Real Estate is a great investment, but for most Americans, buying a second property is a bridge too far. In America today, we have witnessed the private equity takeover of investment properties because of the intense up-front capital loan requirements. Historically, most property investments have been held by individual owners who buy a single property, flip it, or hold it long enough to develop enough equity to borrow the down payment for a second property, and so on. In 2021, many housing markets recognized that 1 in 5 homes were being purchased by private equity, in some cases deploying more than a billion dollars in single family home acquisitions. It appears that the lessons learned in commercial property and multi-unit residential property investments are informing a movement into single-family residences.
In recent years, several companies have imagined the opportunity to develop fractional ownership opportunities for investors who cannot afford to purchase a whole property. These companies sell fractions of the property allowing smaller investments without undercutting the value of real property investing.
Fractional property investing has many benefits:
• Potential for regular income in the form of monthly payments
• Opportunity to build equity as the property appreciates over time
• Tax benefits, such as depreciation and deductions for costs of ownership
• Diversification of an individual’s investment portfolio
• Greater liquidity opportunities
For the most part, the opportunity for fractional property ownership is concentrated around the ability of attracting investors to purchase fractions of properties.
Wouldn’t a brokerage be in the best position to offer fractional ownership investing opportunities?
Brokers sit in the center of real estate property transactions. They have the inventory, the sales professionals, the marketing power, and the customer records of potential investors. Imagine a home buyer who cannot get a mortgage on their own for the entire purchase. Through fractional home ownership, the buyer can get investors who will purchase the property alongside them, depreciating the loan risk for a share of the home equity.
The fractionalization process also invites more investors to diversify their investment risk. Also, the number of fractional investors allows for liquidity where one fractional owner can buy out another fractional owner or a new fractional owner can step in.
The biggest benefit of fractional ownership is delivering a path to homeownership to an enormous number of home buyers who have bad credit, but good income. It would be delightful to see the door of homeownership open up to so many who face impediments today.