Inflation is rising and you are thinking where to keep your money to stay above the rising price tides. Stocks may be too risky for you, and buying an actual hard real estate property is too expensive. Depressed, you might wonder “If only I can just buy a square foot of a promising real estate property…”. Well, here’s the good news – You definitely can! It’s called fractional real estate investing.
Fractional real estate investing has emerged as a revolutionary way to invest in property, making it accessible to a broader range of investors. The popularity has grown recently over 200% in recent years.
So why is there such a growing interest in this specific investment method? This guide explores what fractional real estate investing is, its benefits, and current trends supported by relevant data.
What is Fractional Real Estate Investing?
Fractional real estate investing allows you to buy shares in a property, much like owning stock in a company. Instead of needing hundreds of thousands of dollars to buy a property, you can start with as little as $100. The concept is very similar to buying REITs(Real estate investment trust) stocks, which is also a very popular investing strategy on its own kind. This approach opens up real estate to a broader audience.
How Does it Work?
- Investment Platforms:
- Platforms like Fundrise, Arrived Homes, and Yieldstreet let you buy shares in various properties. For example, Fundrise, which has over 387,000 investors, allows you to start investing with just $10. They manage a portfolio worth over $7 billion and offer average annual returns of 8.7% from 2010 to 2020.
- Returns:
- Typically, investors earn rental income and see profits from property appreciation. For instance, Arrived Homes predicts annual returns of 9.3% to 13.3%, considering both rental income and property appreciation.
- Liquidity:
- One of the challenges is liquidity. While some platforms allow easier exit options, selling shares privately can be tricky. For instance, Fundrise have quarterly redemption windows, meaning investors can only sell their shares at specific times during the year, which limits flexibility. Always check the platform’s policies on selling your shares before investing.
Benefits of Fractional Real Estate Investing
- Lower Investment Threshold:
- You can start small. For example, Fundrise can be started as little as $10, while Arrived Homes lets you invest with just $100, making it accessible for those without large sums of money.
- Diversification:
- Spread your investments across different properties and locations to mitigate risk. Imagine owning a piece of a luxury apartment in New York and a commercial building in San Francisco simultaneously with only a few bucks!
- Professional Management:
- While traditional real estate investing will require micro-management, these platforms handle the nitty-gritty details like maintenance and tenant management. So, you can sit back, relax, and enjoy your passive income.
Platform Comparison
- Fundrise:
- In 2021, Fundrise reported a stunning annual return of 22.99%. While recent returns have been lower (1.5% in 2022 and a 7.45% loss in 2023), their long-term average remains robust, with a 10.6% annual return over the past four years.
- Arrived Homes:
- Backed by investors like Jeff Bezos, Arrived Homes allows tenants to invest in the homes they live in, aligning their interests with property upkeep. This platform has seen rapid growth with more than 451,000 investors.
- HappyNest:
- Specializing in commercial real estate, HappyNest offers investments starting at just $10 – just like its competitor Fundrise. However, history indicates that it provides an average annual return of 6% in dividend payments, the lowest among the three platforms. But still its a great option for those looking to dip their toes into real estate investing without a hefty commitment.
Potential Risks and Challenges
As in any type of investment, fractional real estate investing is not a holy grail asset. It definitely has its own risks that investors should be aware of.
- Market Risks:
- Real estate markets can be volatile. Rental rates might drop, tenants might default, and property values can fluctuate.
- Limited Control:
- As a fractional owner, you won’t have much say in property management decisions. These are typically handled by the platform or management company.
- Liquidity Issues:
- Selling your shares might not be as straightforward as selling stocks. Ensure you understand the platform’s exit strategies and liquidity options before investing.
Is Fractional Real Estate Right for You?
Fractional real estate is perfect for those wanting to diversify their investment portfolio with lower capital and reduced risk. It’s especially suited for hands-off investors who prefer professional management over the day-to-day hassles of property ownership. If you’re ready to explore the world of real estate without the hefty price tag, fractional investing might be your best bet.
For more detailed insights, you can explore resources like:
By leveraging these platforms, you can enjoy the benefits of real estate investing with less capital and effort.
Happy investing!
