Navigating fractional real estate investing for Indian investors
What's the story
Fractional real estate investing is becoming a hot trend for Indian investors, providing a gateway to the property market without the need for huge capital.
This concept lets investors pool their money and own a piece of the property pie, slashing the entry cost for real estate investment.
It democratizes property investment, making it more attainable and creating fresh opportunities for wealth generation.
Basics
Understanding fractional ownership
In fractional ownership of real estate, you and other investors collectively own a piece of property.
Each investor holds shares in the asset, corresponding to their investment.
Say, for instance, you invest ₹50,000 into a property valued at ₹500,000 and there are nine other equal investors, you hold 10% ownership of that property.
It drastically reduces the entry barrier for investing in real estate.
Diversify
The benefits of diversification
A major benefit of fractional investing is diversification.
Rather than investing all your capital in a single property, you can diversify your portfolio across various properties or even different real estate categories such as residential, commercial, and retail spaces.
This approach mitigates risk as your investment is not dependent on the performance of a single asset.
Income
Potential for passive income
Fractional real estate investing offers the benefit of earning passive income through rental yields.
If the property you invested in is rented out, you get a cut of the rental income. How much you make depends on how much of the property you own.
Say the total monthly rent collected is ₹100,000. If you own 10% of the property, you'd get ₹10,000 (before any fees or expenses).
Liquidity
Liquidity compared to traditional real estate investing
Buying or selling traditional real estate takes time and involves a lot of paperwork. Fractional ownership, on the other hand, offers somewhat better liquidity.
Some platforms let you sell your shares on the open market or back to the management company.
However, liquidity depends on market conditions and platform rules. So, it's not as straightforward.
Caution
Key considerations before investing
Before jumping into fractional investing, do your homework! Research potential properties extensively, including location, demand trends, legal status, and the track record of the management company.
Understand all associated costs. These can include management fees, taxes, maintenance expenses, etc. These costs can significantly impact your overall returns.
Consult with financial advisors with expertise in real estate investments.