same due diligence of choosing the finest firms. And calculating the optimum shares values for acquisition. Individual investors can earn from real estate without owning, operating, or directly financing properties.
Fractional Real Estate
A fractional property is a group of investors that pool their assets to buy real estate together. This lowers the cost burden just an investors. Who share the rental revenue in proportion to their investment amount. Customers can own a part of a real estate asset and profit from a proportion of the income generated by the asset as well as any growth in its value. The properties are listed after the platforms reach a deal to sell or receive a letter of intent from the owners.
The property is owned by the SPV, and investors hold the SPV’s shares or compulsory convertible debentures (CCDs). Each property is held by its own SPV. If the platform fails to attract the requisite number of investors, current investors’ token money is repaid with interest.
REIT vs Fractional Property
In the case of a REIT, an investor does not have direct exposure to a specific property but rather invests in a fund managed by fund managers who select how capital is spent and managed. A fractional platform, on the other hand, connects you directly with investment possibilities. Allowing you to invest in and own fractions of properties of your choosing. In the case of REITs, the entrance fee is fairly minimal, and once listed, the units may be exchanged on exchanges. Which helps you overcome the liquidity issue. In terms of average ticket size, the fractional model. On the other hand, is slightly greater. According to SEBI standards, at least 80% of a REIT’s real estate portfolio should be finished and revenue – generating buildings.
Unlike fractional, where individual investors become co-owners of the SPV. The REIT owns the Special Purpose Vehicle (SPV) and administers the property. In the case of fractional platforms. There is no minimum that a property must satisfy, nor is there a lock-in time. The minimum asset requirement for a REIT is Rs.500 crore. Which limits the number of buildings that it may handle. REITs do not allow for the transfer of ownership or the right to sell the share involved. But a fractional investment allows the investor to sell his possession of the asset piece of interested parties.
A New Market for Real Estate
The epidemic has compelled us to rethink our financial investments. While stock markets sank and fixed deposit interest rates fell last year. Real estate weathered the storm and remained a viable investment alternative for capital appreciation. In recent years, luxury real estate players have begun to embrace the notion of fractional ownership, which allows investors to purchase a piece of great real estate in high-demand city centers or famous vacation locations.
In terms of rental return, capital appreciation, and in the case of vacation homes, duration of personal use of the property, all investors enjoy a degree of profit commensurate to their investment. Furthermore, the fractional owner is not liable for the property’s normal maintenance. With the commercial segment expected to rise in the post-pandemic period, developers can extend the market by selling commercial buildings through REITs and fractional ownership. They open new doors for office developers and provide a new investment class to smaller investors that were previously exclusively available to HNIs, Family Offices, and institutions due to the high cost of holding large office spaces.
Real estate investments, on the other hand, may help to level out the investment’s peaks and valleys, generating an increasing monthly passive income stream from which you may retire and secure your financial future. Gak Group & Asset Yantra, for example, is a well-known real estate investing business that can help you find dependable and high-quality properties. It also ensures that all investors enjoy a smooth and trouble-free property choosing process. Gak Group makes asset-backed investments available. It suggests that your funds are secure even if anything unexpected occurs.
Fractional Ownership: An Alternative Investment to Direct Property Investment FAQs
A fractional interest is a portion of ownership in real estate. For example, three families buy a vacation home together and agree to divide the property’s use depending on their ownership percentages. The owners must also pay their fair portion of the property’s upkeep and taxes.
The primary contrast between timeshare and fractional ownership is that with a time share, you purchase the right to use a property, but with fractional ownership, you own real estate. You obtain a deeded slice of land, but not the complete lot.