Investing In Overseas Fractional Real Estate from India
3 minutes read
On a vacation overseas, a property blows you over and you dream of making it your own. You then proceed to check out the price for buying your dream vacation home and discover that it is way beyond your budget.
Disheartened, you try calculating how many years it would take for you to accumulate the amount required to purchase that property. Enter divine intervention. You call up four of your friends, show them the property. They are equally thrilled. But five owners of a single property? Not possible? Possible. That’s what you called fractional real estate.
What is Fractional Real Estate?
Fractional Real Estate is a percentage ownership in a real estate asset. Such assets are sold to individual shareholders, who share the benefits of the asset such as usage rights, income sharing, priority access, and reduced rates. The cost of an asset is split between individual shareholders. Other than real estate, you can also purchase fractions in assets like luxury cars, aircraft, yachts, etc.
For example, a 3.5K square feet residential space that may cost nearly $200,000 can be owned by 20 diverse and unrelated individuals who each can invest an amount of $10K. This way, each investor earns returns proportional to her respective share from the total rental yield, enjoys capital and currency appreciation, and can exit the investment once the market value appreciates.
Investment in fractional real estate starts from as low as $10 in the US, $CAD 50 in Canada, and around £1000 in the UK. Fractional ownership of a Grade A property is a great way for a pocket-friendly investment. It can help diversify beyond the volatility of share markets and the low interest rates on fixed deposits.
Advantages Of Fractional Real Estate
- Better control over your portfolio
- Minimum Entry Barriers: You can start investing with as little as $10
- No down payment
- Maintenance is taken care of
- Easy portfolio diversification
- Diversification within the real estate portfolio is feasible with multiple small tickets
Disadvantages Of Fractional Real Estate
- Real estate market can decline. Past performance is no guarantee of the future
- The platforms vet the real estate projects, but due diligence may still be needed
- No control over development or property management
- Exit may depend on the platform you invest in
This brings us to the next part.
Platforms You Can Use In The US
There are several platforms through which you can invest in fractional real estate in the US. Here are some of them:
1. Roofstock: Located in Oakland, Roofstock is an online platform to invest in whole or fractional real estate. When it accepts an offer, Roofstock charges a marketplace fee equal to 0.5% of the contract price or $500, whichever is higher. Closing usually takes around 15 days if you are paying cash and 30 days if you finance it.
2. CrowdStreet: Since its launch in 2014, CrowdStreet has raised over $2B across 500+ real estate deals. 2020 proved to be the most successful year for the company. Individuals invested over $641M on the platform, nearly 3x higher than 2018. Most of the individual projects and real estate funds available on CrowdStreet require a minimum investment of $25K.
3. RealtyMogul: Launched in 2013, RealtyMogul has become one of the leading peer-to-peer lending platforms within the commercial real estate industry in the US. It also acts as an asset and portfolio manager on standalone deals and their REITs. It has disbursed cash worth over $190M back to its investors. You can invest through this platform with as little as $5K.
4. LEX Markets: LEX Markets is a crowdfunding platform focused on commercial real estate. It provides investors an opportunity to invest in fractional shares of already developed commercial properties, including office buildings, warehouses, and even train stations! One can acquire a property stake for as low as $250. A key benefit of this platform is that you can sell shares unrestricted, avoid holding periods and lengthy development waits.
5. GroundFloor: Initial investments on this platform can be as low as $10. It has managed to raise over $4M from nearly 2K investors. Their business model operates on a short-term basis. While this may fetch you quick returns, it may limit your profit potential due to the low timeframe.
Platforms You Can Use In The UK
The company has tailor-made contracts between property owners to allow each individual fraction owner to sell their fraction at the market price at any time, independently of the others. Additionally, if you, along with your partners wish to renew the agreement and extend that period after 10 years of ownership, you can do that too.
2. British Pearl: This firm also specializes in fractionalized property investing. One can invest in UK’s real estate with a minimum investment of 1K pounds. A typical investment term here is 3-5 years. While share investors receive a share of any net rental income and any capital gain on sale, loan investors receive fixed monthly interest.
While Winvesta does not have a tie-up with any of the above-mentioned firms, one can also invest in real-estate through these firms and use the Winvesta Multi-Currency Account to fund the investment, collect proceeds, and reallocate capital.
Disclaimer: Real-estate investing involves risks, including loss of capital, illiquidity, and dilution, and should be done only as part of a diversified portfolio. Winvesta is not affiliated with the platforms mentioned above in any manner.
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