Risk and investment go together. There is no way to guarantee that your investment will have no risks over time and will fill your pockets with a large sum of money. However, you can always research the market. Consider the most recent trends and seek professional guidance on how the industry may develop in the years to come. Commercial real estate is currently in great demand due to its rising market value. However, CRE has drawbacks, such as the enormous capital requirement that small-scale investors cannot afford. The only people who could benefit from CREs were High Net Worth Individuals (HNI).
But with the advent of ideas like fractional ownership and REIT, the average person can now buy a piece of CRE and benefit financially from monthly rental income or the interest earned on the security deposit amount. But how do fractional ownership and REIT compare?
Real estate investment trusts, or REITs, are similar to mutual funds. REITs pool funds to invest in profitable real estate on your behalf, much like mutual funds do when they invest in government bonds, direct equity, stocks, etc. The part-owner receives their capital share by leasing such properties to commercial organizations. However, REITs restrict your ability to choose the type of property you want to invest in.
CRE properties used to be a privilege to HNIs. The advent of Fractional Ownership Investment has allowed investors and buyers to buy premium properties and spaces affordably.
In the case of fractional ownership, you have a choice regarding fractional real estate investing. The CRE property is first listed on fractional ownership platforms for interested parties to view. Following that, the fractional real estate investment or minimum ticket size is chosen based on market value of the property. You can also select how many portions you wish to have based on the ticket price. Consider the following scenario: There are ten tickets available. If you buy 2 of them, you now have 20% of the property and receive a portion of the proceeds.
“It is estimated that over the next three years, the fractional ownership market’s worth will reach five billion dollars. This is a shot in the arm for the real estate industry,” says Shiv Parekh, the founder of hBits.
According to hBits, a leading fractional ownership and real estate firm, there has been a steep surge in fractional real estate over the last five years. The numbers come up to an estimated total transaction of Rs 750 crore. Out of this, Rs 350 crore worth of transactions took place in 2020, i.e., after the first Covid lockdown was imposed.
The real estate sector is immense and understanding the same can be sometimes difficult. With this article, we hope you are better prepared to make the right decision between Fractional Ownership and REITs and make the best out of your commercial real estate investment.